How to maximise growth in a tax-free savings account
1 July 2025

Tax-Free Savings Accounts (TFSA) offer a great opportunity to save while also taking advantage of the fact that you don’t need to pay tax on returns. If you do need to withdraw funds at some stage, there is no tax paid on withdrawals, making this investment vehicle a popular choice for investors of all ages and occupations.
Many South Africans keep their money in cash or money market accounts, which means that they may be missing out on potential growth opportunities. Other investors may take on too much risk in pursuit of quick returns, which may not result in the desired outcome either. In this article, we will explore how to balance both growth and risk in a tax-free savings account to maximise the advantages of this investment vehicle.
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Quick overview: What is a TFSA?
The TFSA was launched in South Africa in 2015. It isn’t a savings account in the traditional sense: it’s actually an investment product. It was implemented as a way to incentivise South Africans to save more money. There are, however, certain limits that you’ll need to adhere to with your tax-free savings account.
Current legislation states that, firstly, you can invest up to a maximum of R36,000 per year and, secondly, you can invest up to a total of R500,000 over your lifetime. Any excess contributions above these maximum amounts will result in tax penalties of 40% being applied to the excess contribution amounts.
You are not taxed on any of the growth in your TFSA. This means that there is no income tax, capital gains tax or dividend tax charged, which allows more of the returns to be reinvested and potentially grow over the long term.
Withdrawals are not taxed, and there are no restrictions imposed on withdrawals. The TFSA is a long-term savings investment, so withdrawals should generally be avoided if possible. If you do need to withdraw in an emergency, keep in mind that these contributions cannot be added back into your TFSA. This may negatively impact the potential growth of your TFSA.
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Why compound growth matters
The returns made on your TFSA are an important component in the growth of your capital fund. By using a TFSA and not needing to pay tax on your growth or returns, you can reinvest more of your returns, allowing you to take advantage of the compound growth over the long term. For this reason, it’s important to take the right amount of investment risk from the inception of your TFSA to ensure that you aim to maximise your returns and allow them to compound over the long term.
Let’s look at an example to highlight the benefits of compound growth over time.
Let’s assume that you invest the maximum R3,000 per month into a tax-free savings account (TFSA) over 40 years. You achieve an average annual return of 6% after inflation, compounded monthly.
After 13 years and 11 months, you will have invested the maximum R500,000. You can no longer make any further contributions to the TFSA once the R500,000 is reached. Your investment will continue to grow untouched for the rest of the 40 years, even though contributions have stopped. At a 6% average annual return, compounded monthly, your final balance after 40 years would be equal to R3,517,235.11. You can withdraw the full amount, entirely tax-free.
In the above, we can see how leaving your TFSA to potentially compound and grow over time can lead to more returns. Note that the above example is for illustrative purposes only and actual results may vary.
The role of asset allocation in growth and risk management
With providers like 10X, you have the freedom to customise your underlying investment portfolio by choosing from a selection of carefully curated investment funds, allowing you to diversify across asset classes. Asset allocation refers to the mix of underlying assets in which your TFSA savings are invested. This is usually a mix of equities, bonds, real estate (property) and cash. As an investor, you should select an asset allocation according to your risk tolerance levels, financial needs and investment timelines. Each of the asset classes is suitable for different objectives.

With equities, you may expect to have greater returns but with more volatility, while bonds and cash will bring more stability to the portfolio, but possibly lower returns. Diversifying across the asset classes allows you to take advantage of any good market returns in certain asset classes while also protecting your TFSA against any major losses in other asset classes.
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Equities have shown to deliver returns above inflation by approximately 7% annually over the long term (based on JSE All Share Index performance versus CPI from 1960-2020). It is important to note, however, that past performance does not guarantee future results. A younger, more aggressive investor with longer time horizons may wish to invest more of their portfolio in equities, whereas an older, more conservative investor may prefer more stability in their portfolio and therefore may prefer to include a higher percentage of bonds and cash.
Let’s look at some asset allocation examples appropriate for different investor profiles:
- A more risk-tolerant investor may look to include around 80% in equities
- A more balanced portfolio may aim for around 60% in equities
- A risk-averse investor may wish to include around 40% in equities
You may also wish to include some offshore exposure in your portfolio. This allows you to take advantage of any good returns available in the international market as well as mitigate against any local market volatility and depreciation of the Rand.
10X offers a range of different funds suited to different investor profiles within the tax free savings account wrapper. We also offer you the opportunity to invest your TFSA 100% offshore, a unique offering that may suit many South African investors wishing to hedge against local market volatility.
10X takes a long-term approach when investing, and we understand the importance of asset allocation in the potential overall growth of your TFSA. To find out more about 10X’s fund offering, follow this link.
