Investing is an essential part of personal finance management for everyone, and you can start with whatever amount you have. Don’t be intimidated and think that investing is only for rich people with millions, or that you need to be super smart to invest. Let’s look at where to invest R1000, or more if you have. This could be a once-off amount or a regular investment as part of a larger goal. Where can I invest R1000?
In partnership with Nedbank.
The difference between saving and investing
Saving and investing are quite similar and are often used interchangeably. Saving is usually mentioned in the context of small amounts of money saved in a bank account whereas investing generally refers to larger amounts invested in equity (stocks or shares). But this is strictly speaking not true.
To me a subtle difference between saving and investing is the intention, or the purpose. I find that saving money is done with less planning and less foresight. You may be saving for a deposit on a car or a short-term goal, but you can easily change your mind, use the money for something else, or even just save for unknown expenses that may pop up. I’m not suggesting that one doesn’t need to set a goal and be intentional about saving money, but it’s usually for a short-term plan. You can add or withdraw money easily, change the plan or use the money elsewhere. It’s more “fluid”.
Investing is very similar to saving. You’re still saving for something, even if it’s retirement in 40 years’ time. And you can change the plan. But, investing seems more intentional. You’re making a plan to grow your money and are intentional about where you invest it, and why. Most people have a plan or goal for each of their investments, and they have an overall investment strategy.
You don’t need large amounts of money in order to invest. You don’t need to be buying shares or stocks to call yourself an investor.
It’s all about making a conscious plan with your money and ensuring that you’re making it work for you, based on your circumstances and needs.
In this post we’ll focus on a Fixed Deposit Account and see why you may want to consider one.
What is a Fixed Deposit?
A fixed deposit is a special kind of bank account where you can save or invest your money, and have it grow with interest. You can usually only deposit money once, and you can’t withdraw it for an agreed period. So, let’s break this down a bit further.
With a fixed deposit account you agree to deposit a once-off lumpsum which you cannot access for an agreed period of between 1 – 60 months (5 years). You may decide to invest R2000 for 3 months, or R10 000 for 1 month. You have the power to decide the amount and the period.
The advantages to you is that your money is locked away and that it earns a better interest rate than what is usually offered on savings accounts. Your capital is protected meaning that if your deposit R1000, you will be able to withdraw that R1000 + interest. There is no way that your initial deposit will reduce.
On the flip side though, you can’t access your funds for the agreed period. This can be tricky if you haven’t planned properly and suddenly need the funds. You can generally withdraw your money early, but this will incur a penalty cost and would not be a good financial decision. But, if you must, you could contact the bank.
When would you use a fixed deposit?
Fixed deposit accounts can be extremely useful when you want to put away a lumpsum of money for a few months. You may have a thousand rand which you want to put towards your child’s school uniform for next year. Instead of simply using your bank account which makes it tempting for you to use the money, a fixed deposit will lock away your funds for the set period.
A Nedbank Electronic fixed deposit has no fees or commissions, and you can open multiple fixed deposits with different lock-in periods. You may want to invest your bonus for 6 months as you finalise your plans. Or, you may have a little spare cash to invest for 12 months.
This can be very useful when planning for known upcoming expenses such as weddings, family gatherings or school fees. You literally plan for when you will need the money.
You’ll earn a higher interest the longer you invest your money, and larger investments will also receive higher interest.
Other features and benefits of the Nedbank Electronic Fixed Deposit include:
- A minimum investment amount of R1000.
- Select an investment term of 1 to 60 months.
- Preferential interest rates apply because the account is opened and maintained exclusively through a Nedbank digital banking profile.
- No additional deposits allowed.
- Available to any client who has access to a digital banking profile.
- Your capital and your interest rate are guaranteed – you will always get out more than what you put in.
- No monthly fees or commissions.
Is a fixed deposit a good investment?
It’s very hard to say what a good investment is without understanding one’s financial circumstances and needs. Each person is so different and has such unique needs at any particular point in life. However, a fixed deposit can be a really good investment. Provided that it matches your investment needs.
If you have some money now which you would like to invest in a low-risk, interest bearing account, then a fixed deposit is definitely a good option. This is for a maximum of 5 years. If you’re wanting to invest for more than 5 years, then this would not be a good option for your money.
It’s always good to do your due diligence. Understand the advantages and disadvantages of various account types and investments and seek professional advice when in doubt. A good independent financial planner can help you set up a solution unique to your needs and plans.
So where can I invest R1000?
There are really several options available of where you can start investing with as little as R1000. Start off by asking yourself the following questions:
- What is the purpose of this investment? What do I plan to do with the money?
- Do I need quick and easy access to the money?
- How long do I plan to invest the money? (a few months, a year or two, or the long term such as retirement)
- Can I lock away my money in a fixed deposit?
- Do I want a low-risk investment where my capital is guaranteed?
Once you know and understand what you need from your investment, your options include a fixed deposit, a 32-day notice account and equity (shares).
Take the time to plan ahead and see when you may need the money and base your decision off that.
And for those aged 55 or older…