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RSA Retail Savings Bond a gift for low income earners

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RSA Retail Savings Bond a gift for low income earners

by Michael Appel
24 Jul 2008
BuaNews Online
BuaNews Online

Low income earners in South Africa have the opportunity to invest in their future with their money guaranteed by Government through Retail Savings Bonds.

The bonds are a safe and affordable option for low income earners especially.

"The RSA Retail Savings Bonds is consistent with the South African Savings Institute [SASI] message we're trying to spread [of raising awareness, debate and understanding of the importance of saving].

"The bonds are crucial to helping, low income earners, in particular, as it is the poor who cannot hedge against inflation," Sanlam Chief Strategist for Financial Sector Developments, and SASI Chairperson Elias Masilela told BuaNews, Thursday.

"The inflation linked retail bonds especially help to educate low income earners about investment and lets them know that getting inflation [growth on the investment] is the least they must expect.

"The bonds also equip low income earners with greater knowledge about other investment products out there," said Mr Masilela.

South Africans have access to two different products within RSA Retail Savings Bonds which include fixed rate bonds and inflation linked bonds.

The minimum a person can invest is R1 000 while the maximum is R1 million.

The fixed rate bonds are available in two, three or five year investment packages, where the investor agrees to receive interest at a set and fixed rate which will not change during the chosen period of investment.

Fixed rate investment is perfect for pensioners who invest a lump sum and do not want to deal with unsteadiness in their investment's rate of growth. It is also suitable for parents who want to save for their child's tertiary education expenses one day.

Inflation linked bonds, however, are offered for three, five or 10 years, and the investment's growth is tied to South Africa's inflation rate and will increase in value every six months dependent on inflation.

On top of the inflation adjustment to the amount a person invests, they will earn an extra interest rate on specific interest payment dates of 31 May and 30 November each year.

Interest earned on inflation linked retail bonds effectively means investments are guaranteed to grow ahead of the inflation rate no matter whether the inflation rate increases or dips.

According to National Treasury, South Africans have been discouraged from saving indirectly through high cost structures in investment, poor investment advise, a buying pattern of credit rather than cash spending, and with non-customised investment options.

The reason government can guarantee an investor their money back is because bonds will not be put into the market and traded at all, but the investment will go towards funding government projects and decreasing the current account deficit.

The more money people invest in retail savings bonds, the less money government needs to borrow from oversees creditors, thereby decreasing the country's reliance on foreign credit and at the same time allowing government to reinvest that money in infrastructure projects, for example.

Mr Masilela said SASI has been involved in the promotion of RSA Retail Savings Bonds since its launch in May 2004.

"We started discussing savings bonds [with the Treasury] before the launch of Savings Month [in July every year]. Going forward, SASI could possibly run a campaign dedicated to further raise awareness about RSA Retail Savings Bonds," he told BuaNews.

South Africans can invest their money with no fees being charged, in a simple, secure and accessible manner.

Investors can go to any South African Post Office branch, any Pick 'n Pay or directly to the National Treasury to start investing.

To date, RSA Retail Savings Bonds has R2.8 billion invested, with over 17 200 investors averaging an investment of R54 000 each. - BuaNews

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