This is another offering from Std Bank that gets a big thumbs down from us. The radio ad sounds promising:
• Access up to 40% at any time
• Great interest rate of up to 7.4%
However, you only get 7.4% on an investment of R5m or more that you are prepared to invest for at least 12 months (you would have to be crazy to do this)! For most of us the interest rate would be closer to 6% pa.
And while you can access up to 40% of your investment amount before the term expires, you will be penalised if you want to access more.
So why would you invest your money into an account with a low interest rate and a penalty to access your funds when you could be getting ±8% on a money market unit trust account with full access to your funds within 48 hours and no penalties?
But not for long…
If you are looking for income from your cash then the RSA Retail Bond (2 year fixed-rate option) is still offering 8% – that’s about the best “guaranteed” option available. But that rate is likely to fall by about 0.5% at the beginning of December (the repo rate was cut by 0.5% to 5.5% last week).
To qualify for the 8% rate you need to have invested the money with them before the end of November, so you still have about 1 week to go.
On an amount of R500000, the difference between 8% and 7.5% is about R208 per month…that’s about 13 cappuccinos or about 26 litres of petrol…worth getting a move on in my opinion.
I don’t think I would go for the 3 year option at this stage…it is quite a long time and rates are likely to start increasing again sometime in the not too distant future. With the 2 year option, you at least have the option to increase (re-start) your bond after 1 year…so if rates have increased in the next year you can participate in that increase. I guess the only risk with the 2 year option is that rates fall a bit more in the next 2 years and are still lower by the time you need to re-invest your bond but looking at all the yield curves this looks highly unlikely.
Thanks to Atlantic Asset Management for the help on forward rates.
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.
I heard an advert on the radio last night for Nedbank’s new “Park-it Limited Edition Investment account”…seems that if you give them R10000, they will give you up to 6.25%* interest per annum and after the first 14 days you can have access to your funds with 24 hour notice. There are at least 2 problems with this…
- “Up to” 6.25% (turns out you need to invest R1million to get this rate – R10000 gets you 5.75% – the small print says that the rate will be tiered according to the balance.
- You cant access the funds for the first 14 days.
Now while this may not be a problem to anyone not needing the funds urgenlty, it is certainly a problem to anyone thinking of using this as an emergency fund. To my mind, there are far better options both for emergency fund money and also for those looking for high interest accounts.
For emergency money you are going to struggle to beat a money market unit trust account – no fees to get in or out, instant access (24 hour notice on most), the best interest rates and most importantly of all, safety! The historic yield on a money market unit trust fund is ±7-7.5% but dont expect this going forward – rates have fallen and it is more likely to be ±6.5% for the next 12 months. (Minimum investment amounts are not as high as the banks would have you believe and there is even a money market unit trust that will take a R1000 debit order.)
There is also Capitec Bank which is offering an incredible 7% on daily savings accounts – this is an awesome rate and an excellent alternate to the unit trust but only for the first R10000 (the rate falls after that)!
Longer term investors looking for high interest rates should consider the RSA Retail Bond – this is a government guaranteed bond with 2, 3 or 5 year options. The 2 year option is currently 8.5% and on all of them you are locked in at that rate for at least 1 year – thereafter, if rates have increased you will be able to increase the rate on your bond for the remaining period as well. If rates fall your rate stays fixed! No fees to get in and interest can be paid monthly!
As a rule, my advice is to stay far away from banks when looking for interest bearing investments – they are there to make as much money from you as they can – there are far better options than the traditional banks!
With interest rates having fallen so far and the possibility of still more cuts on the horizon, anyone looking for interest income is pretty hamstrung at this stage. Money market rates are 7% per annum and many of the banks are offering “exceptional rates” for 1 year fixed deposits. They will even “enhance” this if you are over 55.
For anyone who is prepared to be locked in for a while there is an even better option that has been overlooked while short term interest rates have been high and that is the RSA Retail Savings Bond. It is a 2, 3 or 5 year option that is being offered by the SA Government (National Treasury) directly to the public and the interest rates are far better than anything else out there (and there are no fees to get in). The only “catch” as I can see it is that you are locked in for the period (you can exit after 12 months but there will be an exit penalty). The rates are in the table below but for more information on this go to www.rsaretailbonds.gov.za
CURRENT INTEREST RATES
|2 Year Fixed Rate
|3 Year Fixed Rate
|5 Year Fixed Rate
They also have an inflation linked option which is also quite attractive.
That’s all for now