South Africa’s costly TFSA oversight: Millions left on the table
With the South African tax year closing in just five days on 28 February, millions in tax-free savings are slipping through the cracks.
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Data from leading online tax platform TaxTim shows that while 48% of users have opened tax-free savings accounts (TFSAs), the average annual contribution is only R14,171 — leaving R21,829 of the R36,000 yearly allowance unused.
This shortfall translates to substantial lost tax benefits nationwide, and once the tax year ends, any unutilised allowance disappears. Savers now face a narrow window to maximise contributions and secure the full tax advantage.
"Many South Africans who file taxes with us are doing the right things, they're saving and planning, they've opened TFSAs," says Daniel Swiegers, director at TaxTim. "But the data shows they're not using them fully, leaving significant money on the table. These are the South Africans who do actually save, but aren't getting the full tax benefit they're entitled to."
Swiegers adds that in a normal savings or investment account, Sars taxes the growth. Interest, dividends and capital gains are each taxed. The tax each year may seem small, a few thousand rand. But over decades, those small amounts compound into a massive drag on wealth creation. A TFSA eliminates this entirely because there is no tax on interest, dividends, capital gains, or withdrawals. All growth remains yours.
Tax costs compounded
Consider Thandi, who has R500,000 earning 8% interest. She will earn R40,000 interest a year. After applying the annual interest exemption and an assumed marginal tax rate of 26%, she would pay about R4,212 in tax, leaving roughly R35,788 in her pocket. In a TFSA, she keeps the full R40,000. That means over R4,000 more stays in her pocket every single year — simply because of the tax structure.
Now stretch that over time. At 8% growth, R500,000 compounded for 35 years grows to about R7.4m inside a TFSA. In a normal taxed account, the same investment grows to around R5.6m. The result is a staggering difference of R1.8m!
You may not notice R4,000 a year today. But over the decades, the compounding effect of tax quietly costs you millions in lost wealth.
Maximise your allowance
So why are responsible savers leaving money behind? TaxTim's data points to a few likely reasons: Perhaps many South Africans are cash-strapped. Many people open TFSAs but don't prioritise maximising them. Others may not realise the contributions expire at the end of February and cannot be carried forward.
Some may be putting their tax-free money into lower-return cash accounts instead of growth investments, missing the compounding benefit entirely. For many, the R36,000 annual TFSA limit doesn’t feel urgent — until you realise that every year you don’t use it, that tax-free allowance is lost forever. Over 10 years, that could mean more than R218,000 that never gets the chance to grow completely tax-free.
The rules are strict because the tax benefits are substantial. You can contribute up to R36,000 per tax year, with a lifetime limit of R500,000. Exceed these limits, and Sars charges a 40% penalty on the excess. If you withdraw R10,000, for instance, you've permanently used R10,000 of your R500,000 lifetime limit.
If you don't use your R36,000 allowance by 28 February, it will be lost. You cannot roll it forward. This is one of the few true use-it-or-lose-it decisions in South African tax. You have only a couple of days left to take advantage of a tax-free savings account.