A savings gift to South Africans this National Savings Month

The interest rate cut in July - described as surprising by many analysts - has provided South African homeowners with an unexpected gift that will help them kick start their savings this National Savings Month - even if they have had no money to save until now.

Very few South Africans save - even the smallest amount - each month. In fact, according to the South African Savings Institute (SASI), household savings as a percentage of disposable income was -0.2% in the first quarter of 2012, and has been in negative territory for a number of years.

In the current economic climate, it is perhaps not surprising, given the high levels of indebtedness among South Africans households, many of whom are simply trying to make ends meet month to month. Most people simply believe that they do not have money to save.

"Sadly, because of the poor level of financial literacy in our country, people simply dismiss any possibility of saving when they see that their budget is over-stretched. But there is hope and you can start to save and invest even when your monthly budget seems stretched to the limit," says Dr Koos du Toit, CEO of P3 Investment Group.

Dr du Toit explains that the Reserve Bank's decision on 19 July to cut the repo rate by 50 basis points - or half a percent - provides the ideal opportunity for many South Africans to start saving without having to "find" the money for savings in their over-stretched budgets. The rate cut has not only brought South Africa’s prime interest rate down to just 8.5% - the lowest in 38 years, but it will also reduce the bond repayments on a R1 million bond over 20 years by around R320 a month. On an R800 000 bond over 20 years, the monthly saving is around R250 and on a R500 000 bond over 20 years, around R160 per month.

"While these are not huge amounts, even small savings can make a significant difference over the long term. For example, paying just R360 a month extra into a R1 million bond - just R40 more than the savings presented by the July rate cut - will save more than R300 000 in interest over the life of the home loan and shave years of the 20-year term," explains Dr du Toit.

"The best place to put your savings - however small - is in your home loan account. Remember, a penny saved is a penny earned. So, while you may not be 'earning' interest on the extra money paid into your bond, you will save thousands of rands and cut years of your home loan repayments. This is because the money you will be saving on the interest payable over the term of your home loan is far more than the interest you can earn in a savings account or even most investments. And, if you have an access bond, your savings will remain accessible, should you need it."

Dr du Toit suggests that the simplest way to start saving - without touching your existing budget - is to instruct your bank not to change the debit order amount for your monthly bond repayment following the rate cut.

"With one phone call and without touching your current budget, you can start saving this July and make a considerable impact on your future financial situation. This is but one of the many ways the P3 Investment Group has been teaching ordinary South Africans to make their money work for them to secure their financial future," concludes Dr du Toit. "There is hope for all South Africans, not only to start saving, but also to start investing. All that is required is the willingness to consider tried-and-tested alternatives to traditional savings and investments, which are out of reach for so many of us. You will find these alternatives at"  

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