RSA retail savings bonds review
RSA Retail Bonds are bonds issues by the government to private individuals
in order to encourage savings. But, how do they work? Are they safe? How do
they compare to other fixed deposits?
What is the interest rate on RSA Retail bonds?
You can get 10% interest when investing in the 5 year RSA retail bond. This
is a fixed rate and does not change throughout the term. You can have
interest paid out monthly (if you are over 65), semi-annually or at expiry.
| Term | Fixed |
|---|
| 2 year | 9.5% |
| 3 year | 10% |
| 5 year | 11.25% |
last updated 2nd April 2024
You can get inflation plus 4% if you invest in the RSA retail inflation linked
bond. The inflation linked bonds keep pace with inflation. So your interest payouts
will increase year-on-year as consumer price inflation increases. When investing
you want to prevent loss of purchasing power. Inflation linked bonds are a way
of ensuring your money does not lose its purchasing power over time.
What are the interest rates offered on RSA inflation linked bonds?
| Term | Inflation linked |
|---|
| 3 year | 2.75% |
| 5 year | 3% |
| 10 year | 4% |
last updated 2nd April 2024
Source: National treasury website
What are RSA Retail bonds?
Here are the most important features of RSA Retail bonds.
Issued by Government. SA Retail bonds are
offered by the SA government to South African citizens. They were launched
in 2004 to encourage savings.
Only South African private individuals can invest. You have to be a South African citizen to qualify. No companies or trusts
may invest in them.
Minimum investment is R1000. Maximum
investment is R5m for any individual.
No charges, commissions or costs are associated with them.
Investment options. You can choose to invest
in fixed rate bonds or a bond linked to inflation.
Terms available. 2-, 3- or 5-year terms are
available for fixed rate bonds. Whereas the inflation-linked bonds offer 3-,
5- or 10-year terms.
Interest payouts. You can choose to have
interest paid out every six months or at maturity of the bond. Individuals
over 60 are allowed to have interest paid out monthly.
Rates offered. The rates _on offer_ are
reviewed by National Treasury every month. So these can change on a monthly
basis. Importantly - just like fixed deposits - the interest rate you get is
the one you agreed to invest in at the start of your investment. This is
locked and guaranteed throughout the investment period. If rates were to
fall, you will still get the same rate agreed to at the start of your
investment.
RSAs offer a restart feature. This is a great
feature of RSAs. If rates were to go higher, they offer the option of
restarting the investment with the higher rate. Take note of this! Your
bank's fixed deposit does not allow for this.
Here is an example. Let us assume you invested
in the five year fixed rate bond. Three years later, rates increase by 2%.
The restart feature allows you to restart your investment to make use of the
higher rates on offer. You can choose to restart your investment in any of
the available terms. So you could reinvest in the 2 year fixed rate bond. No
penalties or costs are associated with this. However, you must have been
invested for at least 12 months to make use of the restart feature.
Withdrawals. Full or partial withdrawals are
allowed after the bond has been held for one year. However, a penalty of one
interest payment will be applied.
Withdrawals prior to 12 months. Early
withdrawal requests can be made even if you are invested for less than 12
months. However, these are honored at the discretion of National Treasury.
"Extraordinary circumstances" will have to apply. You will need to fill out
a form - see
here
- and provide the reasons for the extraordinary change in your circumstance
in order to qualify for the withdrawal.
What are the disadvantages of RSA retail bonds versus fixed deposits offered
by banks?
#1 Customer service. Whilst I have had good
experience dealing with the RSA retail bonds operations team at the National
treasury, others have not had the same experience. This is a government run
institution and so you can certainly expect response times.
#2 No app & website user experience is not as good. The banks constantly update their websites and apps to ensure their
clients get the best user experience. They are competing with each other.
The national treasury website does not have the same user experience. The
website looks like it came from the 90s and there is certianly no iPhone or
Android app. See
Picture of National treasury website client portal
Are RSA retail bonds riskier than fixed deposits offered by banks?
No. The probability of the SA government failing to pay its local debt taken
up by their own citizens (ie RSA retail bonds) is lower than a retail bank
failing to pay their debt. Whilst we have had governments fail to pay debt
in the past - look at Argentina or Russia - this was notably on their USD
denominated debt. This was debt not denominated in the home currency and was
held mainly by foreign investors. Argentina and Russia were unable to pay
this debt due to large depreciation of their own currency. Bottom line:
Whilst any investment has a risk attached to it, the risk of the government
defaulting on your RSA retail bond investment is too small to worry about.
How can you invest in RSA retail bonds?
The easiest is to sign up on their website at
secure.rsaretailbonds.gov.za