Johannesburg – During the recent MPC announcement, the South African Reserve Bank announced that the repo rate will increase by 25 basis points to 7%. This means that the prime lending rate will increase to 10.5%.
Higher interest rates are often seen as spelling doom and gloom, but they’re actually good news for those who save or invest in cash investments.
“Not only do the returns increase on the same capital invested but if those returns are re-invested along with the capital, the compound interest increases significantly,” says Lezanne Human, CEO of FNB Savings, Investments and Fiduciary.
“Add to that the fact that all your capital and the quoted returns are guaranteed, and that you won’t lose any money should the markets crash, and it becomes understandable a portion of your money should be invested in a cash investment,” adds Human
Different people do however have different needs. Some will only save a portion of their money in cash, and the rest in other asset classes, such as equities or funds. Others will save a substantial portion in cash to cater for unforeseen circumstances or to enable easy access to their money. Whichever category you fall into, it is important to save or invest a portion of your money in a cash investment.
FNB offers a range of cash savings or investment accounts where you will not only benefit from higher interest rates, but your capital and quoted returns are fully guaranteed, meaning there is no risk of losing your hard earned money.
The outlook for the South African economy for 2016 paints a rather bleak picture for all, with growth forecasts expected near record lows. Adding to this economic pressure, the rising inflation and higher interest rates are expected to erode real purchasing power of consumers and push an already vulnerable consumer towards the edge.
According to Human during times like these, when there is greater market uncertainty, it’s particularly important to build up cash reserves so that you have some level of savings to dip into should the need arise. This buffer can help tide you over when those unplanned expenses crop up, like car or home repairs to alleviate the need for borrowing, as the cost of servicing debt increases with the higher interest rates.