Government retail bonds: a great way to save

The National Treasury Department has gone out of its way to get South Africans to save. You can simply walk into your nearest Pick n Pay branch and purchase RSA Retail Savings Bonds – and there are no charges, commissions or costs involved.

They can also be purchased at any post office, as well as Boxer or Score stores nationwide, electronically and via the National Treasury helpline.

Government retail bonds were introduced in 2004 as an investment that earns fixed interest for a term, so they operate much like fixed deposits at banks, though they offer a better rate – at time of writing, the rates were 8% for a fixed term of two years, 8,25% for a period of three years, or 8,5% for a period of five years (check the website for the latest rates). That is substantially better than any bank offering.

Available in amounts as low as R1 000 (although you can invest up to R5-million), they seem to be an ideal no-frills, no-fuss savings vehicle for the average South African.

Best of all, your money is safe as it is backed by government. These retail bonds are not to be confused with traditional government bonds, where the capital value can fluctuate. The low risk is attractive, as is the fact that you pay no commission to a middle man and you are guaranteed fairly high growth.

The only real downside is that once you have bought your bond you must wait for it to mature, so liquidity is not one of its features. In this regard, a money-market account might be preferable if you require more flexibility – but bear in mind that returns on your bond will be higher. So if you can wait for your money, then you can reap the benefits of the saving. Although you can redeem the bond after 12 months, there will be a penalty to pay if there’s less than R1 000 left in the bond.

Bear in mind that your interest is taxable, though – this is true of all bonds and interest from banks. You can choose to reinvest the interest you earn at the same rate as your bond, so you can benefit from the power of compounding interest.

The website (www.rsaretailbonds.gov.za) offers an online calculator so you can work out how much interest you’ll earn. So, for example, if you invest R1 000 and you choose to be paid out in monthly payments, you will earn R160 in total on a two-year fixed rate, R247,50 on a three-year fixed rate and R420 on a five-year fixed rate. An inflation-linked calculator is also provided so you can calculate what your money would be worth in terms of buying power at the end of the period.

To purchase a bond, you need your ID document, bank account details and the amount you wish to pay in. You will have to complete a short application form, but you get no paper certificate in return – the investment is paperless. Capital and interest are paid electronically into your bank account.

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