Retail Bonds v Bank deposits
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.
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).
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.
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.
If you would like to join my inner circle and receive the most regular updates with the juiciest information, - then email firstname.lastname@example.org asking to become a paid subscriber.
Due to regulations, our emails and this entire website should be considered as having been set up for entertainment purposes alone. Expect errors and omissions. Investment in shares should be conducted by professional investment experts only. Any use of the information on our websites and newsletters is at your own risk, and by using it you agree that the owners of our websites, authors and associated parties wont be held liable for any losses suffered as a result of using the information. None of the information should be construed as being advice. Our newsletters, articles, discussions and website are not an offering for any investment. It represents only our and others' opinions. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. Illustrations, forecasts or hypothetical data are not guaranteed and are provided for illustrative purposes only. There are risks involved in buying or selling a financial product. Past performance is not indicative of future performance. Any investment values given are not guaranteed. Investment returns can be volatile. When investing there is the risk of losing all or a substantial amount of your investment, as well as the risk of illiquidity. There may be advertisements on some pages on this website, and we may earn income from these advertisements. We may earn commission on products invested in or annuities purchased. We cannot attest to the accuracy of the material presented here, and opinions expressed may be changed without prior notice. Free Investment Advice is the trading name of Cheap Flights South Africa CC, a licensed Financial Service Provider (FSP number 43555). You may contact us at email@example.com