How to Invest in RSA Retail Savings Bonds

National Treasury launched RSA Retail Savings Bonds in 2004 to encourage South Africans to save and to boost personal economic empowerment. They offer competitive interest rates, guaranteed returns and carry no commission, investment or administration costs.

The bonds were initially available from the Post Office, Pick n Pay, Boxer and Scores stores throughout the Republic as well as directly from Treasury via the RSA Retail Savings Bonds website, fax or email, or at their walk-in centre in Church Street, Pretoria.

You can no longer buy the bonds at the Post Office or the abovementioned stores, but they are still available from Treasury (fax, email, walk-in and online).

To invest, you must be a South African citizen or permanent resident with a valid identity number and a South African bank account. There is no age restriction; however, children under 18 years of age must obtain parental consent.

There were originally two types of savings bonds: fixed-rate and inflation-linked bonds. A third type, top-up bonds, for recurring contributions, was added in 2022. While top-up bonds may be used by stokvels, social clubs, companies or other juristic persons, the fixed-rate and inflation-linked bonds are available only to individuals. They are not transferable.

The rates on the retail bonds are related to the yields on the government’s shorter-term sovereign bonds. Unlike sovereign bonds, which are bought mainly by institutional investors, retail bonds are not traded on a secondary market. The rates (which you can see here) are reset at different intervals depending on the type of bond.

Fixed-rate bonds

These are available for terms of two, three or five years, each with its own market-related interest rate. Like a bank fixed deposit, the rate is fixed for the term – thus the return is guaranteed. Interest, due twice annually, on 31 March and 30 September, may be paid into the investor’s bank account or reinvested, adding to your capital and ensuring compound growth. The minimum investment amount is R1 000 and the maximum is R5 million.

Inflation-linked bonds

These are available for terms of three, five or 10 years, each with its own market-related rate, which is fixed for the term. The rates are lower than those of the fixed-rate bonds, but the capital amount is adjusted twice annually for inflation (31 May and 30 November) in line with the Consumer Price Index. This means that not only does your capital increase with inflation, but so too do the interest payments. In these bonds, interest cannot be reinvested – they are designed to provide an inflation-linked income, not for investment growth. The minimum investment amount is R1 000 and the maximum is R5 million.

Top-up bonds

These were introduced to allow for people who want to put away smaller amounts regularly. The bond has a three-year term but your investment can be rolled over for a new term (see below). You may contribute when and as often as you like. The minimum initial amount is R500 and the minimum top-up amount is R100. Unlike the other types of bonds, the interest rate is not fixed for the term; it is reset every three months.

More features and conditions

• Monthly payments for pensioners: If you are over 60, you may request that interest be paid monthly.

• Rolling over: Investments can be rolled over for a further term, subject to the interest rate of the new term. On the top-up bond you receive a once-off bonus of 0.2% for rolling over for another three-year term in the same product. Once the balance is over R1 000, you may switch a portion of your savings into either a fixed-rate or inflation-linked bond, provided the remaining balance is at least R250.

• Restarting: An attractive feature of the fixed-rate bond is that, at any time after a year, you can “restart” your investment if the interest rates on these bonds have improved. You begin the term anew at the higher rate.

• Withdrawing early: On all the bonds, you may withdraw early after the first year of investment. However, a penalty effectively equal to one interest payment will be deducted from the early-withdrawal amount.

• Procedure on death: Within 20 days of instruction from the executor, the investment will be paid into the deceased estate of the bondholder. As such it is subject to estate duty and executor’s fees.

• Tax: Interest, whether paid out or reinvested (and including inflation-related capital adjustments), is considered income and must be added to your taxable income for the year. SARS will exempt the first R23 800 of interest income if you’re under 65 and the first R34 500 if you are 65 years of age or older.

References:

https://secure.rsaretailbonds.gov.za/Home.aspx

https://www.fnb.co.za/blog/investments/articles/EquityInsights-20241024