Old Mutual Tax Free Savings Account (TFSA) review 2023

Features

The Old Mutual TFSA is a savings account that allows you to invest up to R36,000 per year tax-free. This means that you can store money and earn interest or dividends without having to pay any taxes on the earnings. The account requires an R500 initial deposit and can be opened online or at any Old Mutual branch.

The account offers a flexible investment strategy, which means you can invest in a variety of funds or switch between them without incurring any charges. Equity funds, bond funds, money market funds, and balanced funds are among the six investing alternatives offered. Bond funds invest in fixed-income assets such as government bonds, whereas equity funds invest in shares. Money market funds invest in short-term, low-risk securities, whereas balanced funds invest in a mix of equities and bonds.

The Old Mutual TFSA features a low annual investment cost of 1.14%.

The Old Mutual Top 40 Fund, one of the equities funds accessible in the TFSA, has a 10-year annualised return of 11.48% as of 28 February 2023, while the Old Mutual Money Market Fund had a 10-year annualised return of 6.45%.

The Old Mutual TFSA has a lifetime contribution limit of R500,000.

According to Old Mutual, if you deposit R500 each month in a TFSA for 20 years and estimate a 10% annual return, you will have a total investment of R120,000 and a tax-free investment value of R353,968 at the end of the 20-year term.

Any South African residents over the age of 18 with a valid South African ID or passport are eligible to join the Old Mutual TFSA.

Benefits

One of the primary advantages of the Old Mutual TFSA is tax-free growth and income. This means that any earnings from the account are not subject to income tax, dividend tax, or capital gains tax. This can help you save a lot of money in taxes in the long run, especially if you invest in high-growth assets like stocks.

The Old Mutual TFSA also has a flexible investing plan. This allows you to select the investment option that best meets your risk tolerance and investing objectives. If you are a conservative investor, you may want to consider a bond or money market fund, or if you are more proactive, you may want to consider an equity fund.

The cheap costs are another advantage of the Old Mutual TFSA. There are no annual or transaction fees with this account, and the investment fees are competitive when compared to other investing options. This means that instead of being eaten up by fees, more of your money is invested and working for you.

Drawbacks

One disadvantage of the Old Mutual TFSA is the limited investment possibilities available. While there are six investment alternatives available, some investors may find the selection to be limited when compared to other investment platforms. Furthermore, the Old Mutual TFSA lacks direct shares and ETFs, which may be a drawback for those trying to diversify their holdings.

The minimal investment amount is another disadvantage of the Old Mutual TFSA. While the R500 minimum beginning deposit is modest, the R36,000 yearly contribution ceiling may be too expensive for some investors. This may limit the account’s accessibility for investors who are just starting to save or have limited discretionary cash.

Conclusion

For South Africans wanting to save money and lower their tax liability, the Old Mutual Tax-Free Savings Account is a smart investment alternative. The account’s perks include tax-free growth and income, a flexible investment plan, and low fees. However, for some investors, the limited investment options and high yearly contribution limit may be a detriment. Overall, the Old Mutual TFSA is a good option for those seeking an easy and low-cost approach to saving for the future.