Choose the right savings vehicle for your future home

Buying a home is one of the largest purchases you might make, and you need to make sure you save for it in the most practical and cost-effective way.

We find out which savings vehicle you should make use of, and we consider a couple of tips you should keep in mind when preparing for this purchase.

Did you know that JustMoney offers tax-efficient savings products? Find out more.

It all depends on your timeframe

Sheila-Ann Robey, financial adviser at Lifeguards, an affiliate of Liberty, says that there are various factors that need to be considered when you embark on the journey of becoming a homeowner.

“Depending on the value of the home you’re purchasing or the bond you need, a good starting point is to save between R100,000 and R200,000,” says Robey.

She explains that you need this amount for bond registration and transfer fees, which are usually paid to two different attorneys, as well as a deposit on the home. The timeframe will determine which vehicle should be used to accumulate these funds.

“If you aim to purchase a home in three to six months’ time, a savings account or a money market account is suitable because it provides immediate access to your funds and it’s low risk,” says Robey.  

“However, if you’ve only just started your savings journey and your purchase is only due in one to three years, then a unit trust investment is a suitable option. This will allow you access to your funds without penalties, while still earning interest that’s often higher than that of a savings account,” she says. 

Robey says that if you wish to purchase a home in five or more years, then longer-term investments with slightly higher risk, such as endowments, may be more suitable. But note that the fees associated with these kinds of savings vehicles are usually higher than savings accounts and unit trusts.

Farzana Botha, segment solutions manager at Sanlam Savings, notes that regardless of the product you choose, or the timeframe you have in mind, tax efficiency is crucial.

What else should you keep in mind?

Robey suggests starting to save early on, to accumulate as much as possible. This is especially useful for the attorneys’ fees and deposit, the latter of which will reduce your mortgage bond repayment. On top of this, the earlier you start, the more favourable your chances will be of earning interest on your savings.

“Purchasing a home of R1 million or less will not attract transfer duties. However, be aware that transferring fees will still apply,” says Robey. She suggests shopping around for the best interest rate from various providers to minimise interest on your home loan.

Botha says that you should get a good idea of the expenses that you will incur when buying a home so that you can adequately prepare yourself.  

“Speak to an adviser to help align your goals to a suitable product or investment vehicle for saving for this purpose,” says Botha.

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