WATCH | Why you should invest your tax refund in a tax-free account

If, like me, you love finding money in your handbags, jackets and coats so much that you deliberately put it everywhere; you know you’ll get the same feeling when you get a tax refund from the SA Revenue Services (Sars).

If you don’t know the feeling I’m talking about − finding money in a coat you haven’t worn in three seasons – then I encourage you to pack away your winter clothes with some cash, forget you put it there, and enjoy the joys of finding money you had forgotten about, months later.

It is money that can give you a much-needed boost and can be used to supplement groceries or pay for transport. Same goes for the tax refund. But Satrix head of business and market development, Duma Mxenge, says: “Money that feels like it’s gifted to us, like a tax refund, often feels easier to spend. Earned money [like our salary] feels much harder to let go of.

“This psychological phenomenon is called mental accounting, and it influences our spending and saving habits. The trick is to try to see your tax refund as future money, not extra money.”

Mxenge advises that the refund should rather be invested in a tax-free savings account (TFSA). “Whether you receive your refund following an auto-assessment between July 1 and 12, or after filing manually between July 13 and October 23 2026, putting some of that money in a TFSA means you won’t pay tax on the interest your investment earns or the dividends you receive,” he says.

“A TFSA is one of the easiest ways to grow money in SA. You put money in, you choose where it’s invested, like exchange traded funds (ETFs) and unit trusts, and you don’t pay tax on what it earns when you eventually cash out. That means every rand your money makes stays yours.

“It’s easy to confuse a TFSA with a normal savings account at the bank, but the two are built for different jobs. A bank’s savings account is for money you might need soon, which is why it’s easy to reach. A TFSA works the other way round. It rewards you for leaving it alone. The longer the money stays untouched, the more your tax-free earnings grow.”

Mxenge says for the current tax year, which began on March 1 and will end in February 2027, you can contribute up to R46,000. The limit for what you can contribute over your lifetime is R500,000. He says the limit doesn’t roll over. “So, if you only put in R10,000 this year, you don’t get an additional R36,000 contribution allowance the following tax year,” Mxenge says.

“The limit also applies across all your tax-free accounts together, not per account. And Sars charges a 40% penalty on the extra amount if you go over R46,000 in a year. It’s important to remember that your first deposit amount matters far less than how long it stays invested.

“Time does the heavy lifting through compounding. That means someone who starts small today and lets it grow will usually end up ahead of someone who waits years to put in a big lump sum. You can’t buy back those years that you weren’t investing. It’s important to maintain the momentum with small, regular top-ups. Start with what the refund gives you, then keep feeding it, even if it’s R100 or R200 a month. You could even set up a debit order, so you don’t have to think about it again.”

Mxenge says investors must avoid dipping in their TFSA.

“A TFSA is easy to access, which makes it tempting to withdraw your money when things get tight. However, you can’t replace the money that you took out. The amount you withdrew still counts towards your lifetime limit.

“It’s best to keep a separate account for life’s surprises, like investing in a money market fund in one’s normal account, so you can let your TFSA grow. A refund is a chance to either spend that extra money and enjoy it for a while or turn it into something that keeps working for you for the next 30 years, a decision your future self will thank you for.”

Mxenge says when opening a tax-free account, which can also be done on SatrixNOW, one has to “pick from a range of investments that match how much risk you’re comfortable with, and start with an amount that won’t stretch your budget”.

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