South Africans can make R188,000 tax-free in ten years

By investing R3,000 per month in a tax-free savings account (TFSA), South Africans can make close to R188,000 in a decade without paying a cent in tax. 

This makes such an investment vehicle immensely valuable, as it is one of the few ways in which South Africans can grow money tax-free. 

FNB retail cash investments CEO Himal Parbhoo said one does not need to invest large amounts or start with a significant sum of money to generate wealth. 

Parbhoo said the TFSA was launched in 2015 by the National Treasury to improve South Africa’s savings culture and help more individuals retire comfortably. 

Unlike traditional savings or investment vehicles, TFSAs shelter all returns from interest, dividends, and capital gains. This allows every rand earned to stay invested. 

Parbhoo said the ten-year anniversary of TFSAs provides the best example of how investing over a long period and allowing money to compound can generate meaningful wealth. 

For early adopters who contributed regularly and did not interrupt the compounding process, the TFSA has delivered notable positive results over the past 10 years. 

“The biggest misconception about investing is that you need a large amount to begin with,” Parbhoo said. 

“This 10‑year view proves that time is the real currency. A TFSA ensures every cent of growth works for you, free from tax, but disciplined behaviour is what makes the difference.”

Parbhoo explained that the investors who started early and stayed the course are now seeing the undeniable maths of patience.

FNB used an example to illustrate this point, which showed how one can benefit by investing regularly and allowing money to compound. 

The bank’s example also showed the significant benefit of putting in more money earlier, as this allows more of an investor’s capital to compound for longer. 

FNB’s example compares two investors who contributed to a TFSA over the past decade. Both investments had an annual return of 8%. Investor 1 put away R3,000 per month, while Investor 2 only contributed R500 a month. 

After a decade, both generated strong tax-free returns, with Investor 1 ending with R548,000 in their account and Investor 2 having R91,000. 

Monthly Contribution	Total Invested (10 Years)	Approximate final value	Tax‑free growth
R3,000	R360,000	R548,000	±R188,000
R500	R60,000	R91,000	±R31,000

New limit creates new opportunities

A decade after its inception, the National Treasury has made its first set of changes to TFSAs, increasing the contribution limit from R36,000 per year to R46,000. 

While the lifetime contribution limit of R500,000 remains in place, South Africans can now accelerate their tax-free wealth creation by saving an additional R10,000 per year. 

This increase was coupled with a rise in the retirement fund deduction cap to R430,000 to further encourage retirement savings. 

Old Mutual’s John Manyike said these are changes the industry has been calling for over the past few years, with previous limits constraining the opportunity to grow capital over time. 

While Manyike remains concerned that the National Treasury did not increase the R500,000 lifetime limit, he said the increase to the annual limit provides a significant opportunity to grow wealth tax-free. 

It is important to remember that the limits apply only to contributions, not to the overall value of capital in the accounts. With capital growth, the fund’s tax-free value is limitless. 

By investing more money earlier, which the new annual limit enables, investors can significantly increase their tax-free outcomes. 

Research from Ninety One shows that investing at the beginning of a tax year, or as early as possible, can help an individual earn more than R100,000 in additional returns than if they invested at the end of the tax year. 

While many aren’t able to commit a R46,000 lump sum at the beginning of the tax year, this comparison shows why it is important to invest as early as possible.

Daily Investor compared the potential returns of two individuals investing into a TFSA with a lifetime contribution limit of R500,000 and an annual return of 7%. 

This comparison was done to show the impact of investing more capital under the new limit earlier in the TFSA’s lifespan. 

Individual 1 was restricted by the pre-Budget R36,000 annual contribution limit, while Individual 2 operated under the new R46,000 limit. Both invested their capital at the same time during the tax year. 

Daily Investor’s calculations show that, provided the individuals use their tax-free fund for retirement, over a period of 40 years, Individual 2 ends up with R461,500 more at maturity.

This is down to the additional three years of compounding with the maximum R500,000 invested, which Individual 2 benefited from, while Individual 1 was still reaching the lifetime limit. 

In other words, Individual 2 effectively has three additional years for the R500,000 to compound compared to Individual 1, who was still drip-feeding their capital.

Metric	Individual 1 (R36,000/year)	Individual 2 (R46,000/year)	Difference
Total contributions	R500,000	R500,000	–
Time to reach lifetime limit	14 Years	11 Years	3 Years
Final balance at 40 years	R5,019,671.04	R5,481,171.18	+R461,500.14
Total growth	R4,519,671.04	R4,981,171.18	+10.2% more profit