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.

🎥 Prefer the quick version? I made a YouTube Short about TFSAs covering the key points in under a minute. This blog post expands on that with more detail and examples.

Want to calculate how long it will take to max out your TFSA? Try the TFSA Calculator to plan your timeline and track your progress.

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!

Use the TFSA Calculator to calculate your exact timeline based on your current contributions and monthly savings plan.

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)
• Contributions stop once the TFSA lifetime limit of R500,000 is reached (about ~14 years); from then on, the balance compounds without further contributions

You save ~R335,000 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.