RISING interest rates and continued rand weakness will pose significant challenges for overindebted consumers but they could also encourage much-needed savings and investment, according to analysts.

It is vital for a country like South Africa to increase domestic savings as this minimises borrowing and debt service costs for the government.

South Africa has very low savings rates, with the government mooting several incentives to encourage people to save. While nominal interest rates have been slightly higher, real interest rates, which exclude inflation, have been low for a very long time, providing less incentive to save.

But some analysts said on Tuesday that with interest rates likely to continue rising, savers could be encouraged to enter the market. The repurchase rate was raised by 50 basis points to 5.5% in January, taking the prime lending rate to 9%.

“While 50 basis points imply an additional return of just R5 per annum on a R1,000 saving, for example, every cent counts and more so if returns are reinvested,” Credit Guarantee Insurance senior economist Luke Doig said.

The government is working on legislation that will allow people to save tax-free up to a limited amount to encourage household saving.

The tax-preferred savings accounts will allow people to invest R30,000 a year through a range of interest-bearing and non-interest-bearing instruments such as bank deposits and retail savings bonds.

First National Bank savings and investments CEO Lezanne Human said a recent survey of thousands of banked people showed 54% of them saved for retirement, children’s education and emergencies.

Ms Human said higher interest rates presented both a challenge and an opportunity for savers. “Although disposable incomes are eroded by higher interest rates, these people still save because the rate of return on their savings is slightly better.”

The weaker rand and its potential to stoke inflation have been among the main concerns of the Reserve Bank’s monetary policy committee.