Master of Money Management

Government retail bonds

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What is an RSA Retail Savings Bond?

I am not going to pretend that I wrote this, I gleaned this information through the RSA Savings Bond website. They are under the wire in terms of investing but they could add another aspect to your investment strategy. An RSA Retail Savings Bond is an investment with the Government of South Africa which earns fixed or inflation linked interest for the term of the investment. These investments are specifically meant for individuals and cannot be bought by group schemes, social clubs, companies or any other juristic persons; only natural persons can purchase them. Government

Bonds are a low risk investment where the capital and interest rate are guaranteed for the period of the investment. An added bonus is that the treasury does not charge up-front fees for the investment. Smaller investors can use the bonds as an effective way to save for lifestyle objectives such as retirement and education. The reason these bonds will be so appealing to the investor is that they are risk free and offer a better rate of return than conventional banks.

You can buy a RSA Retail Bond electronically through the RSA Retail Bond website, or directly from the National Treasury, or from any branch of the Post Office, making it easy to invest. You can choose the investment term to suit your personal needs (2, 3 or 5 years).

The interest rates of the RSA Retail Savings Bonds are derived from the Government Bond Yield Curve. The yield curve reflects the interest rates over the various terms at which marketable Government Bonds/Securities are traded daily on the Johannesburg Securities Exchange (JSE), formerly the Bond Exchange of South Africa (BESA).

The repo rate is the interest rate at which the SA Reserve Bank lends money to the banks on a day to day basis. Any changes to the Repo Rate will not necessarily influence or change longer term rates. The Government Bond rates, from which the RSA Retail Savings Bonds interest rates are derived, are determined by market forces (e.g. supply and demand, internal and external economic factors etc.). The interest rates or yield to maturities of Governments Bonds/Securities are used as benchmarks in the interest rate market to derive other short to longer term interest rates by other financial institutions.

Depending on your financial situation, you may either invest once off or as often as you wish. Please note that when investing at different times each investment must be a minimum amount of R1 000 (one thousand Rand). Each investment will have its own maturity date and interest rate.

Currently on offer are the Fixed Rate and an Inflation Linked Retail Savings Bond. You are allowed to invest up to a R5 million in each of these bonds. This means in a family, each member can each have R5 million invested in both the Fixed Rate as well the Inflation Linked Bond Retail Savings Bond.

Retail bonds are lump-sum-type investments; you will not be able to add-on/top-up to an existing investment. Each time you invest, it will be a separate investment, though all recognised by one investor number.

Retail Savings Bonds have been on issue since May 2004 and have no expiry date. However the National Treasury can, at its absolute discretion, choose to withdraw/discontinue the issue of Retail Savings Bonds. The investments that are still active at the time of such an event will remain active until their individual maturities elapse.

In the event of your death your investment will not be tied up with the administration of your estate  if you nominated beneficiaries, the RSA Retail Savings Bonds constitute a deemed asset in terms of the Estate Duty Act and will therefore be added for calculation of estate duty.

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