The best of both worlds

An investor looking to maximise the interest rate they can receive, typically faces the following dilemmas::

  • If she invests in a fixed rate bond, she knows what she will get over the term of the bond, but what if rates increase dramatically?

  • If she invests in a floating rate or inflation linked bond, she will benefit from any increase in interest rates/inflation, but will earn less if rates go down

  • The longer the term of the investment, typically the more attractive the rate, whether this is fixed or floating. The incentive is thus to invest for longer, but this means the likelihood of a big move in interest rates, whether up or down, increases.

So, any investment in an interest bearing asset (Deposit or Bond) involves taking a view as to whether rates are likely to rise, fall, or stay the same, and how big any potential move may be.

Forecasting moves in interest rates is something even professionals struggle with. We have had our share of impressive interest rate moves over the years, and looking ahead the risk of big changes in South African interest rates remains high.

Luckily, Fixed rate RSA retail bonds, with their option to restart, give the best of both worlds – the only investments in the SA market that do this:

    • Buying a fixed rate bond gives a guaranteed rate over the term of the bond: 2, 3 or 5-years

    • Should interest rates move higher, as long as the bond has been held for at least a year, it can be re-started at the new rate, at no cost

    • When you re-start you have the option to invest for 2, 3 or 5 years, no matter what the original term of the bond was

The result of this "Option" to re-start is that investors can enjoy the benefits of rates moving both lower and higher

The BondClub Tool can be used to monitor and manage your bonds, and will highlight those bonds that are eligible for re-start, and those which it makes sense to re-start.

Our monthly commentary and ongoing insights will also keep you in touch with changes in levels of the various bonds, and how they compare to other investment options.

See BondClub Market Data for our comparison of rates available at the different banks

BondClub Market Data

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