From Personal Finance
October 13 2007
By Bruce Cameron
The National Treasury is increasing its range of interest-earning products for ordinary investors, with the particular aim of helping people on fixed incomes, such as pensioners.
The treasury is now offering an inflation-linked retail savings bond in addition to its fixed-rate retail bond, which was launched in May 2004. And André Pillay, the chief director of liability management at the National Treasury's asset and liability management division, says more savings products are to come.
Other innovations include:
Allowing people over the age of 60 to draw interest on the existing fixed-rate bonds.
The interest rates on these bonds increased on October 1 to 9.5 percent for the two-year bond, 9.75 percent for the three-year bond and 10 percent for the five-year bond. Some 17 000 people have more than R1.4 billion invested in mainly the RSA Fixed-rate Retail Savings Bond.
The gradual roll-out of retailer Pick 'n Pay as an agent for the National Treasury. The first stores where bonds can be purchased are in Observatory and Plumstead in Cape Town. You can already invest in bonds directly (call 012 315 5888 or visit www.rsaretailbonds.gov.za) or through any post office.
The capital value of the RSA Inflation-linked Retail Savings Bond is linked to the inflation rate. You invest your money in the bond, and every six months the capital amount is adjusted in line with inflation. The interest you earn is based on the increasing capital value.
For example, if you invest R10 000 and after six months your capital grows in line with the inflation rate to R10 500, you will earn interest on the R10 000 for the first six months and then on R10 500 for the next six months.
When the inflation-linked bond reaches maturity, you receive the increased capital amount.
Because you have the advantage of your capital increasing in line with inflation, the interest paid is a real rate, which is less than that on the fixed-rate savings bonds. The current interest rate is 2.75 percent a year. The inflation-linked bond is available for periods of three, five and 10 years.
When deciding in which bond and over which period you wish to invest, you must take account of how you see interest rates and inflation moving in the future.
The interest rate on the RSA Retail Savings Bond is fixed for the period of investment. The revised interest rates only apply to new investments made while a particular interest rate is valid.
The interest rate on the inflation-linked bond is a real floating rate that is adjusted every six months depending on the government bond inflation-linked bond yield curve. This means you earn the new rate after it has been adjusted.
The real rate is the nominal rate of interest less the inflation rate.