How Tax-Free Savings Accounts work and what investors need to know

Tax-Free Savings Accounts: What are they, and how do they work?

A tax-free savings account (TFSA) isn’t a ‘savings account’ at all. In fact, that’s a terrible name for one of the best wealth-building products South Africans have access to. Our video answers all your questions about this long-term, tax-advantaged investment product.

00:00 - Intro

00:27 - What is a tax-free savings account (TFSA)?

01:41 - How does a tax-free savings account (TFSA) work?

02:29 - How much can I contribute to my tax-free savings account (TFSA)?

03:00 - What happens if I exceed my tax-free savings account (TFSA) limits?

03:32 - What can you invest in, inside a tax-free savings account (TFSA)?

03:57 - Can I withdraw money from my tax-free savings account (TFSA)?

04:51 - How does tax work in a tax-free savings account (TFSA)?

05:12 - Tax-free savings account (TFSA) vs Unit trust

05:48 - Tax-free savings account (TFSA) vs Retirement annuity

06:48 - Can I have more than one tax-free savings account (TFSA)?

07:10 - Can I transfer a tax-free savings account (TFSA) to another provider?

07:38 - What happens to my tax-free savings account (TFSA) when I pass away?

08:32 - What are the risks of a tax-free savings account (TFSA)?

08:58 - Is a tax-free savings account (TFSA) good for long-term investing?

09:23 - How much does a tax-free savings account (TFSA) cost?

Got more questions on TFSAs? Check our our TFSA FAQ page

Do your Tax-Free Savings Account sums with our calculator

Make sure you understand what contributing to your TFSA limits might mean for your future. Use our free tax-free savings account calculator to do your sums.

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• Monthly contribution: R4,000
• TFSA lifetime limit: R500,000
• Investment term: 30 years
• Annual return: 12%
• Annual inflation: 6%

The contributions will stop after reaching the limit, but the money will stay invested for the full 30 years. The returns are compounded monthly and adjusted for inflation to determine the final investment values.

Example 1 (1%): After 30 years, the final investment value is approximately R1,438,627

Example 2 (3%): After 30 years, the final investment value is approximately R901,248

Always make sure you understand your Effective Annual Cost (EAC). This will be shown on your statement or you can request it from your service provider. EAC is a standardised metric that was introduced by ASISA. All else being equal, a higher EAC would mean that less of your investment returns can be reinvested and potentially grow and compound over time.

At 10X, we keep our fees low, so that more of your money is invested for you. If you've got investments elsewhere, you can use our EAC calculator to compare service provider fees with 10X.

Or click below to get a free comparison report from our investment consultants, who are always available to give you the facts on your investments, at no cost to you.