Last month National Treasury announced a welcome new addition to its range of RSA Retail Bonds.
RSA Retail Bonds are interest-linked investment products issued by National Treasury that provide attractive, above-market interest rates for those who want to save for up to ten years.
The Fixed Rate Retail Savings Bond series consists of bonds with 2-year, 3-year and 5-year terms. Fixed Rate Retail Savings Bonds earn a market-related fixed interest rate, which is priced off the current government bond yield curve, and not the repo rate.
Previously, investors under the age of 60 could only have the full capital and interest paid out on maturity, whereas individuals 60 and older could receive their interest monthly. This changed on 1 February this year, so that now, every investor, regardless of their age, can opt to receive their interest monthly if they prefer.
Currently, the rate for a 2-year fixed deposit is 8%, 3-year RSA Retail Bonds are paying 8.75% and investors who are prepared to lock their money away for five years can earn 10%.
Until now, investors had to invest a minimum of R1 000 and there was no option to add to the existing investment. Each new deposit required opening a new account.
However, as from 1 April 2022, investors can select the RSA Retail Savings Top Up Bond and start saving from as little as R500 with the option to top up their investment as often as they like with at least R100 at any time over the investment term.
RSA Retail Bonds offer a re-start option
Unlike traditional bank fixed deposits, RSA Retail Bonds offer a re-start option which allows you to restart your investment after 12 months if rates have changed.
For example, if you are invested in the 5-year retail bond and the rate increases from 10% to 10.25%, once you have been invested for 12 months, you can select to restart your investment at the higher rate.
This is an attractive option for people who are worried that if they fix their deposit for a longer period they may miss out on higher rates, especially in an environment of rising interest rates.
Inflation Linked Bonds: 3.5% – 4.5% above inflation
Unlike the RSA Fixed Rate bond, total returns from inflation linked bonds are linked to inflation. This ensures that even if inflation rates increase, you will still receive a net real return.
The Inflation Linked Retail Savings Bond series consists of bonds with either a 3-year, 5-year or 10-year maturity. Capital amounts invested in Inflation Linked Retail Savings Bonds are inflation adjusted over the term, and a floating interest rate is payable every six months on the interest payment dates.
Currently the rates are 3.5% for a 3-year bond and 3.75% for the 5-year bond and 4.5% for the 10-year bond. That means you are guaranteed a real return after inflation.
For example, if you invested R100 000 over five years and inflation was 5%, your capital amount would be adjusted to R105 000 over the year in addition to the interest earned. Interest is paid on the adjusted capital, so 3.75% would then be paid on the new capital amount of R105 000 which is R3 937. The capital adjustments are made twice a year, in May and November.
This product is specifically aimed at individuals who want to receive an income, and payments are made to investors on the semi-annual payment dates, which are 31 May and 30 November of each fiscal year.
Please note the update to the article: Tax shall be paid in the tax year, as and when interest is payable, to the capital investment.
Capital gains tax is not applicable to the Inflation Linked RSA Retail Savings Bonds. For the Inflation Linked Bonds, all interest earned, (the Capital
adjustment and interest payable), will be treated as normal interest for South African tax purposes.
Who can invest in RSA Retail Bonds?
Any individual with a valid South African ID number and a bank account within South Africa is eligible to invest in RSA Retail Bonds.
Informal groups, such as social clubs and stokvels, who operate on monthly pooled savings, are eligible to invest if they provide their constitution and proof of banking details in the name of the informal group.
More information regarding RSA Retail Bonds may be obtained from firstname.lastname@example.org or on the helpline 012 315 5888.
This article first appeared in City Press.