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Retail bonds guarantee staggering returns

At the current 11.5% pa on a five-year bond, reinvesting the proceeds results in a period-effective rate of 14.4%.
With the rate set and fixed each month, the interest on a R100 000 investment made this month can take it to R174 500 in five years. Image: Waldo Swiegers, Bloomberg

The Chinese word for crisis, weiji, has often been mistranslated as comprising two symbols denoting danger and opportunity to highlight that many opportunities arise in times of danger.

Fortunes are lost and made during times of crisis where steady minds are rewarded for their objectivity.

With markets in turmoil and interest rates rapidly declining, one such opportunity is available until the end of April.

RSA Retail Bonds issued by National Treasury currently pay an impressive 11.5% per annum on a five-year bond.

Interest can be reinvested, paid semi-annually or monthly if you are over 60 years old.

The key

Reinvesting the proceeds results in a period effective rate of 14.4% due to the magical effect of compounding; a R100 000 original investment returning R174 500 (1.745x) at the end of the five years.

Most people are unable to instinctively think in terms of compounding as has been demonstrated by the exponential growth of the Covid-19 virus.

Warren Buffett has always highlighted the magic of compounding growth over long periods of time and his advice to investors has always been to combine it with low fees.

A government-guaranteed risk-free rate of 11.5% per annum for five years with zero fees certainly meets these criteria.

There are also two- and three-year bonds yielding 7.75% and 9% per annum respectively.

Bonds beat banks right now

The RSA Retail Bond rate of 11.5% is significantly higher than the current commercial banks rate of circa 6-7%, making it a compelling long-term savings initiative by government.

Pensioners and savers who depend on rand income for their rand savings will breathe a sigh of reprieve at this opportunity, with interest rates generally having sharply declined in synch with the central bank lowering rates.

To generate a similar return one would need approximately 1.8x more capital at a commercial bank.

Unique tax aspect

One needs to also consider their unique tax circumstances as shown in the illustrative example below:

Under 65 yrs Over 65 yrs
Bond value R930 000 R1 420 000
Yield 11.5% 11.5%
Income R106 950 R163 300
Exempt interest (R23 800) (R34 500)
Taxable income R83 150 R128 800
Tax @ 18% R14 967 R23 184
Tax rebate (R14 958) (R23 157)
Tax due R9 R27

Assuming no other income bonds of R930 000 for those under the age of 65 and R1.4 million for those over 65, the interest in this example would be exempt from taxes due to interest exemptions and rebates. Minors also qualify for investing if their parents apply on their behalf. At these levels of investment an 11.5% nominal, or 14.4% if reinvested, would be the net return to the investor.

Who would typically fit the investor profile?

  • Requires rand income to cover expenses;
  • Has rand savings available to deploy;
  • A long-term investor (or willing to pay a one-period interest penalty to exit after 12 months);
  • Has long-term rand requirements;
  • No appetite for volatility and requires predetermined fixed outcomes;
  • A low-risk investor; and
  • Has a minimum investment amount of only R1 000.

Bond investments are an often overlooked asset class with returns comparable or even exceeding the JSE in recent years. In the wise words of Buffett ‘Beware the investment activity that produces applause; the great moves are usually greeted by yawns.’

Applications and payments can be made online (here) to qualify for the April rates. Rates are set and fixed per month, and could decline in May.

Riaz Gardee is a mergers and acquisitions specialist and financial writer.

The views and opinions shared in this article belong to their author, cannot be construed as financial advice, and do not necessarily mirror the views and opinions of Moneyweb.


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I sometimes wonder how our government agrees to these interest rates? They lend at exuberant rates!!! In a world with such low interest rates? Inequality is the song they sing ? Not even China will lend at lower rates or lend at all ?

I previously invested R200 000 in RSA Retail Bonds some years back. At the end of a 3 year period, I got R248 000 paid out. Sounded terrific. But the inflation rate was then approx. 6%. So I grabbed my calculator and did minus 6% for 1st year = R233 120. Then minus 6% for the 2nd year: R219 132. Then minus 6% for the 3rd year: = R205 000 in real money. Ooh, not so great after all. Now I nearly failed maths at school, so my calcs may be out. Please would someone correct my maths if it’s wrong. Or is it correct?

Your average annual return (3 years, R200k to R248k) was 7.43% p.a. If inflation was exactly 6% p.a., on average, your R200k would have needed to grow to R238.2k to match inflation (remember compounding). So, you real rate of return was 1.35%, with an after-inflation “profit” of R9,797.

Rates will change come the 1-May as we get kicked out of the world goverment bond index due to junk

Of course, these rates are based on the yield curve.

Is it correct to calculate the 14.4% that way? The interest on reinvested interest is not yield on the capital only.

But still an incredible yield!

Sounds too good to be true coming from a Government that was already bankrupt before the Covid 19 disaster. The loans the ANC are now accepting are going to compound their financial woes even further. What do the experts say about investing in a scheme that sounds too good to be true ?

Totally agree. Where are the interest rates/yields coming from? Short term loans to SBDC ? Parastatals ? I just don’t see what guarantee, supports and substantiates this rate?

I smell a rat !!

The rand crashed by more than 20% this year, which is more than 14%. You’re betting that the decline in the currency will miraculously stop and that the R500bn plus millions more receiving grants, will have no effect on the rand. Rather you than me.

Can retail bonds be held in a Tax Free Account? Who offers a TFA like this?


I enquired and they said they were “looking into it”. But that was a few years back, so one supposes they might not ever do it.

You can buy the Absa Govi ETF that tracks the yield of government bonds.

