Attractive interest rates for monthly investments

BUSINESS


This week, the National Treasury announced a new addition to the RSA Retail Bond product range, making it attractive to people who want to invest on a monthly basis.

RSA Retail Bonds are interest-linked investment products issued by the Treasury that offer above-market interest rates for people wishing to save for up to five years.

The fixed rate retail savings bond series consists of bonds with terms of two, three and five years.

Fixed-rate retail savings bonds pay a fixed market-linked interest rate, priced based on the current government bond yield curve, not the repo rate.

For investors under 60, all principal and interest is only payable at maturity. However, people aged 60 and over can receive their interest monthly.

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Currently, the rate for a fixed deposit over two years is 7%, 7.75% over three years and 9.25% over five years.

Until now, investors could only invest a minimum of R1000 and there was no possibility of adding to the existing investment as each new deposit required an investor to open a new account.

However, from 1 April investors will be able to select the RSA Retail Savings Top Up Bond and start saving from R500 with the option to top up their investment as often as they wish with a minimum of R100 at any time. moment. the investment period.

RESTART OPTION

Unlike traditional fixed bank deposits, the RSA Retail Savings Bond offers a restart option which allows you to restart your investment after 12 months if interest rates have changed.

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For example, if you invested in the five-year retail bond and the rate goes up, you can choose to restart your investment at the higher rate after you have invested for 12 months.

This is an attractive option for people who fear that if they lock in their deposit for a longer period, they may miss out on higher rates, especially in a cycle of rising interest rates.

INFLATION BONDS

Unlike RSA fixed rate bonds, the total returns of 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 retail inflation-linked savings bond series consists of bonds with maturities of three, five or 10 years.

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The principal amounts invested in retail inflation-linked savings bonds are adjusted for inflation over term and a variable rate of interest is payable every six months on the interest payment dates.

Currently, rates are 3.5% for a three-year bond, 3.75% for a five-year bond and 4.50% for a 10-year bond. This means that 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 – plus interest earned.

Interest is paid on the adjusted capital, so 3.75% would then be paid on the new capital amount of R105,000, or R3,937.

Capital adjustments are made twice a year – in May and November.

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This product is specifically aimed at individuals who wish to receive income and payments are made to investors on the semi-annual payment dates of May 31 and November 30 of each fiscal year.

There is potentially a tax advantage for individuals, as the full return is not paid out as interest. Only the portion of the interest paid would be part of your taxable income.

The return of capital could be taxed as capital gains, but this would only be at maturity and is generally at a lower rate than personal income tax.


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