RSA Retail Savings Bonds are an attractive option for savers.
For those who are looking to save for the medium term and don’t plan on touching the money for at least two years, the RSA Retail Savings Bond, offered by National Treasury, is an attractive option.
This product has no fees such as admin costs or monthly account costs, and the interest rate is set above inflation, meaning the value of your money is not diminished over the investment period. In addition, your capital is guaranteed.
There are two types of RSA Retail Savings Bonds on offer: fixed rate and inflation linked. Each type has various options in terms of investment time frames.
If you choose the fixed-rate product, you can choose between a 2-year, 3-year and 5-year investment period. The interest rates currently being offered are 9%, 9.25% and 9.75% respectively. The fixed-rate Retail Savings Bond only pays interest twice a year which you can elect to re-invest. If, however, you are over the age of 60, you can opt to receive your interest monthly.
Inflation-linked Retail Savings Bonds pay a lower interest rate, but the capital amount is adjusted for inflation so that the capital is not eroded by inflation, while some income is still provided. The 3-year, 5-year and 10-year investment terms pay an interest rate of 1.5%, 1.75% and 2% respectively. The inflation-linked option pays out interest income twice a year and has no option to re-invest the interest.
Better than traditional fixed deposits
Retail Savings Bonds offer a better return when compared to a traditional fixed deposit account over a 24-month period. For amounts between R1 000 and R9 999, Absa offers a 6.6% to 8.25% interest rate, and for amounts above R10 000, the rate is 7.15% to 8.5%. Capitec offers 8% for investments between R10 000 and R24 999, and 8.25% for investments between R25 000 and R99 999. FNB’s rate is 7.7% for deposits starting at R10 000 going up to R249 999. For an ordinary fixed deposit account between the amounts of R1 000 and R9 999 Standard Bank offers a 6.15% interest rate (annually) and 6.65% on maturity.
Nedbank doesn’t offer a fixed deposit account for periods over 18 months, but has the Green Savings Bond instead. This product, launched as part of an initiative aimed at contributing to a greener economy, is also a cost-effective option as there are no fees related to the account and the minimum investment amount is set at R1 000. For 24-month deposits, an individual who wishes to have their interest paid monthly would receive a rate of 8.35% per annum; for a bi-annual interest payment the rate is 8.5% per annum and if interest is re-invested, the effective rate is 9.05% per annum. For the Seniors Green Bond, available to clients who are 60 years and older, the rates are 8.5%, 8.6% and 9.22% respectively.
Before investing in bonds or a fixed deposit account, you should make sure that you will not need to withdraw funds before the maturity date. Early withdrawals carry penalties for both the RSA Retail Savings Bonds and the various banks’ fixed deposit accounts.
The interest earned on the Retail Savings Bond is subject to taxation. Currently, for those under the age of 65, the first R23 800 in interest earned during a tax year is exempt from taxation – this means you could invest up to R250 000 in the 2-year product without paying tax. For anyone over 65, the first R34 500 in interest earned in a tax year is exempt.
While the RSA Retail Savings Bonds are great for short- to medium-term investments, they should only form a part of your portfolio, especially if you have medium- to long-term investment horizons, because higher-risk investments such as equities tend to outperform bond returns over time.
Investing in RSA Retail Savings Bonds is fairly easy: you can buy them at any South African Post Office branch, at most Pick ‘n Pay outlets, or online. You can also visit the National Treasury offices in Pretoria or call them directly on 012 315 5888.