How to invest R500 a month

For many people,saving and investing is quite often associated with people who earn huge amounts of money. But it is worth noting that South Africa’s banking and financial sector offers many opportunities even for those with less income to save and invest. Below are some ways in which you can invest even R500 a month.

Mortgage Bond – One way to put your half grand to good use is to channel it into your mortgage bond.By putting the money into your home loan account,you are in effect saving at the rate of interest of the loan,without paying tax on the interest saved,which is almost certainly more than you would be guaranteed anywhere else.(You might make more in a high risk investment such as an equity unit trust,but it would be a bit of a gamble over five years).

Savings Accounts – Most of us have a bank account for everyday transactions,so opening a separate savings account into which to transfer R500 a month is certainly an attractive option as far as convenience goes,except that most banks savings options fall far short of what is needed in the way of returns.

Notice Deposits – Notice deposits are relatively flexible in terms of depositing money(some banks specify a minimum balance of say R1,000 and minimum deposits of say R250),but you must give a defined period of notice to withdraw what you have saved.This limits your accessibility, which is bearable only if the interest rates are worthwhile.

Flexible Fixed Deposits – Fixed deposits are designed for lumpsum savings, but a couple of banks offer more flexible arrangements that allow you to make multiple deposits over a fixed period.

Subscription Shares – One small bank,GBS Mutual Bank based in Grahamstown, offers a unique and highly competitive savings scheme of a type that used to be popular in South Africa in the days of building societies. With a monthly subscription that starts at R50,you can select a maturity date of between 36 and 240 months.Interest is compounded monthly and dividends are capitalised annually.

Retail Bonds – Currently there are two retail bonds on the market for individual investors. RSA Retail Bonds,the government bonds available to the public,offer attractive returns on lumpsum investments at almost zero risk.The bonds are not designed for month to month savings.However,with a little ingenuity you could structure your savings to take advantage of their attractive rates especially if you also used a higher interest savings account. Nedbank has also recently advertised retail bonds with similar conditions to the RSA bonds.

Unit Trusts-Unit trust funds are an extremely flexible type of investment,allowing you to withdraw money or put in extra when you want to.Your choice is extremely wide as there are currently over 800 funds in South Africa available to individual investors,excluding offshore funds marketed here.There are various types of funds, according to the assets the fund invests in.The prominent ones are low risk domestic money market funds, medium risk domestic prudential funds and high risk domestic equity funds.