For many years bank deposits have been the dog of investment choices. After inflation and the taxman had taken their slices, you were worse off than before you had invested.
This year, what are called cash investments, have come back into popularity with a vengeance.
Cash investments are currently a great place to be even after tax and inflation. You are getting great "real" returns.
Cash investments come in many different forms from bank fixed deposits to money market unit trust funds.
A cash investment is one on which your returns are in the form of interest only.
Currently there is enormous competition for your money and interest rates can vary almost hourly. You should shop around for the best rates available.
The real returns being offered to investors on cash deposits are a result of two things. Firstly, the attack on the rand and the need for high interest rates to attract foreign investors; and secondly, the unit trust industry's entry last year into the cash investment market with the money market funds.
The banks have been forced to compete by offering investors a decent return for short-term investments.
The other advantage of cash investments is that unlike the share or bond market your capital is virtually guaranteed - an important factor when you consider the significant losses investors exposed to stock markets have suffered recently.
To work out a real rate of return on a cash investment you need to subtract both the inflation rate and the tax you will pay on interest from a quoted interest rate.
For example, with the inflation rate now running at 6,6 percent, if you have a marginal tax rate of 45 percent (this applies if you have a taxable income of R120 000 a year or more), you will need to get an interest rate of more than 12 percent to make a real return on your investment.
If your marginal tax rate is lower, the interest rate you require to get a real rate of return on your cash deposit or money market unit trusts will be lower.
The calculations in the accompanying table ignore the fact that the first R2 000 interest you earn is tax free.
Any amount above R2 000 is taxed at your marginal rate of taxation.
The table shows marginal tax brackets with the marginal tax rates and the interest rate after which you will start to get a real rate of return on your cash investment.
To establish exactly how much interest you area receiving in "real" terms subtract the breakthrough point from the interest rate you are receiving.
Remember to work out the effective and nominal rate you are offered for your money. The effective rate is the interest you actually receive if the interest is credited to your investment more than once during a year. This is higher than the nominal rate.
When shopping around for interest rates be sure you compare nominal rates with nominal rates and effective rates with effective rates.