Don’t have your Nedbank ID yet?
Nedbank ID single sign-on gives you full digital access to Nedbank’s banking and lifestyle products and services on the Money app or Online Banking.
Log in
Log in to Online Banking or another one of our secured services.
Bank how and when you choose to, with the low fees or extra benefits you want.
Shop online or instore and earn rewards for it, with up to 55 days interest-free credit.
Buy foreign banknotes, transfer funds or shop globally with a travel card.
Great interest rates, with great flexibility and access to your money when you need it.
Personalised interest rates for affordable loans from R2,000 to R300,000.
Loan up to 100% of the property value or up to 105% if you are a first-time home buyer.
Choose a plan for yourself, family or build your own cover to suit your needs.
Get cover for your car, building, house contents, valuables and more.
Cover your bond, credit card, overdraft, loan and car repayments.
Choose a plan for yourself, family or build your own cover to suit your needs.
Take the right steps to achieve your financial goals with expert financial planning.
Plan for everything you own and owe, so your estate is in order when you’re gone.
Accounts
-
Everyday banking Safety, convenience and rewards
-
Youth banking For under 16s, or under 25s
-
Accounts -
Digital wallet Your phone is your bank account
-
Private Wealth The globally integrated account
-
Goal saving Easy access to interest earned
Credit cards
Digital banking
Switch to Nedbank
Fraud awareness
Forex
Rewards
Accounts
-
On demand Money available at any time
-
In 24 hours Cash in your hand the next day
-
In 32 days Funds ready within a month
-
End of term Investments left until maturity
Investment services
Share trading
Personal loans
Home loans
Student loans
Overdrafts
Vehicle finance
Solar finance
Life cover
Funeral cover
Short term insurance
Credit Life
Travel insurance
Is your business covered?
Secure Investments
Financial planning
Estate, wills & trust services
Nedbank Private Wealth
Speak to a financial adviser
Blog
Talk to us
Find us
- Login & Register
- Online Banking
- Online Share Trading
- NetBank Business
- NedFleet
- Nedbank Greenbacks
- Nedgroup Investments
- Nedbank ID
- Bank
- Accounts
- Credit cards
- Digital banking
- Switch to Nedbank
- Fraud awareness
- Forex
- Rewards
- Explore Bank
- Accounts
- Everyday banking
- Youth banking
- Accounts
- Digital wallet
- Private Wealth
- Goal saving
- See all accounts
- Get help choosing
- Family Banking
- Refugees and asylum seekers
- FAQ
- How-to guides
- Everyday banking
- MiGoals Premium
- MiGoals Plus
- MiGoals
- Discontinued accounts
- Youth banking
- Nedbank4Me
- Digital wallet
- MobiMoney
- Private Wealth
- Private Wealth Bundle
- Goal saving
- MyPocket
- American Express
- Amex Gold
- Amex Platinum
- Digital banking
- Switch to Nedbank
- Fraud awareness
- Forex
- Send and receive
- Rewards
- Save & Invest
- Accounts
- Investment services
- Share trading
- Explore Save & Invest
- On demand
- Club
- Money Market
- Stokvel
- In 24 hours
- JustInvest
- PlatinumInvest
- Tax-free Savings
- MoneyTrader
- EasyAccess Fixed Deposit
- PrimeSelect
- In 32 days
- Electronic 32Day Notice
- 32Day Notice
- End of term
- Tax-free Fixed Deposit
- Electronic Fixed Deposit
- Electronic Optimum Plus
- Platinum Fixed Deposit
- Fixed Deposit
- OptimumPlus
- Investment services
- Share trading
- Borrow
- Personal loans
- Home loans
- Student loans
- Overdrafts
- Vehicle finance
- Solar finance
- Explore Borrow
- Personal loans
- Consolidation loan
- Secondhand car loan
- Home improvement loan
- Exclusive short-term loan offers
- Explore loans
- FAQ
- How to guides
- Consolidation loan
- Secondhand car loan
- Home improvement loan
- Exclusive short-term loan offers
- Home loans
- Building loan
- Switching home loan
- Repossessed properties
- Start your home buying journey
- Solar-energy Finance
- Earn R29,600 p/m or less? See offer
- HomeVision extra funds
- Home-buying Toolkit
- Managing your home loan
- Explore home loans
- FAQ
- How to guides
- Track application
- Building loan
- Switching home loan
- Repossessed properties
- Start your home buying journey
- Solar-energy Finance
- Earn R29,600 p/m or less? See offer
- HomeVision extra funds
- Home-buying Toolkit
- Managing your home loan
- Student loans
- Explore student loans
- Overdrafts
- Vehicle finance
- Solar finance
- Insure
- Life cover
- Funeral cover
- Short term insurance
- Credit Life
- Travel insurance
- Is your business covered?
