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 queries@rsaretailbonds.gov.za or on the helpline 012 315 5888.
This article first appeared in City Press.
How dependable is the administration of the S A Retails Bonds to pay the monthly interest regularly and timeously? fred kruger
I have not picked up any complaints about this
Hi Maya
We do have considerable investments in RSA Gov. Retail Bonds but are getting worried about the safety of it as we see a lot of looting and corruption in government institutions.
What are the safety measures for monthly depositing into our bank account and redeeming of funds when they expire?
Anyone with any South African government issued bonds would be in a similar situation. There are really large international and local investors in govt bonds. Currently national treasury does a good job of running the accounts of the country – so I would not be panicking at this stage
Hi Maya, thank you for all your comments.
I have been very slack in investing my money. I am with Nedbank money market as my day to day account. I would like to put some of this money into a fixed deposit say for 12 months at a time. In your opinion, what is the best fixed deposit i should put my money in to grow the interest. I wont take money out on a monthly basis.
Nedbank has some good rates on 12 month fixed deposit and you can set it up on your Nedbank Banking App. If you are looking for higher rates you could consider second tier banks like African Bank.
Good day Maya
I am interested in investing in the RSA retail bonds. However, I can’t make up my mind whether to take the fixed rate or the inflation linked rate. The plan is to invest for at least 5 five and re-invest the interest. Which option is better?
Thank you
The inflation linked bond pays out the interest, so it is probably better to opt for the fixed rate as you can re-invest the interest and benefit from compounding
Good afternoon
I need some information on a compound interest investment.
Does the RSA Retail bonds have this?
Please let me know.
Regards
Penelope
If you do not draw on the interest then it would be reinvested. this would result in a compounding effect
please advise if the interest rate of 10% is still applicable on a 5 year term invest, if you want to withdraw your interest either monthly or bi-annually
yes it is
I have invested on rsa retail bond on Monday 15 August since then I haven’t received any information
Have you tried to contact them at queries@rsaretailbonds.gov.za or 012 315 5888
It seems there have been issues with the admin. If you have not come right you can contact Janet.Brewis@treasury.gov.za Tel: 0123155461
How safe are retail bond
As safe as government bonds – a lot would have to go wrong..
What happens to RSA Retail bonds where the Investor nominated beneficiaries prior to the rule changes on 1 Oct 2018 when beneficiaries were no longer permitted to be nominated? If you were a beneficiary before 2018, do you cease being a beneficiary?
This is the response from Treasury: Please note that the terms and condition of the RSA Retail Savings bonds relating to beneficiaries have changed from 1 October 2018 to align to the Estate Act. This change applies to all investments in any of the RSA Retail Savings Bonds of new and existing investors. Investors cannot nominate beneficiaries anymore and the existing beneficiaries will be discarded.
All investments will, upon the death of investor, be paid into the investor’s estate account.
Investors were notified of this change via a circular send on 8 August 2018.
Hi Maya. If I were to invest for 5 years and want to take interest payment either monthly or quarterly can I choose the % of the interest or I have to take everything. My understanding in the past was that on has no choice but to take all the interest. If it is so then my investment is almost eaten away by inflation. I will be depriving myself of compound interest. Is this right?
based on what you want to do, the inflation-linked bond would be the better option. The capital grows by inflation and then you only draw down the real interest rate eg: on a 5 year bond that would be 3%.
What about negative inflation?
If you look at the CPI rate on May 2022, it is 103.1, but the previous rate on Nov 2021 is 123.5
How does that work? Say I invested R100 000 in May 22, then 6 months later, the calculation would be. 103.1/123.5 * 100 000 = R83482
So my interest is R83482 x 2.75%/2 = R1148.
where is my inflationary guaranteed growth?
Where did you get the rates from? Sounds very strange the Nov 2021 rate would be 123.5
Hi Maya. For the inflation linked bonds, are you 100% sure that the growth portion is treated as capital gain. From what I understand both the growth and interest paid must be treated as interest received for tax purposed. Tom
Thank you for the correction, you are quite correct. Article has been updated
I love the inflation linked option. I was totally unaware that RSA bonds actually makes your capital grow AND pay you interest and you pay less tax. This is terrific
This is very interesting. We hear of governments in some African countries simply taking money from peoples accounts. What are the guarantees regarding bonds? I’m 77 and would be destitute if I lost an investment
We do have a constitution and the banks will adhere to that. The only time government can take money from your account other than on a court order (like money laundering charges etc) is if you owe SARS money.
In terms of the actual RSA Retail Bond – this would be as safe as government bonds which are issued to institutions both locally and abroad.
Is the 10% interest rate on the 5yr FD, compounded rates?
Many thanks
Theresa
The rate quoted is nominal. Interest is paid twice a year, so it is not compounding monthly but bi-annually. This calculator will help https://secure.rsaretailbonds.gov.za/calculator.aspx
Advice about retail bonds because have a tax free investment with FNB and nothing from there, please advice.
The RSA Retail Bond website has all the information – but they do not off a tax-free savings account at this stage
I already invested into a 5 years RSA Bond with returns paid at maturity which was done 2 years ago. I am under age 60. With the new law of allowing me to take interest monthly, can I change my plan to pay interest monthly on this investment?
No – according to the website “Please note that this option may only be exercised on the date of application, or on any date prior to the first interest payment date, and may not be changed thereafter”
the only possible option could be to select for a Restart Option – they will reset the investment at the prevailing interest rate. Perhaps that would allow you to select to have the interest paid out. But you need to check that and whether the new interest rate is lower or higher than what you are currently receiving https://secure.rsaretailbonds.gov.za/products.aspx