There is no question that it is hard to beat this return:

But can one really get over the Mental Barrier of investing with the same Govt who are by their own policy admission ,(a) coming to take your land without compensation ,(b) already indicating that they want your Pension Assets via Prescribed investments ,(c)Will not utilise the Funds correctly via proven corruption & BEE give aways .
It is still cheaper for Govt to borrow at these rates than borrow cheap USD as they have to repay the USD when the Rand has substantially weakened :
I like the rate , I like the “guarantee” , I just cannot mentally give these guys more than they are already taking and plan to via their stated polcies!

And I,m not sure if WMC is accepted !

Period Effective Rate = ((1+11.5%/2)^(5*2)-1)/5 = 14.98%

Bond Rates are quoted semi-annually in South Africa and at National Treasury, not annually as per your inferred effective rate.

Note too that over 60s can opt for a monthly rate (to receive coupons monthly that is the quoted semi-annual rate; banks don’t do that, they adjust the monthly rate lower. (Note: reinvesting interest monthly is not allowed for RSBs)

Then there is the matter of the free put option to re-start if rates go higher after having the bond for 12 months or more. The risk adjusted relative value of this ZAR asset is superb! Thank you for the tax calc. People always think its overly onerous.

African Bank at 13.33% Effective in the 5-year…Not the best credit or the best investment rate in SA anymore…

The 14.98% is “simple interest”, if I remember my finance text books correctly. I personally have not heard the term “period effective”. Any external reference to “period effective” would be appreciated 🙂

But the effective annualised rate (assuming interest paid out at maturity) =
( 1+ 11.5%/2) ^ (5 x 2) / 5 -1 = 11.8%

Duly noted and agreed. Great site to dis-spell confusing marketing from simple, effective, naca nacs and nacm into a universal comparison figure

Unless the calculator on their website is incorrect, then the effective rate is indeed 14.98%. Using a R1 000 000 investment they quote a maturity value of R1 750 049.99 after 5 years.

Apologies for creating confusion, you are indeed correct that the effective rate is 11.8% and not 14.98% as per my previous comment. In this environment, still an attractive option.

The problem with the way these analysis are interpreted is more evident when you compare two investors:

A – draws nothing and let’s compound do its thing.
B – draws the money and invests it elsewhere.

It is not correct to say A earned 14.4 or whatever and B 11.5 if you do not consider the yield B earned on whatever he invested his interest in. B could have put it in his bond or got lucky in the JSE.

So the whole trick of especially absa and African Bank to headline the A scenario total yield including yield on past yields is in my opinion misleading advertising.

only yield on capital should be considered

My thoughts precisely.

After 35 years in the financial services, I find it difficult to understand their numbers. I have been monitoring their site and the levels confusion increase.

Even more disturbing is where do they get this rate? If one understands an interest bearing deposit, it depends on a lending side.
Who are they lending to? With all the downgrades and the eminent(actually they are) bankruptcies around most parastatals, SOEs (Escom, Transnet, SAA, South African Express, The Post Office, Armscor, etc etc ) I am very suspicious and doubtful that they are totally honest in their representation of what they have.

Almost feels that their sudden activity relates to a pseudo “crowd funding”. Just don’t trust them….that’s my thoughts

Wonder how many financial advisors recommend this as an investment option when advising clients. Considering the lack of potential to earn juicy commissions, i think we all know the answer.

Looking at the comments there are different views on how good an investment this is. Let’s ignore that debate for my argument.

Do you service your own motor car wanado because you are the DIY type of person and wants to save cost? Do you NOT buy a motor car as there is commission to be paid? Do you know the legislation, licenses, compliance a financial advisor has to comply to? Do you know that many professional advisors these days work/advice clients for fees and not commission? Investment type therefore becomes irrelevant.

You probably do not know this because you are making sweeping statements. The industry and people have changed a lot to the better.

I agree that the return is attractive, as the chances of SA defaulting on its debt in the next 5 years is small, despite current challenges. What I would add here, the following. You are locked in for 5 years, you cannot sell your investment. You cannot reinvest your interest at 11.5%, more realistic to use money market rates, that will also be taxable. It is not correct to use the primary rebate, as you will get that rebate regardless of your investment into this instrument. Some post offices are open, the online functionality seems to be offline so I am not sure how reliable that process is. Lastly as has been pointed out bond coupons are paid every 6 months. There are no fees to consider which is definitely a plus but can be seen as a trade-off relative to giving up all liquidity.

You could throw a dart at Africa or South America and find staggering returns on bonds..

Yet 90% will break even at best or lose money due to currency depreciation.

Investors would do well to diversify and not call the bluff of every emerging markets bond yield propaganda. They’ve been junked for a reason.

When do they post the yield for May? I want to buy some more but don’t know whether I should wait until next month?

The prevailing rate for the next month is only announced on their website on the 1st day of that month.

SA Bond yields have declined substantially since around 20 March so you will more likely see lower rates next month than currently offered.

That is unfortunate.

Do not let the impressive numbers and fancy words distract you from the fundamentals of economics and bonds: all a bond is is an IOU from the government stating that it will pay you back the principle plus interest over time. Where does the government get this money from? From taxes of course. This promise is basically a way to enslave the people further by hiking taxes at some future point in order to afford the interest – which we, the people, need to pay. Taking out a government bond is like a slave paying his master to enslave him.


If you look at the history of government bonds the new rate of 10% is still favorable in the current environment.

For a pensioner receiving a monthly income from the bond investment is better than the returns that the banks provide.

End of comments.





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