By Mzukona Mantshontsho
The first step is to decide whether it’s a the long-term or short-term. Once a decision has been made, it becomes easier to select an appropriate savings vehicle. There are various tools available to youth to help them bolster their savings.
For short term goals such as setting up an emergency fund, or paying off debt, a simple savings account does the job, this offers flexibility when to access the funds when there’s a need.
These accounts seldom have a minimum monthly income requirement and have no penalty fees when withdrawing from the account. Most banks will offer a savings account with an interest rate that increases in relation to the balance.
For medium-term goals such as the purchase of a car, a notice account can be used. A notice account is essentially a savings account which requires a notice period for withdrawals. The interest rate is often higher on notice accounts. This is a brilliant way to avoid making rash decisions or “passion” purchases.
For long-term goals, like retirement or education funding, it is advisable to consider an investment account that does not allow access to the fund before a pre-set period.
For this, a Tax-Free Savings Account is perfect – while this savings structure allows withdrawals at any time, one needs to stay invested for the long term to truly reap the rewards. The idea is that the investment vehicle is used to invest for an extended period in order to benefit from the magic of compounding interest.