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Retail Bonds v Bank deposits

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23 Jan 2012. A common question is whether fixed rate SA retail bonds or bank fixed deposits are better investment vehicles. The first thing to note is that SA retail bonds are backed by the South African government, thus providing more security than bank deposits. If a bank goes belly-up, then you're at risk of losing your money (and spending a lot of time praying that the Reserve Bank bails out the bank!). It's unlikely the South African Government wont honour guarantees denominated in South African Rands, as they have the means to print Rands. The upshot is that if rates and conditions are equal, one can sleep easier invested in fixed retail bonds than bank fixed deposits.

Comparing rates with the same term

I looked at rates on the Retail Bond & Bank Monitor website on 23 Jan 2012 (rates may have changed by the time you read this, and if you're a senior citizen, do check with the bank whether they have special rates). Amazingly enough, fixed rate SA retail bonds provide a higher return than bank deposits. This means that for a given term of deposit, you get the best of both worlds by investing in SA Retail bonds - higher rates and more security. However, the minimum term for a fixed rate SA retail bond is 2 years (if there is any chance of you wanting to withdraw earlier than the end of term, the analysis becomes more complex).

Institution:

SA Retail Bond

ABSA

FNB

FNB

Investec Private Bank

Nedbank

Nedbank

Postbank

Standard Bank

Interest @ 6 months (p.a)

not applicable

5.33%

5.30%

Not applicable

5.73%

5.30%

5.22%

5.85%

5.20%

Interest @ 12 months (p.a)

not applicable

5.42%

5.40%

4.25%

6.03%

5.40%

5.31%

Not applicable

5.35%

Interest @ 18 months (p.a)

not applicable

5.41%

5.85%

Not applicable

Not applicable

5.85%

5.31%

Not applicable

5.85%

Interest @ 24 months (p.a)

7.25%

5.47%

6.35%

Not applicable

Not applicable

6.35%

5.31%

6.10%

6.35%

Interest @ 36 months (p.a)

7.50%

5.47%

7.20%

Not applicable

Not applicable

7.20%

5.40%

Not applicable

7.20%

Interest @ 60 months (p.a)

8.00%

7.33%

7.70%

Not applicable

Not applicable

7.60%

5.40%

Not applicable

7.20%

Short-term deposits v SA Retail bonds

Some investors may rather want to invest in bank short-term deposits, as they think rates are going to rise, and want to be able to relatively quickly roll over into higher rates, rather than be locked into the 2 to 5 year term of fixed rate SA retail bonds. But Fixed Rate SA Retail bonds do have a measure of protection against rising rates in that, once your fixed-rate investment is older than 12 months, you are able to Re-Start your fixed rate SA Bond at the prevailing rate, (if you're willing to commit to another term).

Another reason investors may want to invest in short-term deposits rather than SA Retail Bonds, is if there is a risk they may want to access their capital early.

Purchase of SA Retail Savings Bonds

You can invest in SA Retail Bonds at any Pick 'n Pay store, by calling National Treasury at 012-315-5888 or at the Post Office.

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