A road trip to financial freedom

Tax-free is a no-brainer. But which is the best TFSA in SA?

By Lizelle Steyn

2 February 2020

The best thing in life is THAT hug. The second best is saving tax free.

No tax on interest, dividends or growth. Ever. If there’s only one investment product in your long-term investment portfolio, surely it has to be a tax-free savings account (TFSA). There’s no better deal than this in South Africa. TFSAs have been around since 2015 and they are part of a government initiative to motivate South Africans to save more. When government started TFSAs they capped the amount of interest that you may receive from other, non-TFSA products before you start paying tax at R23 800 (for under 65s). That cap will eventually be eaten away by inflation so that a TFSA becomes the only non-retirement product with meaningful tax breaks.

Since 2015 every large insurer, almost every asset management house and several fintech companies have started offering TFSAs. The options are overwhelming, especially when you start to compare costs. So, how would you choose the best one of the lot?

For this comparison I stuck to three TFSA providers that are popular with the FIRE (financially independent, retire early) community, who largely prefers exchange traded funds (ETFs). And to three TFSA providers that are popular with investors who prefer unit trusts (maybe because these investors started investing before ETFs became as affordable as they are now).

The three TFSA providers offering ETFs:
EasyEquities
Satrix
Sygnia

The three TFSA providers offering unit trusts are:
Allan Gray
Coronation
Nedgroup Investments

Satrix and Sygnia actually offer both ETFs and index tracking unit trusts, but as the total fees associated with the ETFs beat that of the unit trusts for the same index if you’re investing long term, I’ll be looking at their ETF offering only.

For a refresher on how ETFs and unit trusts fit into the world of TFSAs and trading platforms, have a look a this post where I laid out the most commonly used terms in the industry and how they relate to one another.

My criteria for best TFSA are:

1 It should be easy to invest and transact

You can have the greatest product at the best price but if you don’t make it easy for people to invest with you, nothing’s gonna happen.

TFSA provider Nice Not so nice
EasyEquities Easy online sign-up. No forms. No minimum amounts – invest from R1. Demo accounts. Have won several awards for innovation + best TFSA. They don’t collect money from your account – you have to EFT. Client service is slow – could take several days to get a response.
Satrix Easy online sign-up. No minimum amounts if you go the online route and don’t use forms. Consistently wins People’s Brand award. Don’t collect money from your account – you have to EFT. Reviews of client service / call centre are mixed.
Sygnia OK online sign-up. If you’re not yet invested with them, getting hold of the total fees that you would be paying can be challenging. I had to email the client service centre and days later I am still waiting for a response.
Allan Gray I had no problems opening my account with them. Easy to transact and change debit orders. First-class call centre. Nothing comes to mind.
Coronation Easy to open an account -paperless. Nothing comes to mind.
Nedgroup Investments Easy to open an account -paperless. Some aspects of the online interface are not that intuitive. For certain requests, for example a change of address, you still have to complete a form.

2 It helps if it’s low cost

How much your investment will cost depends on the type of fund (ETF or unit trust) that you choose to make up the investment engine of your TFSA. Make sure that cost is not the only driver of your decision. You need to be comfortable with the amount of risk (market ups and downs) that your fund is taking on. Any fund tracking the ALSI Top40 or the MSCI World index (both 100% invested in the stock market) will have significant ups and downs, unlike a money market fund, for example, and some years you will experience negative performance from the stock market. As a trade-off, a money market fund will not give you such good inflation-beating returns as the stock market over ten years or longer.

TFSA provider Admin/platform/trading fee (incl VAT) Underlying fund fee (incl VAT) 31 Dec '19
EasyEquities Currently, together with Satrix, cheapest trading platform in SA if you don't go the debit order route. Depends on fund chosen. For example: Satrix 40: total investment cost of 0.14%; Satrix MSCI World: total investment cost of 0.35%. Watch out for large buy/sell spreads on other, less traded ETFs
Satrix Satrix uses the EasyEquities platform and has the same platform fees as EasyEquites (i.e. also cheapest trading platform in SA). Depends on fund chosen. For example: Satrix 40: total investment cost of 0.14%; Satrix MSCI World: total investment cost of 0.35%; Satrix Money Market: total investment cost of 0.34%.
Sygnia Sygnia's marketing material claims they’re the cheapest, but their annual fees (as per their website in Jan 2020) can't beat EasyEquities's once-off trading fees if you remain invested for at least 5 years. Depends on fund chosen. For example: Itrix MSCI World: total investment cost of 0.68%; Itrix Top40: total investment cost of 0.21%.
Allan Gray Admin/platform fee depends on fund chosen but they're expensive (except for AG Money Market). For example: Nedgroup investments Core Diversified: 0.58% p.a.; Satrix Alsi Index: 0.58% p.a.; Satrix MSCI World Equity Index: 0.58% p.a.; Allan Gray Money Market: 0.23%. Depends on fund chosen. For example: Nedgroup Investments Core Diversified: total investment cost of 0.44% p.a.; Satrix Alsi Index: total investment cost of 0.56% p.a.; Satrix MSCI World Equity Index: total investment cost of 0.53% p.a.; Allan Gray Money Market: total investment cost of 0.06% p.a.
Coronation Coronation is not a platform – N/A Depends on fund chosen (only Coronation brand available). For example: Coronation Market Plus: total investment cost of 1.82% p.a.; Global Equity Select Feeder: total investment cost of 1.35% p.a.; Coronation Money Market: total investment cost of 0.30% p.a.
Nedgroup Investments Nedgroup Investments (NGI) is not a platform – N/A Depends on fund chosen (only NGI brand available). For example: NGI Core Diversified: total investment cost of 0.55% p.a.; NGI Core Accelerated: 0.67% p.a.; NGI Core Global Feeder: total investment cost of 0.56% p.a.; NGI Core Income: total investment cost of 0.59% p.a.

