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- A new RSA Retail Savings Bonds Top-Up went live on Friday.
- The Top Up bond offers an interest rate of 8.75% per annum, and there are no fees for investors to pay.
- Investors will have to remain invested for three years, but they can make early withdrawals by forfeiting some of their interest.
National Treasury has launched RSA Retail Savings Bonds Top-Up, allowing individuals and stokvels to invest as little as R500. It will cost R500 to open the account, but after that, retail investors and formal savings clubs like stokvels can top up their investment with R100 at any time.
Treasury already offers fixed-rate and inflation-linked bonds. But the RSA Retail Savings Bonds Top-Up has better returns than the inflation-linked bond, and Treasury says it's probably better than what many private asset managers offer.
For instance, the new product offers a 8.75% return per annum, which is the same money invested on the fixed-rate bond over the same period. The three-year inflation-linked bond, on the other hand, offers 3.5% interest.
Treasury said it launched the new bond product because it wanted to make RSA Retail Bonds easily accessible to more people in the country. It also wanted to attract younger investors, so it lowered the minimum investment amounts.
Since Treasury launched the RSA Retail Savings Bonds in 2004, these have attracted more than R25 billion. Some 53 000 investments are still active, with about R9 billion invested. But the majority – 73% – of investors are 50 years or older.
Before the Top Up Bond, South Africans needed a minimum of R1 000 to invest. Each time they wanted to put more money into the fixed-rate bonds, that was seen as a new investment with a different maturity date.
"Due to public demand and to attract young investors, the Retail Bonds team went back to the drawing board and thought long and hard about how this could be done," said Wanga Cibi, the acting chief director of liability at the National Treasury.
Comparing it to other bond funds
Terry Msomi, director of debt issuance and management at the National Treasury, said the Top Up bonds will likely outcompete comparable bond funds provided by top asset managers. He said that while Allan Gray's five-year bond investment returns about 9% a year, for instance, that is eroded by fees.
"So, that 8.75% that we are launching with, on a three-year bond, is already pretty competitive," said Msomi.
He added that when investors use the option to roll over their investment and switch to the fixed-rate bonds at the end of the three-year term, the RSA Retail Bonds will offer even better returns.
He said the RSA Retail Bond's outperformance in the past few years – particularly the five-year bond, has proven its worth.
"If you consider that restart option, you will probably outperform what's in the market because you would choose to restart at a point where interest rates are starting to rise," he said.
READ | MONEY CLINIC | How safe is investing in RSA retail savings bonds during Covid-19?
How does it work?
The Retail Savings Top Up Bond is available from 1 April 2022. But National Treasury has been running its pilot project for six months internally.
Although it's a bond, the product is not listed or tradable in any exchange. But Treasury said it is backed by the government, meaning that the investment will be 100% secure at all times.
Anyone with a valid SA ID number and stokvel clubs with active bank accounts can invest.
Investors only need to register once-off, and they can top up their investments anytime with R100 or more. This won't be a separate investment as it was in the past.
The product locks the investment in for three years. But investors can withdraw their money before the maturity date, with penalties.
If an investor withdraws within a year, they will forfeit all interest earned on the amount they cash out. After a year, they will lose the "average interest" amount earned on the withdrawal amount.
Investors can withdraw all of their money or a portion of it. But if they cash out a portion, they must leave a minimum of R250 in the account.
Those who want to invest can apply online. But new investors will need to send certain documents with their registration forms, including certified ID copies and stamped bank statements. But stokvels cannot register online. They can walk into the National Treasury's walk-in centre once open, email or fax their application. They also need their stokvel constitutions over and above their stamped bank statements.
If investors want to remain invested when the three-year term ends, they can roll over their investment for another three years. And if they wish to switch to fixed-rate or inflation-linked RSA Savings Retail Bonds, they can do so, provided they have at least R1 000 in the investment account. But only individual investors have that option, not stokvels.
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