Advice on saving for a house

[B0ttl3kaP]

I currently have no major debt. No student loans and my car was recently paid off.

I'm currently renting, so I'm now looking towards saving for my first property. What I'm not sure of is how to invest the money I save for the deposit on a home loan and other additional fees (I'm looking at a deposit of 10-15%). I only see myself looking for a house in 3-5 years, so that would be the investment period. Any advice would be appreciated.

 

[CyNicole]

How you invest it will depend on your financial situation, whether you can afford to not touch the money at all, even in emergencies, or if you'll still need some (limited) access to it just in case. With the economy being what it is at the moment you want something low risk, but still with a moderate return. There are some managed funds (unit trusts etc.) that you could earn a decent return on with relatively low risk, but a good option would probably be a fixed deposit account with a three year or five year maturity. They don't have the very best rate of return but higher rates come with higher risk and their rates are still better than normal savings accounts or even money market accounts.

Disclaimer: I am not a registered financial services provider etc. etc.

 

[Dom]

I woul recommend a Tyme Bank Fixed Deposit - 11% over a 12 month period & you can access it (tiny penalty)

 

[Scrooloose]

First off, well done for your initiative.

How to save: Fixed deposit at the bank, you have access to the money relatively quickly and it earns decent interest.
How much: Save your car's previous installment amount as a bare minimum. Then take your disposable income after you've paid all your accounts, and save 20% of that on top. Your money will grow fast, and it becomes an additiction after a while in that you'll try and find places to cut costs so that you can shove more into that fixed deposit.

 

[Frana.mtb]

If you're willing to take on some risk TFSA or a equity fund could be a good option

Maybe 10-15 % return after 3 years , if markets are down you wait until 5 years.

Fixed terms have some good options as well but those usually lock the money away.

 

[B0ttl3kaP]

Thanks for all the advice. With the fixed deposit accounts, aren't you only allowed to make a single initial deposit. I'm reading through Standard Banks website (the bank I use) and that's what is stated there [LINK].

I'm looking more for an investment method whereby I can put cash away each month, rather than it sitting in my basic savings account. I've also got a tax free account that I've been putting cash in each month, though to my understanding that has a lifetime limited savings amount so I'd rather use that as another form of saving for retirement.

 

[Frana.mtb]

Thanks for all the advice. With the fixed deposit accounts, aren't you only allowed to make a single initial deposit. I'm reading through Standard Banks website (the bank I use) and that's what is stated there [LINK].

I'm looking more for an investment method whereby I can put cash away each month, rather than it sitting in my basic savings account. I've also got a tax free account that I've been putting cash in each month, though to my understanding that has a lifetime limited savings amount so I'd rather use that as another form of saving for retirement.

TFSA limited to 500k over your lifetime and 36 000 per year.( excellent way to save since it likely has a very long time horizon if you're intending to have that money available at retirement )

Basic Allan gray equity fund could do that for you , just read through what they have and go for something very conservative so you're not exposed to massive volatility.

*NOt financial advice

 

[Dom]

Thanks for all the advice. With the fixed deposit accounts, aren't you only allowed to make a single initial deposit. I'm reading through Standard Banks website (the bank I use) and that's what is stated there [LINK].

I'm looking more for an investment method whereby I can put cash away each month, rather than it sitting in my basic savings account. I've also got a tax free account that I've been putting cash in each month, though to my understanding that has a lifetime limited savings amount so I'd rather use that as another form of saving for retirement.

Correct - it is currently R 36 000 a year & R 500k over the lifetime.

My final 2c - the Tyme Bank Fixed Deposits.

 

[CyNicole]

Thanks for all the advice. With the fixed deposit accounts, aren't you only allowed to make a single initial deposit. I'm reading through Standard Banks website (the bank I use) and that's what is stated there [LINK].

I'm looking more for an investment method whereby I can put cash away each month, rather than it sitting in my basic savings account. I've also got a tax free account that I've been putting cash in each month, though to my understanding that has a lifetime limited savings amount so I'd rather use that as another form of saving for retirement.

You're correct. You can only make a single initial deposit. They have the best interest rates though and often no monthly service fees. If you're planning on buying a house in only a few years time you must have built up some capital already. Put that money into a fixed deposit.
If you want to only invest with your current bank, there are some things to consider:
1. They apply simple interest only, the interest is not compounded.
2. The interest rates quoted on the website are misleading as the they are quoted as being "up to 11.2%" and the percentage quoted is the effective compound interest rate (11.16% for fixed deposits) but if you read the terms and conditions, what you'll actually be getting is the nominal interest rate of 9.06% (for amounts invested for 60 months+).
3. Your capital is at least guaranteed though.

Thyme bank that was recommended above has much better rates per their website.

If you're open to invest with someone else (not a bank) then the recommendation of an Allan Gray Equity Fund is good advice. They have an excellent track record.

 

[Kaasbun]

I am just putting an idea forward, you can do unit trusts, and these trust can carry capital over to overseas banks/institutions, where yes, the interest rate is lower, but each time the cadres ensure the R/$ goes up, you investment also increase.

For added peace of mind I would recommend you talk to a financial planner, most will talk for free (maybe steer clear of Old mutual), and as mentioned, Allen Grey is a 100% solid option with a very decent track record.

 

[NemoXX7]

Thanks for all the advice. With the fixed deposit accounts, aren't you only allowed to make a single initial deposit. I'm reading through Standard Banks website (the bank I use) and that's what is stated there [LINK].

I'm looking more for an investment method whereby I can put cash away each month, rather than it sitting in my basic savings account. I've also got a tax free account that I've been putting cash in each month, though to my understanding that has a lifetime limited savings amount so I'd rather use that as another form of saving for retirement.

The initial deposit is to open the account, but you can still put as much extra money as you want into it every month, the only time you will face penalties is if you try to withdraw the money before the 3 or 5 years, or whatever the period is. You can then also set it so that the interest earned is transferred directly back into the fixed deposit so you are earning interest on interest

 

[Pansyfaust]

If you're willing to take on some risk TFSA or a equity fund could be a good option

Maybe 10-15 % return after 3 years , if markets are down you wait until 5 years.

Fixed terms have some good options as well but those usually lock the money away.

Never use your TFSA for short term investments-once you draw down, you miss out on future compounding and you cannot put in more than 36K a year or 500K over your lifetime.

@OP

My biased advice- unless you want a property as a lifestyle choice, or you are able to snap up a really really good property deal, I'd caution against trying to get a property as an "investment" decision.

Sure, if you want to buy to lease it out, then "maybe", considering the many pitfalls. But from what I gather, that's a headache on its own and trying to find the right tennant will become the main goal rather than anyone willing to pay the rent.

If you want it as a "home" i'd say don't expect to make money from it. Consider the money put into a house will often not yield better returns than if it was placed in the stock market over the same time horizon, especially in SA over th past 5-10 years (excluding WC of course)

I made the stupid decision of buying a house in 2018 (not in the WC ) and I'd be very very lucky to get it sold for a return of more than 2% a year, and that's before any maintenance costs or finance costs come into play.

I like not having to worry about a landlord or having to move, but as an investment decision, it's a big no from my side.

Buy a house as a lifestyle decsion and be happy you have a place to hang your hat at the end of the day.