RSA Retail Bonds

RSA Retail Bonds

The short term outlook for interest rates seems to be bad for those that are living off interest income…it looks like interest rates could stay low for quite a while and it is even possible that we could see another cut before the year end.

(Once again) if you are a pensioner living off interest income your “salary” has effectively been halved over the past few years by all the interest cuts and while inflation might officially be at some unbelievably low level the cost of living seems to have risen (oblivious to these low inflation figures).

So if you are looking for interest income, what are your options?

The “only” option (in my opinion) is the RSA Retail Bonds – the 2 year rate is still 8.5% while the 3 and 5 year rates are 8.75 and 9% respectively. There might be other products out there offering similar or even slightly higher rates but the reason that they are offering higher rates is because there is higher risk associated with them. The RSA Retail Bond is guaranteed by the SA Government (which is about the safest guarantee you can get in SA).

An “investment” of R100000 for 2 years would give you the following monthly interest:

  • RSA Retail Bond – R708.33 (R8500/12)
  • Capitec – R650 (R7800/12)
  • Nedbank – R454 (R5450/12)
  • FNB – R467 (R5600/12)
  • ABSA – R463 (R5560/12)
  • Std Bank – R450 (R5400/12)
  • “Average” Money market unit trust – R500 (R6000/12)

Rates on the RSA Retail Bond are adjusted at the end of the month (unlike money market rates which move daily) and so if you are looking for interest income and are prepared to lock your capital away for the next 2 years then you still have until the end of September to invest at 8.5% (it is quite possible that the rate will be adjusted downwards by 0.5% at the end of Sep).

Based on the above information (and that available on the various bank websites) I would stay far away from all of the “big 4” bank fixed deposits – even unit trust money market rates are better than their rates.