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Should you opt for fixed-rate bonds or a fixed deposit accounts?

by , 15 May 2015

If you're saving up for a specific goal or don't need access to some of your cash for a while, what are your options when it comes to low-risk investments?

You could opt to put your cash in the bank in a fixed deposit account or you could buy RSA Retail Savings Bonds.

So which is the better option for you?

Read on to find out…


What are RSA Retail Savings Bonds?


RSA Retail Savings Bonds are bonds you can buy into directly from the government. You can buy them from as little as R1,000.

There are two options available: Fixed-interest and inflation-linked.

If you decide to buy fixed-interest bonds, at the moment you can earn the following interest over one, three and five years…

  • Two years: 7.25%;
  • Three years: 7.75%; and
  • Five years: 8.00%.

At maturity of your bonds, you’ll receive the initial investment amount back. You can opt to reinvest your interest instead of taking the twice yearly payments.


What are fixed-deposit accounts?


Fixed-deposit accounts are accounts that offer you a fixed-interest rate for a set period of time.

Once you put your money into one of these accounts, if you decide you need access to the cash before the end of the term, you’ll pay a penalty.

There is usually a minimum deposit amount of around R10,000.


Which savings option is best?


There are two main considerations to weigh up before committing your cash.

The first consideration is the minimum deposit amount. If you don’t have a large lump sum to put in, RSA Retail Savings Bonds are the best option as you can buy these from R1,000.

The second consideration is the interest rate. From looking at current interest rates offered by the main banks, over two and three year terms, bonds offer the better interest rate. But over a five-year term there are better interest rates available through fixed deposit accounts.

When making a decision over which option is best for your cash, there are three things you need to look at:

  • The amount of cash you plan to put away;
  • The length of time you want to lock your cash away for; and
  • The interest rates on offer.

So there you have it. How to decide whether to put your cash into fixed-rate bonds or a fixed deposit account.

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