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A Fin24 user is looking for a place to park his property sale proceeds until he finds another suitable property to buy. He writes:
I have sold my house and have about R3m to invest until I find another suitable property. This could take two weeks, two months or possibly longer.
Where should I place my money for the best interest?
Gerald Mwandiambira, CFP®, host of a financial education TV show on Business Day TV, responds:
As you are seeking to purchase a new property in the short term, the best account in this case is a Money Market Account.
All banks can offer you this type of account.
Should you decide to wait longer than a two months to a year to replace your property, consider accounts which offer a fixed term of some sort to “lock” your funds into the deposit whilst attracting a much higher rate of interest.
Your bank consultant can assist you with the best options they offer.
Matthew Chapman of NFB Financial Services Group added that the short term nature and uncertainty of the investment period would restrict the appropriate options for these funds to achieve a desired yield.
"What your primary concern should be is real value retention of the capital - in other words returns/yield that keep up with inflation.
"South Africa currently finds itself in a position where liquid cash is yielding negative real returns. As you move further away from purely liquid options to that of fixed deposits your yields will increase but, for the time period you have in mind, will rarely beat inflation.
"It may well be in your interest that you look at money market funds which are collective investment schemes and can make use of longer term issues and duration whilst still maintaining liquidity (withdrawals typically take between 3 and 5 working days).
"These funds are professionally run and aim to outperform their respective cash benchmarks, although they aren't 100% without risk as we've seen with the recent money market fund exposure to African Bank."
Another factor to consider is that interest over the annual exemption of R23 800 for those under 65 and R34 500 for those 65 and older is fully taxable and will further reduce your net yield, said Chapman.
- Fin24
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