Hlakanyane asks: I am a 52-year-old man and currently contributing R2 500 per month in a tax-free savings account with a bank. This is invested in cash and standing at R15 000 thus far. Is it better to leave it in the bank, to invest with an insurance company or go direct through the JSE? What are the pros and cons for each?

Maya replies:

Tax-free savings accounts (TFSA) are best for long-term investments, as one of the biggest tax savings is on capital gains tax which builds up over time.

Under current tax legislation, even if you are invested outside of a TFSA, you are able to earn R23 800 in interest each year before you pay tax, so you can invest around R400 000 in a bank account before you pay any tax on the interest that you ear. So for cash savings, there’s no real benefit in using your TFSA allowance.

Another reason the TFSA should be considered for longer-term savings is that if you withdraw funds, you are not able to replace them and this affects your overall lifetime limit of R500 000.

So assuming you are using the TFSA for a longer-term investment (more than five years) then you need to be invested in a product that keeps up with inflation and grows your money, such as equities (shares listed on the JSE). This could be accessed via unit trusts and exchange-traded funds.

Most unit trust companies as well as providers of exchange-traded funds (ETFs) offer TFSA options. Understand the costs and make sure it matches your time horizon and risk profile. You can find a good summary of the various ETFs that are available, together with their cost profile, at www.etfsa.co.za.