Patrick Cairns
5 minute read
27 Oct 2015
11:53 am

Finding the best fixed deposit rates

Patrick Cairns

Nedbank is currently advertising a rate of 7.49% on its 12-month fixed deposit. Given that it’s being widely promoted, one might assume that this is a good offer. Before rushing off to your nearest Nedbank branch however, it is worth putting the rate in context.

Picture: Thinkstock

In a couple of respects, it is actually very good. Only one other local bank is offering a higher rate over 12 months, and that is Standard Bank, which is currently running a promotion that ends on October 31. A 12-month fixed deposit there is currently attracting 7.55%.

Other banks are offering as low as 6.25% for fixed deposits over the same term. This makes Nedbank and Standard Bank’s offerings very attractive.

It’s also worth considering that this rate compares very favourably to the current yields on multi-asset income unit trusts. According to figures from Morningstar, the highest yield achieved by any fund in this category over the past 12 months was 7.63%, and it is one of only two funds with a yield above 7.5%.

While these are historical yields rather than the guaranteed future yields offered by a fixed deposit, they nevertheless give a fair idea of what you might expect to earn off these funds in the next 12 months. The category average is also just 5.6%.

Multi-asset income funds do also have the potential for capital appreciation however, and so in some cases their overall return is higher. According to Morningstar, the category average total return is 7.16%.

It’s worth bearing in mind though that where there is a chance of capital appreciation there is also the risk of capital loss. And a few of these funds have shown negative capital growth over the past 12 months.

If you have money that you know you will only need in a year and need to keep it somewhere safe, a fixed deposit with Nedbank or Standard Bank is therefore not a bad choice right now. At effectively zero risk, that level of return is attractive.

Don’t, however make the mistake of assuming that because these two banks are offering good rates over 12 months that their longer-term deposits are similarly appealing. Quite the contrary. Apart from its 12-month rate, Nedbank’s fixed deposit rates are by far the lowest currently on the market.

In a comprehensive survey of fixed deposit rates across the big four banks, Capitec and Investec show that anyone wanting to place a fixed deposit should thoroughly examine all their options first. Where you find the best rate will depend on the amount you want to put away and the term you are looking at.

You also need to be sure you understand the rate that your bank is offering you. Banks talk about both nominal and effective rates, which confuses the issue.

Nominal rates are generally quoted if you intend taking the interest during the term. In other words if you want it paid to you monthly, quarterly or even annually. You will be given the effective rates if you intend to only take the interest on maturity.

This can be very confusing because effective rates are not compounded. In other words, you only ever earn that rate on the initial amount, not on reinvested interest.

This makes rates difficult to compare. The best approach is therefore to ask your bank to quote you an estimate of how much interest you will earn as a rand amount rather than as a rate.

The below tables show the rates banks are offering on fixed deposit amounts of R10 000, R50 000 and R100 000. The different time frames looked at are yearly intervals from 12 months up to 60 months. Where they were provided, both nominal and effective rates are given.

The only definitive way to compare the products however is to use the amount of interest that you will earn. The interest you will earn if you only take it at the end of the term is therefore listed, although these are only estimates as they may be affected by factors such as a leap year or rounding.

These tables take some scrutinising because depending on the amount you have to invest and your time frame, your best option will differ. Over a full five year period, Capitec offers the highest return on any amount, but it is amongst the lowest if you are only looking over a single year.

Standard Bank comes out tops over 12 months and 24 months, however the current promotion that it is running is only available for another week. After that Nedbank’s rates would probably start to look more attractive over 12 months, and Capitec for any period longer than that.

Investec doesn’t accept deposits for any amounts below R100 000, so no figures for lower amounts are shown.

 

Capitec
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 6.25% R 643 6.70% R 3.455 7.10% R 7.336
24 months 6.90% R 1.475 7.50% R 8.065 8.05% R 17.405
36 months 7.65% R 2.571 8.00% R 13.512 8.50% R 28.930
48 months 8.00% R 3.757 8.50% R 0 9.00% R 43.141
60 months 8.50% R 5.273 9.00% R 28.284 9.50% R 60.501

 

Absa
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 6.75% R 677 6.75% R 3,384 6.75% R 7,270
24 months 6.84% R 1,370 6.84% R 6,849 6.84% R 14,800
36 months 7.33% R 2,201 7.33% R 11,005 7.33% R 23,512
48 months 7.35% R 2,942 7.35% R 14,710 7.35% R 32,022
60 months 8.76% R 4,385 8.76% R 21,924 8.76% R 46,351

 

 

Nedbank
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 7.25% 7.49% R 751 7.25% 7.49% R 3,755 7.25% 7.49% R 7,510
24 months 5.11% 5.24% R 1,049 5.11% 5.24% R 5,247 5.11% 5.24% R 10,494
36 months 5.22% 5.49% R 1,649 5.22% 5.49% R 8,242 5.22% 5.49% R 16,485
48 months 5.22% 5.51% R 2,205 5.22% 5.51% R 11,027 5.22% 5.51% R 22,055
60 months 5.64% 6.31% R 3,158 5.64% 6.31% R15 792 5.64% 6.31% R 31,584

Note: Nedbank also offers ‘Green Savings Bonds’ which are also deposits that are fixed over certain time periods from 18 months to 60 months and those rates are higher.

 

 

FNB
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 6.50% 6.70% R 670 6.50% 6.70% R 3,349 6.50% 6.70% R 6,697
24 months 6.90% 7.38% R 1,384 6.90% 7.38% R 6,921 6.90% 7.38% R 13,843
36 months 7.40% 8.26% R 2,147 7.40% 8.26% R 10,734 7.40% 8.26% R 21,467
48 months 7.75% 9.05% R 2,960 7.75% 9.05% R 14,801 7.75% 9.05% R 29,602
60 months 8.00% 9.80% R 3,828 8.00% 9.80% R 19,141 8.00% 9.80% R 38,282

 

 

Standard Bank
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 6.45% 7.55% R 755 6.45% 7.55% R 3,775 7.55% R 7,550
24 months 7.10% 8.30% R 1,660 7.10% 8.30% R 8,300 8.30% R 16,600
36 months 7.55% 7.60% R 2,280 7.55% 7.60% R 11,400 9.14% R 27,411
48 months 7.95% 8.45% R 3,380 7.95% 8.45% R 16,900 10.07% R 40,264
60 months 8.45% 9.30% R 4,650 8.45% 9.30% R 23,250 11.00% R 55,000

 

 

Investec
  R10 000 R50 000 R100 000
  Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity Nominal Rate Effective Rate Interest at maturity
12 months 7.21% 7.45% R 7,453
24 months 7.70% 7.98% R 16,592
36 months 7.92% 8.21% R 26,721
48 months 8.39% 8.72% R 39,714
60 months 8.86% 9.23% R 55,483

Note: In all cases these rates were quoted on October 26 and may be subject to change.

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