The RSA Fixed Rate Retail Savings Bonds offer a fixed interest rate over the 2-year, 3-year or 5-year investment period. The fixed rate will be reset ever month if necessary. The rate applicable for the month you invest in will be the rate that applies over the entire term of the RSA Fixed Rate Retail Savings Bond.
Investors have the option to receive their interest payments semi-annually or reinvest the interest at the same interest rate. For investors 60 years and older there is also the option to receive their interest payments monthly.
The Inflation Linked Retail Savings Bond simply means that the money you invested will grow with inflation (CPI) and your capital will be adjusted accordingly every six months.
On interest payment dates, which are 30 November and 31 May of each year, an interest payment will be made to the investor and calculated on the inflation adjusted capital. For example if you invested R10 000 and for the first six months your inflation adjusted capital grows to R10 500 interest will be calculated on the R10 500. Over the next term (six months) your R10 500 will be inflation adjusted again and could increase for example to R11 000 depending on the Consumer Price index (CPI) rate. The interest payment for the next six month will then be calculated on R11 000 and so it will continue. On maturity the inflation adjusted capital as on the maturity date will be repaid in full.
The interest payable every six months is based on a floating real interest rate, which means that the National Treasury will adjust the rate, if necessary, every six months. The floating real interest rate is derived from the Government Bond Inflation Linked yield curve as traded on the Johannesburg Securities Exchange (JSE) formerly the Bond Exchange of South Africa (BESA). A real interest rate is the difference between annual rates and the inflation rate. The Government Inflation Linked Bond yield curve, depending on market conditions, should reflect the prevailing real interest rate in the market.
The important thing to remember with the Inflation Linked Retail Savings Bonds is that your investment is protected against inflation and will always outperform inflation by the floating real interest rate.
Investors will consider inflation linked bonds when the expectations for rising inflation are high. If inflation is decreasing, it is better to fix your rate.
Inflation linked bonds are well suited for savings of longer terms such as saving for retirement, or saving for your children’s education.
The National Treasury is able to offer the protection of the inflation linked bonds to the South African public. Assurance companies have been buying these types of bonds for many years on the bond market from the National Treasury for their clients. Now investors (members of the public) have the opportunity to buy inflation linked bonds directly from the National Treasury with no additional costs.