Since the Global Financial Crisis, investors have become accustomed to keeping cash in US dollars, British pounds or euros, earning minimal or zero interest while simultaneously incurring administration fees. But following the global interest rate tightening cycle over 2022 and 2023, investors can once again start earning more attractive interest rates on their funds in these currencies.
Subsequent to a series of interest rate hikes to tame inflation, the US Federal Reserve’s rate has reached 5.25-5.5%. Investors can now benefit from US dollar money market rates of around 4.8% a year, net of all fees and costs. With the US inflation rate at circa 3% and falling, this represents a rare opportunity to get a real return on cash you are holding offshore.
The opportunity for South African individual investors — local trusts and companies cannot benefit from this structure — is particularly compelling should this cash be placed in an appropriately domiciled roll-up fund. In such a fund, the interest generated is not taxed annually as income. Instead, the investment will trigger a capital gains tax event when, and only when units in the fund are sold.
In practical terms, this means that at the maximum CGT rate of 18%, a South African individual would earn a net return of 3.93%. This same investor would need to invest their USD cash at a gross taxable yield of 7.15% in order to achieve the equivalent after-tax return.
As the chart below shows, the fund we recommend does not yield any return when interest rates are low or zero, but it also has never lost any money, even during Covid, or prior to that during the Global Financial Crisis of 2008/2009 (not shown on the chart).

Source: Infront
Given that there are no similar roll-up solutions for saving locally and that the rand is expected to continue depreciating against the US dollar over time, we believe the net offshore rate on these US dollar funds is currently competitive, even against local money market funds. These offshore cash funds can also be a compelling alternative to US treasuries, with US bond yields at 4% gross for 10 years.
Yet we do not believe that offshore bonds are a viable solution at present, because they have inherent volatility without adequate compensation for shouldering the risk. However, bonds may become more attractive should rates start to fall faster than anticipated, or where there is an objective to invest in this asset class for the longer term. In these instances, bonds allow an investor to lock in returns for the whole period, or benefit from the capital appreciation if bond yields were to fall.
Despite most market watchers expecting the Fed to start cutting interest rates from May, investors have an opportunity to capitalise on a rare moment where interest rates are higher while inflation is trending lower. At the same time, if interest rates stay higher longer than anticipated, other asset classes will suffer while a roll-up USD cash fund delivers predictable performance.
On the other hand, if the Fed starts to bring interest rates down at the pace currently expected or even faster, one may want to start looking at other alternatives such as corporate credit, bonds, property and dividend-yielding equities. For now, however, it’s not necessary for investors to sit with cash in the bank that isn’t optimally working, even if they don’t have an appetite for higher risk, higher return assets at this point in time.