Tax-free savings accounts: the limits and the penalty
A tax-free savings account lets you save without paying tax on the interest, dividends or capital growth you earn inside it. The trade-off is a cap on how much you may put in, and the rules on that cap are stricter than many people expect. This page sets out how the limit is counted, what the account can hold, and how it compares with a plain deposit.
The limits, and what happens above them
Each constant as the revenue service prints it, with the day it took effect where the page gives one, and the day we read it.
- TFSA · contributions a tax year
- 46,000ZAR
- per person, March to February; raised from the earlier yearly limit
- SARS: tax-free investments 4
- TFSA · contributions over a lifetime
- 500,000ZAR
- per person, across every provider
- SARS: tax-free investments 4
- Tax on contributions above a limit
- 40%
- of the excess, on the amount above the annual or lifetime limit
- SARS: tax-free investments 4
Not tax advice. Figures are copied from the revenue service's page; the penalty is applied on assessment.
How the limit is counted
The limit applies to contributions, not to growth. Every amount you pay into the account counts towards your allowance for that year, no matter what the money is later worth. Growth inside the account does not use up any of the allowance.
Withdrawals do not free up room. If you take money out, you cannot pay it back in later and treat it as a fresh contribution within the same allowance. The space you used stays used, so an account that is emptied and refilled can breach the limit even though the balance looks the same.
Transfers between providers also count in most cases. Moving money from one tax-free account to another is generally treated as a new contribution rather than a continuation, so the amount can count against your allowance again. Check the mechanics before moving an existing balance.
What can be held inside
The account is a wrapper, not a single product. Inside it you can hold a bank deposit, a unit trust, or shares, depending on what the provider offers. The tax treatment follows the wrapper, so returns on the underlying holding are free of tax in your hands.
A bank deposit inside the wrapper behaves much like an ordinary savings or fixed deposit, with the difference sitting in the tax treatment. A unit trust or a share portfolio inside the wrapper carries market risk and can fall in value. The tax benefit does not remove investment risk.
Because the wrapper can hold different things, two accounts with the same name can behave very differently. Look at what the money is actually invested in, not only at the label on the account.
Who it suits compared with a plain deposit
A plain deposit is simpler. You pay tax on the interest, but there is no cap on how much you may save and no penalty for taking money out and putting it back. For short-term money you may need to reach, that flexibility matters.
A tax-free account suits money you intend to leave alone for a long period. The benefit grows the longer the money stays and the more growth it earns, since growth is what escapes tax. Frequent deposits and withdrawals work against the design of the product.
For a saver who has already used up other tax-advantaged room, or who wants a simple long-term pot outside a retirement annuity, the account can be useful. For an emergency fund that may be tapped at short notice, a plain deposit is often the more practical home.
A common mistake is replacing money that was withdrawn in the same year, which can push total contributions above the yearly limit. The penalty for going over applies to the excess, so keep your own record of every amount paid in.
What a year's contribution earns in a deposit
Amount × term × rate, inside a TFSA. The answer is worked out for an example; change any field to recalculate.
Tax-free account, retirement annuity, fixed deposit or money market fund
Compared in words. Limits and rates are in the facts and tables on the other pages, not here.
| Property | Tax-free savings account | Retirement annuity | Fixed deposit | Money market fund |
|---|---|---|---|---|
| Return, in words | whatever the product inside earns | the return of the funds chosen; not guaranteed | fixed in the contract for the term | follows short-term rates; not fixed |
| Risk to capital | depends on what is held inside | market risk of the funds | low | low |
| Access | any time; a withdrawal does not free up the limit | locked until retirement age, with set exceptions | at maturity; early exit may cost interest | usually within days |
| Deposit insurance | only if held as a bank deposit | no | yes, up to the scheme's limit | no |
Sources and read dates
Every figure on this page points to one of these. The date on the right is the day we read the source.
- 4Revenue serviceSARS: tax-free investmentswww.sars.gov.zaTFSA limits, penalty and tax treatment
- 3InsurerCorporation for Deposit Insurance, frequently asked questionswww.resbank.co.zadeposit insurance limit and scope