MONEY CLINIC | How can I invest my money in the short term to ensure a monthly salary?

A recently retrenched Fin24 reader who has opted to study for the year 2021 wants to know what the best short-term investment would be to ensure a monthly salary for the next 12 months. He writes:

After 10 years in industry, I have recently been retrenched and will receive a sizeable separation benefit. As I am fortunate enough to currently be completely debt free and I have a number of long-term investments (Pension, RA, tax-free savings), I have decided to utilise this opportunity and the financial windfall from the retrenchment benefit to pursue further full-time studies in 2021.

The money will be used as a once-off payment for the studies (in February) and then 12 instalments to act as a monthly "salary" to cover living expenses. This situation will only be for 2021, whereafter I plan on entering the workforce again.

Note that I do not intend to use any of my long-term investments for this purpose. My situation requires guidance on short-term investments. Essentially I want to know how to optimally invest the separation benefit money to ensure I have access to a monthly "salary" while also having a decent return on the remaining amount for the remaining months.

I need low-risk investment while balancing liquidity and returns. My preliminary research has a few options:

• Savings accounts provide immediate access to my money, but have really low returns.
• Money market accounts seem like a good option as they have reasonable returns; however, my capital will go below the minimum thresholds towards the latter part of the year.
• Notice accounts or fixed deposits seems to be a good compromise, but perhaps a combination of these or other options (for instance savings bonds) can give me a better return.

Hester van der Merwe, financial advisor at Ultima Financial Planners, and financial planner of the year 2020, responds: 

• Access to the funds (no fixed term);
• No fluctuation in your capital value over the term;
• The best possible return, without compromising the first two requirements. You have to keep in mind that interest rates in South Africa are currently at the lowest for a very long time! 

Let us evaluate the products you have identified against the above criteria. Savings accounts will ensure immediate access to your funds, but as you have mentioned, the returns are really low. A money market account is certainly a good option as the interest rate should exceed that of a savings account. 

I suggest you shop around a little, since not all money market accounts have the same minimum threshold. Notice accounts and fixed deposits may offer higher interest rates, but you will have to manage the notice period or fixed-term very carefully to avoid any liquidity problems when you need to start drawing an income from the fixed amount.

A combination of these accounts should serve the purpose best; however, ensure that you find out beforehand what the costs relating to opening and closing of accounts are, to avoid wasting money when juggling a number of accounts. All these accounts will offer a stable capital value over the period.

Lastly, a word of caution. Are you reasonably sure that you will be able to find employment again after your 12-month sabbatical? 

Best wishes with this new venture!

Questions may be edited for brevity and clarity.