What are government retail bonds?
When you buy government retail bonds
, you’re effectively lending money to the South African government.
In return for lending money to the government, you receive twice annual interest payments. When the bonds mature, you receive your initial investment back.
The risk of investing in government retail bonds comes from the chance that the government won’t pay you interest payments or your initial lump sum back. The chance of this happening is very low.
The options with government retail bonds
When investing in bonds, you should select bonds that suit your investment horizon. You shouldn’t put money into bonds that you’ll need before they mature as you’ll pay a penalty for early withdrawal.
There are two types of bonds you can buy. There are fixed rates bonds and inflation linked bonds.
With fixed rate bonds, you know exactly how much interest you’re going to earn over the term of the bond. With inflation linked bonds, interest payments are adjusted to reflect the current rate of inflation.
You can also pick from a number of different maturities. The longest time period tends to pay the highest rate of interest.
How much do you need to buy government retail bonds?
The minimum amount you need is R1,000. To be able to buy government retail bonds, you must be a South African citizen or permanent resident with a South African bank account.
You may be liable to pay tax on interest you receive if you exceed your annual allowance.
So there you have it. What you need to know about government retail bonds.
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