How much should you have in Savings?

Savings can be seen as an essential for survival at a certain point in time. We have seen how an […]

Savings can be seen as an essential for survival at a certain point in time. We have seen how an economic collapse like that of 2008 can affect the livelihood of almost everyone around the world.  Most recently we witnessed the wrath of a pandemic that left those without savings exposed to poverty or forced to degrade from one income class to another. 

Everybody has an opinion on how much to have in a Savings account. However, reasons for savings vary per individual and there are a number of accounts that you can open in South Africa to start saving. You can have an emergency fund or save for a short-term goal such as going on a vacation or saving idle cash from your checking account to earn interest. 

Why do you need to have a savings account? 

There is always someone that tells you how to save money or asks you if you have thought of saving money yourself. However, savings are misunderstood by many and they are seen as a tool to buy something that is desirable in a long run.

You can open a sinking fund and start saving for something that you long for but savings are not only for predetermined future purchases only. You can open a savings account for numerous reasons, but the main reason to open a savings account is to save for emergencies. This is the money that will help you when you are sick, unemployed, or even disabled. 

Therefore, there are many ways to start saving. You can take out insurance policies as a way of saving. You can insure your income, join a retirement fund, etc. But why do you need to save? 

A savings account can help you to:

  • Save for emergencies, 
  • Keep your money safe, 
  • Avoid  lending instruments, 
  • Have liquid cash, 
  • Reduce the  temptation to spend, and 
  • Protect your assets

From the above list, a savings account doesn’t just help you buy what you need but also gives you a sense of security in many ways. Savings can be seen as a necessity rather than a want. When the time comes whereby you need extra cash to fund a certain aspect of your life, you will be grateful that you took a decision to save money at an earlier stage. 

Since a savings account has many use cases rather than merely locking down your money for rainy days, it is always wise to have savings as they do away with bad spending habits and are there to protect you when you need money the most. 

What is a Savings Account? 

Before we get to our discussion, we need to understand what a savings account is and how it works. Many mistaken a savings account for a cheque account since banks now offer transactional savings accounts. 

A savings account is a short, medium, or long-term deposit account that earns interest and provides flexible access to funds. Savings accounts offer low-interest rates because money can be requested or accessed in a very short period. 

There are a number of savings accounts that you can open in South Africa. Popular savings accounts in South Africa include a notice account, a demand account, and a fixed deposit account. Fixed Deposit accounts tend to pay higher interest rates because money is locked down for an agreed-upon period of time, unlike other accounts that allow access to cash at any time. 

One can open a savings account at a bank or financial institution in South Africa. Therefore, savings accounts are available from nearly every financial services provider in South Africa including brokers and investment firms. 

To have a savings account, you will first need to open an account with a bank or a financial institution. That bank will let you know the period they will keep your savings account open to deposit money into the account. Your account will have a quoted interest rate that you will earn on a positive balance and fees associated with the account. 

Failure to deposit money into the account leads to account closure. The initial deposit waiting period is typically 7 days for most South African banks. After a successful deposit, you can then have your money locked down into the account indefinitely or for a specified duration

How much should you Save living in South Africa? 

This question yields subjective feedback, however, we will try to be objective in our discussion. We know that South Africans have different needs and savings differ from one person or family to another. History has proven to us that we mostly save for precautionary measures. 

For example, between October – December 2020 an average South African had 0.5% of their income saved while at the start of the Covid-19 pandemic between January – March 2020 households saved – 0.5% of their income. Instead of saving during the 2020 first quarter, South Africans went and withdrew their savings to cope with the Covid-19 pandemic and lockdown strict rules. 

South Africans somewhat have an understanding of savings and when to use their savings. However, it is easier to use money from a savings account than actually depositing money into a savings account. So, how should you go about saving money? 

Many use self-help books from different authors to save money for an emergency fund or a sinking fund or a combination of both. From our findings, a huge chunk of your savings must go to your emergency fund. This is because your emergency fund comes with many important expenses that you need to cover later on. 

In his book ‘The Richest Man in Babylon’, George S. Clason advises that you save 10% of your income. Therefore, for every R10.00 that you earn, you can use R9.00 and save R1.00. Putting away 10% of your income is highly advisable by most financial experts. 

One of the most popular methods to break your savings percentage is the use of the 50/30/20 rule. The method was made popular by US senator Elizabeth Warren who reckons that 50% of your savings must be for your fixed costs, 30% for discretionary money, and 20% for financial goals. 

Using the 10% savings rule and 50/30/20 rule, you can accomplish a lot for your savings account. However, a budget must be in place. Since saving is a subjective matter, we highly recommend that you save for at least 8 months to cover your living expenses. 

The money should be in your savings account at all times since research has shown that the time it takes an average person who is actively looking for a job 8 months to find employment  thus having a savings account with money that is enough to cover your expenses during this period is satisfying. 


Having a savings account is a great way to ensure that you will always be covered should anything go wrong in the future financially. You may not need to have a savings account if you have investments that you can liquidate at any time or if you already have enough money to cover you for a longer period. 

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