You have a largish lump sum to invest. Let’s say it’s R100 000, which you came into through an inheritance, earning a generous year-end bonus, selling an asset such as a car or Ming vase, or winning the Lotto.

Of course, you could spend it - on material things, which depreciate in value, or on an unforgettable life experience, such as an overseas trip. But you’ve decided to put it away, either for a rainy day or for some future need, such as your child’s tertiary education or to boost your retirement savings.

Your main reason for investing the money is to let it work for you by earning a return. To score in real terms, the return must be above the inflation rate, which is about 6.6 percent (Consumer Price Index, year-on-year to November 2016).

So where to from here? There is a wide range of investment vehicles open to you. To determine an appropriate one, you need to answer the following questions:

  • Do you want instant access to your money, or are you prepared to lock it into an investment for a fixed period, or have access to it only after a stipulated notice period? This is not the same as investing for the long or short term. You may decide to put away your R100 000 for 10 years, for example, but still want instant access to it if need be. (What are the benefits of not having instant access to your money? Bank interest rates are higher, and there are certain benefits to endowment-type investments, mentioned below. Also, the temptation of accessing it is removed - if you don’t trust yourself.)

  • Do you want to invest it for five years or more, or is it for a shorter-term goal?

  • If the answer to the previous question is “five years or more”, are you prepared to take on more investment risk to earn potentially higher returns?

These are the main questions. The other issues are costs and tax, which will be dealt with when we look at the various mainstream options, which are categorised according to how you would have answered the three big questions. This article assumes that on a fixed-term investment you will opt to be paid your interest on maturity. And if you are a senior citizen (aged 55 or 60, depending on the bank), you will receive an extra 0.5 percent a year or so on certain investments.


Your are limited to interest-bearing investments that provide the lowest returns - from well below the inflation rate to only just above it. The rates fluctuate in line with the prevailing interest rates. (Remember that you pay income tax on the total interest you earn a year from all your investments on anything above R23 800 if you’re below 65 years of age and above R34 500 if you are 65 or over.)

  • Banks offer a variety of accounts, from everyday savings accounts, which don’t earn interest of much more than four percent a year, to call accounts and money market accounts, which offer higher rates (about in line with the inflation rate) but require higher initial investment amounts. There are no costs on these accounts, as long as you don’t use them for daily transactions.

  • Unit trust money market funds are flexible in that you can withdraw your money at any time (unit trust funds typically pay out within 48 hours). They require minimum investment amounts of between R10 000 and R50 000, depending on the asset manager. Yields, which fluctuate daily, are between 6.75 and 8.12 percent (at the end of December 2016). There are investment charges on these funds: about 0.3 percent of your investment a year.


If you want to put away your money for less than five years, and are prepared not to have immediate access to it, banks offer a range of notice deposits (whereby you can invest for any period, but your withdrawal is subject to a notice period of, say, 32 days) and shorter-term fixed deposits of as little as XXXXX a month. The interest rates depend on both the term/term/notice period and the investment amount. You currently earn about 6.75 percent on a 32-day notice deposit of R100 000.

Fixed deposits lock in not only your money, but also the interest rate. So you get the rate over the investment term even if prevailing interest rates rise or fall. Current rates on an investment of R100 000 are about XX on a one-month fixed deposit (on this type of shorter-term fixed deposit, you could simply renew the term each time it expires) and between XX and XX on a 36-month one, depending on the bank.

The banks also now offer more flexible fixed deposits whereby you have immediate access to a portion of your money - up to 40 or 50 percent. The more you can access, the lower the interest rate.

Another fixed-deposit-type option is RSA Retail Bonds offered by National Treasury. The shorter-term options of these are the two- and three-year fixed rate bonds (currently 8.5 and 8.75 percent respectively) and the three-year inflation linked bond (CPI plus 1.75 percent). These bonds have no costs.


If you’re looking at accessible, longer-term investments (five years or more), you need to go the unit trust route. These invariably come with higher investment risk than bank deposits, but if you are investing for the long term, the risk of losing money declines over time.

Low-risk unit trusts do not invest in higher-risk equity or listed-property investments, or they constitute only a small proportion of a fund's assets. The underlying assets are mainly money-market instruments and bonds.

