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Even in a low-interest environment, you should not lose sight of the value of savings

May 24, 2021

In this month’s edition, John Chikoki, Senior Retirement Fund Consultant, reminds us of the importance of saving.

Most South Africans across all ages and income groups are apprehensive about their finances and what the future holds. Even though a lot has been said about the Coronavirus pandemic’s impact on employment, there has been less focus on the value of investments, even in a low-interest atmosphere.

Apart from the health risks of Covid-19, the economic fallout and the national lockdown response has made many people feel particularly vulnerable. While these financial concerns among South Africans are understandable, getting back on track with their savings and investments is one concrete step they can, and should, take to help future-proof their finances.

With the prime interest rate at record lows of 7% and many people having either lost their jobs or watched their investments drop in value in 2020, it is not hard to see why many South Africans feel uncertain about the importance of saving. But a lower-interest-rate environment does not make it any less important to continue saving money now and in the future.

At the peak of the pandemic and lockdown in South Africa, stories of workers resigning to access their retirement savings due to financial hardship were rife. As a result, some banks noticed a definite spike in the number of clients accessing their savings. While this was undoubtedly necessary to help the individuals cope financially with the challenges of lockdown, it should be emphasised that it is now vital to forsake such thinking and get back on track with saving as quickly as possible and hopefully with more vigour and long-term focus.

The wisdom of this advice is evident when one considers the valuable buffer that the savings accounts provided for the people who had such accounts during the lockdown period. Moreover, the way the savings helped them to cope with weeks and months of decreased income offers an important lesson on the need to keep on saving, even when lower interest rates make the growth prospects a little less appealing.

A healthy savings balance provides a potentially lifesaving buffer against the impact of any future crises or emergencies. A good, fixed-term savings account still offers reasonable long-term rates to help you build up a cash balance that will stand you in good stead whether in a crisis or in retirement.

Arguably the most significant impact of Covid-19 on people’s lives was a result of the fear the virus created, which caused a form of financial paralysis for many. But now that Covid-19 health risks are beginning to be less intimidating due to the availability of vaccines and the fact that the economy is gradually rebounding, we all must overcome those fears and start to rebuild our lives and finances. One of the best ways to do that is by taking action and starting, or returning to, a disciplined saving and investment tradition.

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