Tax-Free Savings Accounts (TFSAs) are one of the best investment tools available to South Africans. If you're not using yours, you're leaving money on the table.

What is a TFSA?

A TFSA is a special type of investment account where you pay zero tax on:

• Interest earned
• Dividends received
• Capital gains when you sell

That's right - zero tax, forever!

The Rules

Contribution Limits

South African Revenue Service (SARS) sets strict limits:

• Annual limit: R36,000 per tax year (start of March to end of February)
• Lifetime limit: R500,000 over your entire life
• Penalties: 40% tax on any excess contributions (ouch!)

Example Scenario

Let's say you contribute R36,000 every year:

Year 1: R36,000
Year 2: R72,000
Year 3: R108,000
...
Year 13.9: R500,000 (lifetime limit reached)

After about 14 years, you'll hit the lifetime limit. But those investments will keep growing tax-free forever!

Where Can You Open a TFSA?

Pretty much any South African investment platform offers TFSAs:

1. Easy Equities - Great for ETFs, low minimum (my most recommended)
2. Satrix - Simple, low-cost
3. Allan Gray - Unit trust focused
4. Sygnia - Low fees, good selection
5. Old Mutual, Sanlam, Discovery - Traditional providers

What Can You Invest In?

Your TFSA can hold different asset types:

Cash TFSAs

• Money market funds
• Fixed deposits
• Low returns but safe

Equity TFSAs

• ETFs (Satrix Top 40, S&P 500, etc.)
• Unit trusts
• Individual shares
• Higher returns over the long term

Balanced TFSAs

• Mix of cash, bonds, and equities
• Moderate risk and return

My Strategy

Here's what I do with my TFSA:

1. Max it out every year - R36,000 is only R3,000/month
2. Invest in global ETFs - I go 100% global (mainly US equity via S&P 500 or MSCI World)
   • Why global? My retirement annuity (RA) already gives me SA exposure (by regulation), so my TFSA provides offshore diversification
   • Currency hedge - If the Rand weakens, my global investments become more valuable in Rand terms
   • Growth potential - Access to global tech giants and developed market returns
3. Never withdraw - Let compound interest work its magic
4. Stay consistent - Invest every month, ignore the noise

The Math: Why TFSAs Are Incredible

Let's compare a regular investment account versus a TFSA over 20 years:

Assumptions:

• R36,000 invested annually
• 10% annual return
• 27% tax on capital gains (regular account)

You save R300,000 in taxes! 🎉

Common Questions

Can I withdraw from my TFSA?

Yes, but you really shouldn't unless it's for retirement:

• You can withdraw anytime (unlike an RA which locks until 55)
• Withdrawals DO NOT restore your contribution room
• Once you contribute R500k total, you're done forever
• Think of your TFSA as retirement savings - the goal is to let it grow tax-free for decades

If you need money for emergencies, use your emergency fund instead. The TFSA's power comes from long-term compounding.

What if I contribute too much?

SARS will hit you with a 40% penalty on the excess amount. Use your provider's tools to track contributions carefully.

Can I have multiple TFSAs?

Yes, but your total contributions across all accounts must stay under the annual and lifetime limits.

Therefore, I recommend you only keep one for simplicity and invest into a well diversified ETF.

Action Steps

If you don't have a TFSA yet:

1. Pay off high-interest debt (credit cards, store cards, car loans etc. - excluding home loans)
2. Build an emergency fund (3-6 months of expenses)
3. Open a TFSA this week with Easy Equities - Seriously, go do it now.
4. Set up a debit order - R3,000/month gets you to R36k/year
5. Choose low-cost ETFs - Keep fees under 0.5% per year
6. Forget about it - Check back in 10 years and be amazed

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Pro tip: If you're under 30, a TFSA should be your #1 investment priority (after getting out of debt - excluding a home loan - and building an emergency fund). The decades of tax-free compound growth will set you up for life.

Read more in my Getting Started with Investing guide.