How much money you can make through a tax-free savings account in 10 years

One way South Africans can minimise their tax burden while saving and investing is through a tax-free savings account (TFSA), which has the potential to turn a R369,000 investment into R1.18 million.

The National Treasury introduced the TFSA in South Africa in 2015 as part of the government’s initiative to encourage household savings and improve the national savings rate.

Unlike regular savings accounts, they offer investors tax-free growth on their interest, dividends and capital gains.

Standard Bank’s head of savings and investments, Thopi Mhloli, said this offers South Africans – especially low-income earners – the opportunity to save at an accelerated rate.

She explained that when this product was first launched, it was met with great excitement.

This initial enthusiasm led to a compound annual growth rate (CAGR) of 40% in new accounts and 45% in customer balances between 2015 and 2024.

Although opening balances dipped slightly after 2015, sales volumes continued to grow, peaking in 2018. 

The opening of new TFSA accounts began declining in 2019, but investment activity rose again in 2024, particularly among senior citizens.

When these accounts were first launched in 2015, South Africans could invest a maximum of R30,000 per year and a lifetime contribution limit of R500,000.

The annual limit was raised to R33,000 in 2018 and to R36,000 in 2020. The lifetime limit has remained unchanged since TFSAs were introduced in 2015.

Standard Bank’s data revealed seasonal trends in TFSAs in South Africa. Investments in these types of accounts peak in February and slow in November and December. 

The largest groups of TFSA holders are consumers earning over R20,000 per month (23%) and individuals aged 55 and older.

Mhloli emphasized the importance of strategic contributions around the tax year-end to maximize benefits. 

She explained that TFSAs are ideal for long-term goals such as retirement or funding a child’s education.

“For anyone looking to build financial resilience or grow wealth over time, TFSAs remain one of the most effective investment vehicles available,” Mhloli said.

In April 2024, FNB revealed that its customers’ tax-free savings account balances grew by 21% year-on-year, and volumes increased by 18% year-on-year.

“The growth shows that our customers are adopting and taking advantage of tax-free savings account benefits in light of the high-interest environment,” said FNB’s CEO of retail cash investments, Himal Parbhoo.

“This further indicates that there is a growing culture amongst our customers who are starting to save.”

In 2023 and 2024, FNB saw 11% of its customers manage to fully fund their tax-free savings accounts. 

Over 20% of the bank’s customers who fully fund their accounts have a scheduled transfer, compared to 17% in 2023. 

In addition, around 66% of FNB’s customers who fully fund their accounts do so through a once-off bulk deposit.

Parbhoo said this helps them maximise their returns during the full cycle by benefiting from compound growth.

“The purpose of a tax-free savings account is to save money and allow it to grow over time. It is not intended to be used as a transaction account or emergency fund,” he explained. 

“This is because the initial contribution counts against your lifetime contribution, so if you contribute the maximum threshold amount and then withdraw from it, you are unable to top it up again during that financial cycle.”

Any amount contributed to a tax-free savings account above the threshold could be taxed at a 40% rate.

How much you could make

As TFSAs celebrate their 10-year anniversary in South Africa, Daily Investor wanted to see how much an individual would have in their TFSA account if they had invested the full allowance since the beginning of 2015.

If the total allowable amount were invested each year, the total capital amount invested by 2025 would be R369,000.

If all funds were invested in the JSE Top 40, an investor would have R545,000 in their account today, which could be withdrawn tax-free. 

If an investor had invested all their funds in the Nasdaq 100 via a TFSA, they would have R1.18 million in their account today.

It is important to note that a South African ETF did not track the Nasdaq 100 in 2015, with Satrix introducing the first Nasdaq 100 ETF in 2020. This is, therefore, a hypothetical scenario for informational purposes. 

The potential growth of a TFSA investment over 10 years can be seen in the graph below.