You need to add the admin/platform/trading fees and underlying fund fee together to get the total fees you’re paying.

Note that even though Sygnia claims to have the lowest fees, none of their funds beat the fees of the Satrix40 on the EasyEquities or the Satrix online platform in terms of effective annual cost (EAC) over five years or longer. Just bear in mind that this ETF is 100% exposed to the SA stock market - with all its ups and downs.

3 Their admin should be on point

TFSA provider Quality of admin
EasyEquities First-hand experience of accounting errors slipping in. Quite a few unhappy clients on hellopeter complaints platform.
Satrix Good admin but not flawless.
Sygnia Terrible reviews on hellopeter; good reviews on mybroadband and blog forums
Allan Gray The best admin and operations.
Coronation Mixed reviews but generally good.
Nedgroup Investments Mixed reviews but generally good.

4 Some love freedom of choice, some don’t

On this note, keep in mind that limiting the choice can make it easier to choose a fund, especially if you’re new to the game of investing and find a list of 1000 funds overwhelming. So, while a wide range of options means more toys to play with for experienced investors, it may be not so great for new investors.

TFSA provider Range of choice
EasyEquities Wide range of ETFs and individual shares to invest in.
Satrix Eight ETFs to choose from; more unit trusts.
Sygnia Wide range of ETFs and unit trusts to choose from.
Allan Gray They offer only the funds that SA’s top financial advisers ask for.
Coronation Only Coronation branded unit trust funds. Only actively managed funds.
Nedgroup Investments Only Nedgroup Investments branded unit trust funds. A good mix of active and lower-cost passive (index-tracking) funds. Pay special attention to their multi-asset (balanced) passive funds.

And the verdict on the best TFSA in South Africa?

If you want to invest in one of the cheapest TFSAs in South Africa and want a wide range of ETFs and shares to choose from, the winner is EasyEquities. Just know that they’re still experiencing teething problems and that their admin and client service are not perfect.

A great all-rounder is Satrix. If you want to invest in one of the cheapest TFSAs in South Africa and you want fairly good client service, Satrix is ideal. However, make peace with the fact that you can only invest in Satrix branded ETFs and unit trusts.

If you want excellent client service and a well oiled machine when it comes to your portfolio’s admin, I’d go for Allan Gray. Just know that you’ll be paying more for top-notch service and those extra fees eat away at your investment over the years.

If you want a well diversified index tracking solution investing in all asset classes at low cost, then go for Nedgroup Investments. Strong and trusted brand when it comes to passive portfolio construction.

The bottom line: which one is the best TFSA in South Africa boils down to which criteria you prioritise.
Big flashing warning in red

SARS has capped the amount that you may invest in a TFSA per tax year. Otherwise, from which investments are they going to get their tax revenue? (Bigger investors will be coughing up tax in some other, non-TFSA investment product.) For the current tax year – 1 March 2019 to 29 February 2020 – the most that you may put into your TFSA is R33 000. For every R100 with which you exceed this limit, SARS will send you a tax bill of R40! So, be very careful not to contribute more than R33 000 this year. Hopefully, from 1 March 2020 the limit will be increased, but we will have to wait until the Budget Speech on 26 February to find out by how much.

Also, keep in mind that a TFSA is for the long term

You’re allowed to contribute R500 000 into a TFSA over your entire lifetime. If you put R33 000 in, and take it out later in the tax year, you don’t get another chance to put money back during that year. So, you don’t want to ‘waste’ this tax break by investing money that you’ll need to take out again within a year or two. Rather use a normal money market fund for your short-term savings and keep the TFSA for your long-term savings to benefit fully from all the tax benefits.

Make sure you get your money into your TFSA before 29 February

Choosing an underlying fund for your new TFSA may feel like quite a mountain to climb, but don’t let that put you off from making use of your R33 000 tax-free allowance for this tax year – that’s if you have no debt and have some money lying around. If in doubt, just put everything (no more than R33 000) in the money market option of the TFSA that’s best for you before the end of this tax year, 29 February. You can always do more research in the next tax year and then switch from the money market fund to the fund that has the right amount of risk for you. The switch should be penalty free and, being a TFSA, also tax free.