Cheryl asks: I have R600Â 000 that I want to invest but need monthly access for withdrawals in case of living emergencies. I work on commission so might need back up in a month. I have a retirement annuity worth about R500Â 000 and I owe money on my house and car.
Should I put it into my access bond or a Virgin credit card? Where else would I get a good interest rate?
Maya replies: You need to be thinking a bit broader in terms of your total financial plan. Given your age bracket you are getting closer to a retirement age and you need to see how this R600Â 000 can be used to boost your retirement savings.
I would strongly recommend that you sit down with a financial adviser and put a retirement plan in place. Decide what age you want to retire at and how much money you would need. Your lump sum could significantly boost your retirement provision. A strategy, for example, could be to put the lump sum into your mortgage and then save the amount you would have been repaying to the bank.
Alternatively you could invest the lump sum in a balanced fund that provides growth but also some capital protection. If you invested R500Â 000 for example and it grew by an undemanding 10% a year, you would have doubled your savings within seven years.
Saving into your bond
It is always advisable to have emergency savings of at least three months of your expenses, so I would agree that you need to keep a portion of this money available. Putting it into your access bond would be a good investment as you effectively receive an 8,5% (current mortgage rate) return by not paying that interest away to a bank. You must be disciplined, however, and make sure that if you have to draw on the money that you do not inadvertently draw down more than the money you have invested.
Also make sure that you keep paying the same month repayment and do not pay the lower amount once you have added the lump sum.
Investing for interest
Some people prefer to have their money in “separate pots”. I am one of those people, so even though it makes sense to keep my emergency savings in my mortgage, I prefer to keep it in a savings account. I like to see exactly what my savings are, and I find it gets blurred when you add it to your mortgage. But this is purely a personality thing.
Virgin Money is only offering around 3% interest; you can do better than that. For example, Capitec is offering 4,75%. Compare that with your current bank’s interest-rate offerings and money market unit trusts (although confirm there is no upfront fee).
Also consider opting for a one-month fixed deposit for better rates.
If you need access to emergency funds you can use your Virgin Money credit card (which has no annual fees) and then give notice on your savings account and settle the credit card at the end of the month so you do not incur any interest.
My recommendation is that you use this opportunity to put a proper plan in place. It is not as frightening as you think!
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