How index tracking reduces risk and costs
Index tracking is when the performance of certain indices is tracked and matched in order to generate the same returns as that particular index, such as the S&P 500. Securities will be bought in the same proportion as the index. This may be more cost-effective when compared to active investing, as it involves less research overhead and also less buying and selling (trading) costs.
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Effective annual cost calculatorActive management involves the expertise of a fund manager in picking the right stocks at the right time to maximise growth and beat the returns of the market. This involves a lot of research and trading, which can make it less cost-effective.
High fees can potentially impact the growth of your TFSA, especially when compounded over the long term. High fees may mean that less of your returns can be invested and potentially compound. Lower fees, on the other hand, may mean that more of the returns can be invested and potentially compound over time.
As data from the SPIVA Scorecards suggests, index-tracking investments outperform active managers most of the time. According to the latest SPIVA South Africa Scorecard (as of 31 December 2024), 60.84% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten years ending 31 December 2024.
10X makes use of an index tracking investment strategy with a more active approach to asset allocation and a focus on long-term real returns. 10X offers a transparent, low-fee structure of 1% or less for most products. Please visit our website for the most up-to-date information on our fee structure. To find out more about the 10X TFSA, follow this link.
Fighting inflation: The hidden risk of playing it too safe
Inflation in South Africa has historically been around 5% to 6%. It’s important to note that if your TFSA is generating returns less than inflation, this means that your TFSA is decreasing in real value. The real value refers to the nominal value adjusted for inflation.
To ensure that your investment is growing, it needs to outperform inflation. As previously mentioned, equities have historically been shown to outperform inflation over the long term, so you want to ensure that you include a percentage of equities in your portfolio to potentially enhance your TFSA’s returns and chances of beating inflation in the long term. By not including any equities in your portfolio, you may find that your portfolio struggles to outperform inflation.
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The role of EAC
A key factor to consider when choosing a service provider is to view the EAC. The EAC is the Effective Annual Cost of an investment, which is a standardised metric introduced by ASISA. It refers to all the fees and costs involved with owning of an investment product over a one year period. This would include fees such as:
Administration fees: Fees that are charged for administration tasks related to the fund, such as, reporting, compliance and tax.
Advisor fees: Fees that are charged by an advisor for their advice and services. You may see an initial and ongoing fee charged.
Management fees: Fees that are charged for the management of the fund.
All factors being equal, a lower EAC may mean that more of your returns can be invested, and these can then potentially grow and compound over time, which will then positively affect your investment capital amount. A higher EAC may result in fewer returns being available for reinvestment and therefore reduce net returns. A service provider who charges low and fair fees is generally recommended. Keep in mind that this is just one factor when evaluating investment options.
To learn more about how fees impact investment growth, follow this link.
Investment strategies for balanced growth without high risk
There are a few strategies that you may use to potentially balance the growth of your TFSA without taking on too much risk. A few of these strategies include:
- Choosing a portfolio that includes a percentage of equities for growth potential and to help your TFSA beat inflation.
- If you are a more risk-averse investor, you may prefer to include a higher percentage of bonds for stability.
- Choosing a portfolio that is well-diversified across the different asset classes, as well as offshore investments, to ensure stability during volatile times.
- Reviewing your portfolio selection regularly to ensure that it still meets your investor goals and financial needs as these evolve through the different life stages.
Common mistakes that impact TFSA growth
As an investor, you should be aware of some common mistakes that people make with respect to investing and, more specifically, TFSAs. These pitfalls may result in dampening the growth of your TFSA. These mistakes are:
- Withdrawing funds from your TFSA when there is a market downturn, as this may have the effect of locking in your losses. By keeping funds invested, you allow your investment to potentially recover as the market recovers
- Paying high fees for an active management strategy, which may have the effect of reducing your net returns in the long term.
- Not putting enough emphasis on the effects of inflation on your TFSA, as this may reduce the real value of your investment.
- Regularly changing service providers can lead to confusion and a lack of clarity around the best investment strategy. It’s best to stick with one service provider unless there is a truly valid reason to transfer.
- Withdrawing funds early and not using your TFSA for long-term savings, as you will miss out on the potential growth opportunities.
Conclusion: Tax-free savings accounts for long-term investing
Tax-free savings accounts offer some great benefits, making them an attractive investment savings vehicle. Most notable is the opportunity for excellent growth when the TFSA is used wisely. You want to ensure that you choose your asset allocation smartly to meet your needs, choose a service provider with lower fees and also make sure that you incorporate the effects of inflation into your investment plan. You also generally want to avoid any unnecessary withdrawals and, ultimately, let your TFSA take advantage of potential compound growth.
If you have any questions surrounding TFSAs, don’t hesitate to speak to our experienced and knowledgeable investment consultants at 10X. Our track record of low cost and high returns means you can retain tax advantages and potentially grow your savings while maintaining full control. Begin your journey to a secure future with 10X Investments.
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