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Nedbank vs Treasury retail saving bonds

Which basket should you put your money in?

JOHANNESBURG – Nedbank (JSE:NED) and the National Treasury have been publicising their retail savings bonds as an investment option in a bid to raise funds while also promoting a savings culture in the country.

A Moneyweb reader wrote to us asking what was the difference between the two. There are both similarities and differences. The most obvious commonality is that with both you are lending the National Treasury and Nedbank money for which they will pay you interest.

Both Nedbank and Treasury allow you to invest a minimum of R1 000. With the Treasury Retail Savings Bond you can invest up to R5m, while with Nedbank you can put as much as you want without any cap.

Treasury and Nedbank say they do not charge any fees or commission for investing your money with them. No fees are charged for both investment options. The two investment options allow you to invest for two, three and five years and your minimum amount investment is guaranteed.

So what are the differences?

According to Nedbank’s executive for funding, Leon Daniels, the bank’s offer is limited in the sense that the product may not be available at the end of the year.

“There is a certain amount of money we would like to raise and when we have reached that target we will close the product. It’s not a one year kind of product it’s for the shorter term, it won’t be in the market for the whole year,” Daniels said.

Sinombulelo Mlisa, marketing manager at the National Treasury, said its product will be available for a longer period as it is not limited. Mlisa said Treasury’s appetite to raise money enabled its product to be available for a longer period.

Treasury gave a potential investor the option of investing through a fixed rate or inflation linked rate, while Nedbank only offers a fixed rate. With Treasury the investor has an option of receiving their interest half yearly  or as compound interest (at maturity) and if the investor is over 60 years they have an option of receiving the interest monthly.

Please see below the difference between Treasury and Nedbank’s rates:

Treasury Table (from Treasury)

FIXED RATES

2 Year Fixed Rate

7.25%

3 Year Fixed Rate

7.50%

5 Year Fixed Rate

8.00%

 

INFLATION LINKED RATES

3 Year Inflation

2.00%

5 Year Inflation

2.25%

10 Year Inflation

2.75%

 

Nedbank Retail Savings Bond (for clients < 60 years of age) (from Nedbank)

Balance

Period of Investment

Interest Monthly

Interest Quarterly

Interest Half-Yearly

Interest ANNUALLY

Interest on Expiry

R1 000 and more

2 years

6,90%

6,93%

7,00%

7,12%

7,37%

3 years

7,73%

7,77%

7,85%

8,00%

8,66%

5 years

8,60%

8,66%

8,75%

8,94%

10,69%

Mark Stedman, who deals with funding and savings products at Nedbank, said clients were not allowed to withdraw their money before their term of savings expired, save for certain pressing circumstances.

“We don’t allow early withdrawals this is a fixed-term contract of two, three or five years. The client has to be prepared to enter into such a contract. Under certain circumstances we will release prior to the end of the contract or expiry date. It could be circumstances like death or insolvency where by law we would be required to redeem their deposit,” Stedman said.

With the Treasury investment, Mlisa said withdrawals were allowed after 12 months and a penalty would be levied, however, where an investor experiences extraordinary circumstances and funds are desperately needed, then a withdrawal can be made within the first 12 months with strict conditions.

“The penalty is an average amount of the interest earned based on the withdrawal amount. It’s not calculated on the overall investment. We don’t have a standard figure that says we will charge you 5% or 10%. It depends on how long the investment has been in place and how much interest you have earned. But I can say that your initial capital is protected.”

Mlisa added: “The Retail Savings Bonds are one of the most cost effective tools to raise funds for South Africa, it means government will borrow less on the foreign and domestic markets and instead of paying interest to financial institutions government will pay it to ordinary South Africans.”

The Treasury product is sold at the Post Office, Pick n Pay, RSA Retail Savings Bonds website, Helpline (012 315 5888) and the National Treasury offices. The Nedbank offer is sold at Nedbank branches and through online banking or call centres.

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