You can choose from a range of unit trust funds in the South African interest-bearing sub-category, or, for slightly higher risk and commensurately higher returns, in the South African multi-asset low equity and income sub-categories. (Multi-asset income funds are designed to provide a steady income at low risk, but they can also be used as a low-risk investment in which returns are reinvested.)

Multi-asset unit trusts attract relatively high annual investment costs compared with other types of unit trust - 1.5 percent to as much as three percent or more. Such investments are a good choice for an emergency fund, if that is your purpose with your R100 000.


For an accessible, long-term investment in which you are prepared to take on higher risk to increase your chances of high returns, your only real choice within the scope of this article is a collective investment in the form of a unit trust or an exchange traded fund (ETF) that is exclusively invested in, or that includes a high proportion of, growth assets, such as equities and listed-property investments. These include funds in the South African equity and real estate categories and, for slightly lower risk, the South African multi-asset flexible and multi-asset high- and medium-equity sub-categories.

An ETF is a fund listed on the stock exchange that tracks an index such as the FTSE/JSE Top 40 - in other words, it includes in its portfolio the same shares as the index, in the same proportions. Many passive unit trust funds (tracker funds) operate in the same way.

For heightened risk - for the adrenalin junkies among us - you can invest in an ETF that tracks the price of a commodity, such as gold, or a unit trust fund that invests solely in a certain sector of the JSE, such as financials, commodities, industrials or property. Beware: be prepared for high volatility or long periods of under-performance.

Investment costs on equity funds are lower than on multi-asset funds (they average about 1.5 percent, but a few are more than three percent), and the lowest of all are the index-trackers and ETFs (mostly about 0.75 percent).


For a low-risk investment in which to tie up your money for at least five years, you have a number of choices:

  • Five-year fixed deposit with a bank: five years is the maximum term at most banks. Of all fixed deposits, these offer the highest rates - about 10 percent currently [check], which is more than three percentage points above the inflation rate.

  • Longer-term RSA Retail Bonds: the five-year fixed-rate bond offers nine percent, while the five- and 10-year inflation-linked bonds offer CPI plus two percent and 2.25 percent respectively.

  • Guaranteed or smoothed-bonus endowment policy. These policies, offered by the life assurance companies, are for a minimum of five years, and can be for any term longer than that. You can choose the underlying investment/s, and for a low-risk investment you can choose low-risk unit trust funds or the life assurer's guaranteed or smoothed-bonus funds. The former guarantee you at least your capital on maturity; the latter "smooth" the returns to counteract market volatility. There are penalties if you withdraw your money early, and the returns are taxed within the portfolio at 30 percent, so such a product makes sense only if your marginal income tax rate is above that and you are likely to earn interest that exceeds the annual tax exemption of R23 800 (R34 500 for pensioners). Another positive feature of endowment policies is that they pay out immediately to your nominated beneficiaries on your death, unlike most other investments, which become liquid only once your estate has been wound up. Watch out: the costs on these products can be relatively high (as much as four percent or more on five-year investments; reducing on longer-term ones).

  • Retirement annuity (RA): if your sole purpose with your lump sum is to boost your retirement savings, and you are prepared to wait until you turn 55 before you can access it, an RA is a wise choice. Some or all of your investment will be tax-deductible (depending on how much you and your employer have contributed to your retirement savings in the current tax year), and the returns within the RA are tax-free. Both life assurers and unit trust managers offer RAs for lump sums. Like an endowment policy, you can choose the underlying investments, which may be low risk. Costs again are highish, because there are fees on the underlying investments, as well as a platform fee.


Last are the investments in which you want to lock away your money for a long period, and are prepared to take on higher risk. Here you are looking at either a life assurance endowment policy or, if you’re boosting your retirement savings, an RA, in which you choose underlying investments in equities and/or listed property.

Other investments

Some investment instruments not included here that you may want to consider are shares in a listed company (R100 000 is probably the minimum amount that would be viable once brokerage costs are taken into account), tax-free savings accounts (not included because the limit is R30 000 a year, but you could stagger your R100 000 over four years), and offshore or worldwide funds. The last of these would fall in the accessible/long-term/high-risk category, because they are subject to currency exchange rates, which are notoriously volatile.