retirement &
EFFECTS OF REP
ON YOUR CA
INVEST
HOW THE INTEREST RATE CUTS AFF
MENTS, ESPECIALLY RETIREES
We’ve seen three consecutive drops in the repo rate
since the start of the year, the most recent being due
to the devastating effects of the Coronavirus pandemic.
Together these have brought the prime lending rate
down from 10% at the start of January to 7.75% now.
This is a welcome relief for anyone paying off debt, but
the opposite is true for those relying on positive interest
earned.
A simple interest calculation
14 I N V E S T M E N T
It’s not uncommon for anyone to have a sizable portion of cash in a
money market, call account or similar type of investment. This may
be kept as an emergency fund, a special savings fund, or perhaps
living expenses for a calculated period. Such low-risk investments
are ideal for people needing to preserve their capital, and can be
especially attractive to retirees, who may not have the luxury of time
on their hands to recover from inevitable market lows.
Although less risky, these are, unfortunately, not risk-free. Someone
who had invested R200,000 in an interest-bearing account at the
beginning of the year could easily have expected a return of at least
8%. That’s R16,000 of interest for the year using a simple calculation,
and around R600 more using a daily compounding calculation.