When comparing asset class returns over the last few years, one can safely conclude that investing into cash financial products on which investors earn interest has been a relatively sensible decision.
Over the last three years to 30 September 2018, the returns on cash investments have averaged 7.3%, while the return on the Johannesburg Stock Exchange (JSE) Top 40 index including dividends has averaged 6.3%. This difference is more pronounced when measured over the first nine months of this year, where the JSE Top 40 index has returned just 3.3%.
Gavin Jones, Group Executive for Treasury and Balance Sheet Management at African Bank, believes that a balanced approach, allocating at least a portion of one’s long term investments into cash products, should continue to hold future appeal for investors.
Although investment into the equity market traditionally does yield a greater return over the long term, it comes with the risk of negative growth including the possible loss of capital over the short to medium term.
"An investment into cash products, as part of one's investment portfolio, can build wealth over the medium to long term and provide a steady and certain return over a fixed term," cites Jones.
Part of African Bank's strategy is to grow its savings and investment portfolio. Over the past year African Bank has grown this portfolio aggressively, to just over R1 billion.
Jones believes the growth over the past year demonstrates the fact that African Bank is paying SA's best interest rates, with zero fees, across all of its saving and investment products to all depositors, irrespective of the size of the deposit. This is a unique offering, as many banks reserve their premium rates to large deposits, such as those over R100 000, for example.
The actual returns received vary based on the frequency of interest pay-out elected by the investors. Using African Bank’s longest dated fixed-term deposit of five years, which has an annual equivalent rate of 10.75%, the following examples for investors with different cash flow needs, illustrate this point.
Pensioners seeking monthly interest income on their savings will find the five-year fixed investment product attractive, as they receive monthly interest income equivalent to 10.25% for their investments, which in many cases represents a meaningful uplift in living standards for pensioners.
An investor who elects to receive interest annually, benefits from monthly compounding of their investment return and would receive a slightly higher
return of 10.75%.
Investors into the bank's five-year fixed term investment product also include investors with a low risk appetite and a longer term investment horizon. They are typically aged 35 and older who invest their money for maximum compound growth, earning interest upon interest on a compounding basis.
On expiry of the five-year investment, these depositors will receive 13.32% interest on the original investment for each of the five years of the term of their investment, together with the return of the original capital amount invested.
Supported by the bank's high capital levels and solid cash position, Jones believes that savvy investors will continue to find African Bank an attractive and safe investment destination.