How to invest for higher-for-longer interest rates

South Africa’s high interest rates have strained many consumers’ budgets, but there are ways for investors to leverage higher-for-longer interest rates. 

The South African Reserve Bank (SARB) has hiked interest rates by a cumulative 475 basis points since November 2021. This has seen the repo rate hit a 15-year high of 8.25%, and the prime lending rate hit 11.75%.

The SARB’s efforts have borne some fruit, with inflation now falling within its target range. However, the Reserve Bank will only consider cutting rates once inflation is anchored around the midpoint of the range, 4.5%.

In addition, when the SARB eventually looks to decrease interest rates, experts believe it will be shallow cuts over a longer period of time.

Therefore, interest rates are set to be higher for longer for the foreseeable future.

FNB Cash Investments CEO Himal Parbhoo said the country’s financial landscape presents a unique opportunity for retail investors to bolster their savings. 

“Interest rates continue to hover at elevated levels, and the prediction is that there will only be gradual decreases in the latter part of the year,” he said.

“Given the continued high interest rates but gradually declining inflation, we encourage South Africans to take advantage of this distinctive saving environment that will undoubtedly reward strategic financial thinking.” 

“Taking the time to do some balanced planning will deliver financial resilience and accelerated savings growth.”

Parbhoo said it is important to take a strategic approach to saving in the high-interest-rate climate. 

“When interest rates are high, it can be tempting to throw all your savings capital into the account that offers the highest growth. However, a more nuanced and carefully considered approach is called for – one that balances higher returns with the important need to maintain financial flexibility,” he said.

“In this environment, the key to building a successful ‘savings’ strategy is to create a savings portfolio that works harmoniously across different time horizons and meets your unique and varied financial goals.” 

He explained that it is important to strike the right balance between immediate access to your money if you need it and long-term growth for your future financial security.

For example, for short-term needs and emergency access, a savings account offers a combination of liquidity – quick access to your cash and steady returns. 

“While it may not boast the highest interest rates, it provides the crucial ability to withdraw or transfer your funds immediately, making it an ideal vehicle for emergency savings or short-term financial goals,” he said.

He explained that financial security is not just about accumulating wealth for the distant future – it’s also about having the right resources available to you at the right time. 

“A portion of your savings should always be readily accessible, ensuring you’re prepared for life’s unexpected events,” he recommended.

However, Parbhoo added that the current high-interest environment also presents a prime opportunity to maximise long-term growth.

For example, some savings options allow savers to harness the power of compound interest in a high-rate environment by offering competitive rates with a relatively short notice period for withdrawals. 

“The optimal strategy involves a combination of these approaches,” Parbhoo said. 

“Diversification isn’t just for investments; it’s just as important in savings, and by spreading your savings across different products, you position yourself to benefit from high interest rates while maintaining the flexibility to adapt to changing personal and economic circumstances.”

“As South Africa navigates this ongoing high-interest period, consumers are encouraged to adopt such a strategic, diversified, and holistic savings approach.” 

He said that effective saving is about more than just building wealth –  it is about achieving financial resilience for your short and long-term goals.