- Secure Investments
- Explore Insure
- Life cover
- Get a call back
- Explore MyCover life
- Funeral cover
- Individual R10,000
- Individual R30,000
- Family Cover
- Build your own cover
- Get a call back
- Explore MyCover Funeral
- Individual R10,000
- Individual R30,000
- Family Cover
- Build your own cover
- Short term insurance
- Vehicle insurance
- Building insurance
- House contents insurance
- Valuables insurance
- Get a call back
- Explore MyCover short term insurance
- Vehicle insurance
- Building insurance
- House contents insurance
- Valuables insurance
- Credit Life
- Home loan credit life
- MFC Vehicle Finance Assurance
- Overdraft Assurance
- Balance Protection Plan
- Personal loan Assurance
- Get a call back
- Explore credit life
- Home loan credit life
- MFC Vehicle Finance Assurance
- Overdraft Assurance
- Balance Protection Plan
- Personal loan Assurance
- Travel insurance
- Is your business covered?
- Secure Investments
- Guaranteed Growth Plan
- Guaranteed Income Plan
- Get a call back
- Explore MyCover Funeral
- Guaranteed Growth Plan
- Guaranteed Income Plan
- Plan
- Financial planning
- Estate, wills & trust services
- Nedbank Private Wealth
- Speak to a financial adviser
- Explore Plan
- Financial planning
- Investment planning
- Insurance planning
- Give
- Retirement planning
- Investment planning
- Insurance planning
- Give
- Retirement planning
- Estate, wills & trust services
- Will drafting
- Ensure your estate is managed by an executor | Nedbank
- Trust services
- Financial accounting
- Tax services
- Leave the admin of your estate to us, and not to your loved ones | Nedbank
- Will drafting
- Ensure your estate is managed by an executor | Nedbank
- Trust services
- Financial accounting
- Tax services
- Leave the admin of your estate to us, and not to your loved ones | Nedbank
- Nedbank Private Wealth
- Speak to a financial adviser
- Learn
- Blog
- Explore Learn
- Blog
- Contact us
- Talk to us
- Find us
- Explore Contact us
- Talk to us
- Find us
Understand savings and investment interest rates
Understand savings and investment interest rates
Staff writer
Posted 21/02/2022 3 mins
Here’s how to make a fair comparison between products and their quoted rates.
The interest rate you earn on a savings account is vitally important, because it determines how much you earn when you keep your money invested. Understanding what that number means will help you make an informed decision on whether Product A is better than Product B. Unfortunately, these rates aren’t always clear: you might be presented with offers quoting ‘real’, ‘nominal’ or ‘advertised’ interest rates.
Always be sure to ask for both the nominal and ‘effective’ annual interest rates, and use both figures when comparing offers. The ‘nominal’ rate refers to the interest you’d earn over the year if you withdraw that interest from the account every month. The annual ‘effective’ rate reflects the amount paid over the year if the interest is added to the account balance every month. This number reflects the true return you can expect on your investment, because it includes the effect of compound interest.
Understanding the percentages
Interest rates on savings accounts are always advertised as a percentage ‘per annum’, meaning per year. So, if you deposit R1,000 in a 10% interest account for a year, if interest is only calculated once at the end of the year, you’ll expect to earn R100 over that period.
But the situation changes if that interest is calculated every 6 months, every 3 months, once a month, or even every day. For example, if interest is compounded monthly: at the end of the first month your R1,000 savings has earned 1/12th of that 10% per year – or R8.50 – which is then added to the original balance, so at the end of your second month the interest due is calculated on R1,008.50. Repeat that process every month, and the interest you actually earn – your effective rate – is higher than the nominal rate.
Interest rates are often advertised in a simplified form to get the message across quickly, with an asterisk to indicate that there are terms and conditions. Investigate the T&Cs closely: how often is interest calculated at the nominal rate, and what does that make the effective rate over a year?
Compound interest is your friend
The nominal interest rate is sometimes called the ‘advertised’ interest rate. What we have described above – interest being calculated at regular intervals and then being added to the principal amount, to earn interest upon interest – is called compound interest. This gives you the effective rate at which you can expect your investment to grow every year.
What’s interesting about compound interest is that the more often your interest is calculated during the year, the more your effective interest rate rises above the nominal rate. For instance, a 10% nominal interest account will return an effective rate of 10.516% if interest is calculated daily, 10.471% if it’s calculated monthly, and 10.25% if it’s calculated yearly.
‘Real interest’ is a term used less often than the other rates. It reflects the interest rate you earn once inflation has been stripped out. Your effective interest rate should be higher than the inflation rate to make an investment worthwhile, so that the real interest rate remains a positive number. The real rate lets you see how well your investment is growing in real terms, as inflation nibbles away at its purchasing power.
Compound vs simple interest
Here’s an example of how compound interest is better than simple interest over the long term.
If interest is calculated and paid daily, and using the example of R1,000 in a savings account that pays 10% interest, you will start by earning 28c interest per day. So, on Day 2 your account balance will be R1,000.28.
The interest for Day 2 is calculated on this balance of R1,000.28, not your original deposit of R1,000. By the end of the first year, your daily interest will have grown to 31c and the balance in your account will be more than R1,105. Fast-forward 10 years and your R1,000 will have grown to more than R2,700.
Compare this to an account paying 10% simple interest: R100 that is not added to the capital amount every year. After 10 years, you will have a balance of only R2,000, because you haven’t been earning interest on interest. Even if compounded monthly instead of daily, a nominal interest rate of 10% gives you an effective rate of 10.47%.