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SA Retail Bonds

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8 Sep 2012. The return on SA Retail Bonds is now 7% (was 8% at the start of the year) for a 5 year period. Still worth considering for South African citizens or permanent residents who do not require immediate access to their funds. Retail Bonds are backed by the South African government.

Types of retail bonds

There are 2 types of retail bonds:

RSA Fixed Rate Retail Savings Bonds

At application only, investors may choose whether interest payments should be reinvested (in which case they will attract interest at the same rate as the originally invested amount) or receive interest semi-annually on the 31st March and the 30th September (Investors who are 60 or older may, at application, choose to have interest paid into a designated bank account on a monthly basis - called a Pensioners Bond).

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, providing some protection against the risk of yields increasing (if you're willing to commit to another term).

Inflation Linked Retail Savings Bonds

Interest is paid twice a year on 31 May and 30 November, and there is no option for reinvesting interest payments.

Interest rates

Interest rates are obtainable at www.rsaretailbonds.gov.za On the 8th September 2012 rates were:

FIXED RATES

INFLATION LINKED RATES

2 Year Fixed Rate

6.00%

3 Year Fixed Rate

6.50%

5 Year Fixed Rate

7.00%

3 Year Inflation

1.00%

5 Year Inflation

1.25%

10 Year Inflation

2.25%

Early withdrawal penalties

Early withdrawal may only be made after a year, and the penalty is between 6 & 9 months of interest. The capital balance after the early withdrawal must be at least R1000.

Purchase of SA Retail Savings Bonds

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

Tax

I'm not a tax expert, but it's important to take into account the tax implication of your decision. At the time of writing the situation was that the interest on SA Retail bonds above the tax-free component, is taxable at your marginal rate. The Minister of Finance also indicated that they are considering phasing out the interest-free component in favour of tax-preferred savings products.

Retail notes

At the time there was only 1 retail note listed on the Johannesburg Stock Exchange, SBR003, issued by Standard Bank and expires on 5 Nov 2013, paying quarterly interest at JIBAR+0.3%. There is usually a market maker ensuring it's trading at fair value.

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