RSA Retail Bonds vs Fixed Deposits: Which one is best for you…

Walk into any conversation about safe income investing in South Africa and two names come up immediately: RSA Retail Bonds and fixed deposits. Both are widely regarded as safe. Both pay a fixed interest rate for a fixed term. Both are readily available to retail investors. Most people treat them as essentially interchangeable and pick whichever has the higher number on the day they invest.

That’s the wrong framework. Because once you look at what each product actually pays – after SARS takes its share, at different marginal tax rates, across different terms – the comparison produces results that most investors have never seen laid out clearly.

And there are specific investor profiles where the conventional choice is almost certainly costing money.

The current rates for retail bonds and fixed deposits – what’s on offer right now

On the headline numbers, the best fixed deposit (9% over 60 months at Fedgroup) edges the RSA Retail Bond’s best 5-year rate of approximately 8.5%. But headline rates are where the easy comparison ends, and where the important one begins.

The tax reality: What SARS actually takes

Both RSA Retail Bonds and fixed deposits generate interest income, which is taxed at your marginal income tax rate. Neither product has preferential tax treatment. There’s no dividend tax rate, no capital gains rate, no special exemption for government bonds. Interest is interest, and SARS taxes it as income.

What does matter is the annual interest exemption. For the 2026/27 tax year, the first R23,800 of local interest income is tax-free for individuals under 65. For those aged 65 and older, the exemption rises to R34,500 per year. RSA Retail Bond interest counts toward this exemption – exactly the same as fixed deposit interest.

Here’s what the after-tax return actually looks like on a R500,000 investment at different marginal rates – assuming the full interest income is taxable (i.e. the exemption has already been used elsewhere, or the interest income exceeds the threshold):

On a pure after-tax rate comparison at the current best rates, the fixed deposit wins at every marginal tax level, but the margin narrows as the tax rate rises.

At the top 45% bracket, the advantage is just 0.27%. On a R500,000 investment, that’s approximately R1,350 per year. Before you factor in the features – and the features change the picture significantly.

What the rate comparison misses entirely

The after-tax rate is only part of the story. Three structural features of the RSA Retail Bond – none of which appear in any fixed deposit – materially change the comparison for specific investor profiles.

The first is the restart option, and it’s the RSA bond’s biggest advantage. After 12 months, you can restart your investment at the new prevailing rate – without penalty, without forfeiting interest already earned – and the term resets too, so a 5-year bond can restart as a fresh 5-year, 3-year or 2-year bond.

No fixed deposit offers this. Once you’re locked in at a fixed rate, you’re in for the term, and the only way out is an early withdrawal penalty. In a rising rate environment, the restart option is an upward reset option that no bank will match.

The second is monthly income – available to RSA Retail Bond investors aged 60 and older, with interest paid directly into your bank account every month. This makes the RSA bond a genuine monthly income vehicle for retirees, not just a lump-sum growth product.

Most fixed deposits pay quarterly or at term. Note the age distinction here: the monthly income option kicks in at 60, while the higher R34,500 annual interest exemption applies from age 65. A retired investor aged 62, for example, gets the monthly income benefit but still uses the R23,800 exemption – not the higher one. For investors aged 65 and older who qualify for both, the combination of monthly income and a larger tax-free threshold makes the RSA bond very competitive for anyone living on interest.

The third and most underappreciated is reinvestment risk. When your fixed deposit matures, you must reinvest at whatever rate is available on that day. If rates have fallen, your income drops permanently until the next maturity. You have no recourse.

The RSA bond’s restart option addresses the opposite scenario: if rates rise, you reset upward after 12 months. But for the investor worried about rates falling, the fixed deposit’s inability to reset is actually an advantage. Locking in 9% for 60 months means not facing reinvestment risk until 2031. That’s the trade-off: the RSA bond protects you if rates rise; the long-term fixed deposit protects you if they fall.

Who should choose what

• Choose RSA Retail Bonds if:

You’re 60 or older and want monthly income without a complicated product structure. Your total interest income falls within or close to the R34,500 exemption – making the tax difference between the two products irrelevant.

You want the restart option as protection against a surprise rate increase after 12 months. You want National Treasury backing rather than CODI’s R100,000 per-bank limit. Your capital in any single institution exceeds R100,000 and you’re uncomfortable with CODI’s coverage ceiling.

• Choose fixed deposits if:

You want to lock in the current 9% rate for 60 months as protection against falling rates – the restart option works both ways, and if rates fall, the fixed deposit’s inability to reset is an advantage.

You need a shorter term than 2–3 years. The RSA Retail Bond’s minimum meaningful term is 2 years, with early withdrawal penalties. Your capital is comfortably within CODI’s R100,000 per-bank limit, removing the safety advantage of National Treasury backing. You’re comfortable with rolling short-term deposits and want maximum flexibility.

The right product isn’t the one with the higher number. It’s the one that puts the most money in your account after SARS, after term, at your specific age and tax rate. Now you have the framework to work that out.