Saving and investing for the long term is essential, and the earlier you begin, the more powerful the impact of compound interest becomes. Over time, the interest you earn is added to your capital balance and begins generating its own interest, helping your money grow faster. That’s why it’s smart to start making regular savings deposits, no matter how small, as soon as you can when you start your first job.

However, the returns on your investments are usually taxed, which can take a noticeable bite out of your investment returns. To help South Africans build a stronger savings culture, government introduced tax-free‑savings legislation in 2015, offered through approved financial institutions like Nedbank.

These accounts can play a key role in a well-balanced investment strategy.

How tax-free savings work

With a tax‑free savings product, whether it’s simply a tax-free savings account or a tax-free unit trust account, the interest, dividends, and capital gains that your investment earns are not taxed. From 1 March 2026, the yearly limit you could contribute to a tax-free savings product increased from R36,000 to R46,000. However, the lifetime limit remains R500,000. If you exceed either the annual or lifetime limit, SARS will impose a 40% penalty tax on the excess amount. So, if you contribute R49,000 in one year SARS, will penalise you as follows:

R49,000 – R46,000 = R3,000

R3,000 x 40% = R1 ,200.

Like standard unit trusts, tax-free unit trusts allow you to invest in high-performing companies and benefit from long-term market growth. The major advantage is that the returns – interest, dividends and capital growth – aren’t taxed, giving your investment more room to grow compared to a regular unit trust account.

You can use tax‑free savings as standalone investments or include them as part of your broader financial planning. However, even if you spread your money across multiple approved financial institutions, the total amount you contribute across all tax‑free accounts must remain within the annual R46,000 limit. You are also free to transfer your tax‑free savings between institutions, provided the transfer is done through the official tax‑free transfer process to avoid penalties.

What to know about withdrawals

Tax-free savings give you the freedom to take money out whenever you need to, but withdrawals come with an important rule:

• Replacing withdrawn funds counts as making a new contribution.
  For example, if you contribute R46,000 during the year and later within the same year withdraw R10,000, replacing that R10,000 increases your total contributions for the year to R56,000 – even though your account balance reflects only R46,000 more invested overall. Because this exceeds the annual R46,000 limit, SARS will apply a 40% penalty tax to the R10,000 over‑contribution.

Tax-free‑ investment options from Nedbank

Nedbank offers several tax-free investment choices, including:

• Tax-free fixed-deposit account
• Tax-free savings account
• Tax-free unit trust investments
• Tax-free investment options available on the Nedbank Wealth share‑trading platform

If you’re just starting out as an investor, a tax-free unit trust account is a simple, accessible way to begin. Your choice will depend on factors such as your age and your comfort with market risk, as these products aren’t guaranteed, but the advantage of earning returns without tax can be a strong motivator to keep investing consistently.

Tax-free savings can be a powerful way to grow your money over time, especially when you use them as part of a broader savings and investment plan. If you’re ready to explore your options, Nedbank’s range of tax-free products lets you build a well diversified investment mix that suits your goals and timeframe with a single trusted provider. Read more about important details of tax-free investing.

Note: This blog is meant as general information only. Always consult a professional financial adviser before choosing investments.