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This week, National Treasury announced a new addition to the RSA Retail Bond range of products, making it attractive for individuals who want to invest monthly.
RSA Retail Bonds are interest-linked investment products issued by Treasury that provide above-market interest rates for individuals wishing to save for up to five years.
The Fixed Rate Retail Savings Bond series consists of bonds with two-year, three-year and five-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.
For investors who are younger than 60, the full capital and interest is only payable on maturity. However, individuals who are 60 and older can receive their interest monthly.
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Currently, the rate for a two-year fixed deposit is 7%, 7.75% for three years and 9.25% for five years.
Until now, investors could only invest a minimum of R1 000 and there was no option to add to the existing investment as each new deposit required an investor to open a new account.
However, as of April 1, investors will be able to 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 a minimum of R100 at any time over the investment term.
RESTART OPTION
Unlike traditional bank fixed deposits, the RSA Retail Savings Bond offers a restart option that allows you to restart your investment after 12 months if interest rates have changed.
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For example, if you have invested in the five-year retail bond and the rate increases, you can select to restart your investment at the higher rate once you have invested for 12 months.
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 interest rate rising cycle.
INFLATION-LINKED BONDS
Unlike the RSA Fixed Rate Bond, total returns from inflation-linked bonds are linked to inflation. This ensures that even if the inflation rate increases, you will still receive a net real return.
The Inflation-Linked Retail Savings Bond series consists of bonds with either a three-year, five-year or 10-year maturity.
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Capital amounts invested in Inflation-Linked Retail Savings Bonds are adjusted for inflation 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 three-year bond, 3.75% for the five-year bond and 4.50% 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.
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This product is specifically for individuals who want to receive an income and payments are made to investors on the biannual payment dates, which are May 31 and November 30 of each financial year.
There is potentially a tax benefit for individuals, as the full return is not paid as interest. Only the interest portion that is paid would form part of your taxable income.
The capital return could be taxed as capital gains, however, this would only be on maturity and is generally at a lower rate than personal income tax.
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