Retail Savings Bonds (“RSBs“) are not only the safest interest rate investments available to Retail investors, but have also consistently and comprehensively outperformed all Bond and Income funds over the past 10 years.

The chart below shows the average annualised returns of Bond and Income funds and that of a Fixed Rate 5 year Retail Savings Bond that has simply been managed by making use of the restart option*.

Over the past 10 years, a 5-year RSB investment has yielded 2.26% p.a. more than the average bond fund, and 2.33% p.a. more than the average income fund. In both cases this means a better than 22.5% outperformance over the 10 years.

We believe that this differential in returns will be sustainable given the natural advantage that the restart option gives RSA Retail Savings Bonds – see a detailed article here, and means that for many investors it should be a simple decision to move their Bond/Fixed Income investments to Retail Savings bonds.

Managers and marketers of Bond and Income funds will make arguments along these lines in favour of investing in their funds:


Investing in a fund gives daily/overnight access to your money


The funds are professionally managed and diversified credit wise


“Our fund is the top performer, better than the average used above”

We will discuss each of these, but it is worth looking briefly at an outline of the characteristics of Bond and Income Funds (extracted from the term sheets of some of the better performing funds):

Common Name
Fund Classification

Income Funds
Interest Bearing Short Term

Bond Funds
Interest Bearing Variable Term


Returns in excess of Money Market Funds

For investors seeking capital stability

To outperform the All Bond Index
Returns in excess of Money Market Funds

Investors prepared to accept the risk of capital losses

Suggested Investment Horizon

1 year +

Typically 3 years +

Some managers say 1 year +


Less than 2yrs (regulated)

Not specifically regulated, but typically between 4 and 7 years

Total AUM (End Oct)

> R110bn

> R20bn

Credit Exposures

Banks, Government, Corporate

Banks, Government, Corporate

Number of Funds



Looking now at the arguments that will be made for investing in these funds:


Investing in a unit trust enables an investor to withdraw funds on a daily/overnight basis.

  • This is certainly true (most of the time, see comments re ABIL/Steinhoff below**), but the fund managers themselves suggest that investments should be for 1 year + for Income funds, and 1 to 3 years for bond funds.

  • Investors requiring money in the short term are usually advised to use Money Market Funds, rather than Bond or Income funds.

  • If the investment is being held as part of a diversification/balanced portfolio approach, daily liquidity is less important than the longer-term yield.

RSA Retail Savings bonds do have their own liquidity restrictions, so are also not suitable for those expecting to need their money within a year.

  • Once the bond has been held for a year, it is possible to redeem at the cost of one interest payment.

  • Investors over 60 can opt to receive interest monthly, which means the cost of early redemption is small, but for those under 60, the cost would be a more punitive 6 months interest.

Our belief is that most investors in Bond and Income funds are long term holders, interested primarily in the yield and non-equity exposure, than in daily liquidity. If this is your situation, then RSBs will be a better home for your money.


  • Diversification is generally accepted as a good idea when it comes to investing. This is based on the theory that it will produce better risk adjusted returns.

  • There are however times when diversification is not necessary, as it doesn’t reduce risk or improve yield. This is the case with RSBs which consistently provide better returns, with lower risk of default than any of the diversified funds.

  • SA Government debt, including RSBs, remains the best quality credit with the lowest risk of default available in SA. For further comment see here.

  • Most Income and Bond funds have the mandated ability to invest in bank/parastatal and corporate credit. The managers of these funds are competing for your investments, and to improve fund returns many are investing in debt with a greater risk of default than the Government. While this helps to improve returns, it also increases the risk of losses, as happened not so long ago with ABIL

RSBs provide better returns at lower risk than Bond or Income funds.


The earlier chart compared the performance of RSBs against the average returns achieved by Bond and Income Funds, as this is what investors as a whole have experienced.

  • Some managers will rightly point out that they are better than the average

  • We also like to think we are better than average, and would be able to choose a fund that will do better than average over time. Experience and research shows that this is difficult to achieve, especially as the best performing funds also tend to change over time

As shown in the charts below, RSBs outperform even the best Bond and Income funds.

  • The shaded area in each case covers the range of fund performances.

  • So, even those good or lucky enough to have invested in the best performing fund would have underperformed RSB by 1.3% p.a. (Bond Fund) and 1.93% p.a. (Income Fund), over the 10 years

  • And if unlucky enough to have chosen the worst fund, the underperformance would have been an ‘impressive’ 4.36% p.a. (Bond Fund), and 2.86% p.a. (Income Fund)

RSBs outperform even the best performing funds

For most of you that will hopefully be enough to either make you happy you are already invested in RSBs, or to consider moving funds from Bond/Income funds to RSBs.

For those interested in reading a bit more as to why the RSBs do better than professionally managed funds, read on.

So why do the Fixed rate RSB’s give better returns than the Funds?


Option to Restart

Undoubtedly the option to restart is a major advantage, as is the fact that RSBs are issued at a margin above the traditional Government bonds.

Some commentators believe this is not an investment option that the National Treasury should be providing.  Our take is:

  • Anything that can be done to improve savings rates, and outcomes for savers is to be welcomed.

  • These bonds will always only make up a tiny fraction of the Government’s funding efforts – our current estimate is that the +-R10bn in issue makes up < 0.5% of the SA locally issued Government debt.


Fees charged by the funds will affect the returns they can deliver.

The range of fees is quite wide:

Bond Funds



Total Expense Ratio



Initial Fees



Broker Initial Fees



Income Funds



Total Expense Ratio



Initial Fees



Broker Initial Fees



Although most funds no longer charge initial or broker fees, there appear to be some that still do, which in this day and age is unjustified.  It is also not clear whether the initial or broker fees are reflected in the performance of the funds, which may mean underperformance relative to RSBs is understated in some cases.

RSBs on the other hand incur no fees

The cost of Money Flows

It is not easy to determine the effect of money flows into and out of funds, but this does affect the manager’s ability to be fully invested.

Where active investors are able to time their entry and exit from funds this can also have an effect on the returns of long term holders, who effectively share the upside when interest rates fall, but then are left to bear the downside when rates rise.  This is particularly the case for funds that are not marked to market.

With RSBs, you are fully invested at all times, and the value of your investment is not affected by what anyone else is doing.

Positioning “costs”

Fund managers all claim to actively manage portfolios according to their views on interest rate cycles.

Calling the movement of interest rates is not easy however, particularly in an environment like South Africa’s, where political risks and foreign flows of money can have a big influence.

The reality is that where managers do position themselves to take advantage of interest rate moves, they will sometimes get this right, and sometimes not.

This means that most managers stick fairly close to the benchmark they set for themselves, and then aim to beat this benchmark by making use of credit risk to outperform the benchmark marginally.

Even with the ability to invest in assets with lower quality credit that the Government, and to position the portfolios to take advantage of changes in interest rates, Fund Managers have been unable to match the returns offered by the managed 5 year Fixed rate RSB.

There are not many investment opportunities where the lowest risk option is also the best performing, and Investors looking for Interest Rate Income should seriously look at moving their investments to RSA Retail Savings bonds.

More details about RSA Retail Savings bonds, and for ongoing assistance with managing them can be found at:

*All Fixed rate RSA Retail Savings bonds have a restart option

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

  • For modelling purposes, it was simply assumed that once the bond was eligible to be restarted (i.e. had been held for at least a year), it was restarted as soon as the restart yield was higher than the yield on the bond being held

**For funds investing in less liquid parastatal and corporate debt, liquidity is affected in times of stress, and overnight access to funds may be restricted.  A recent example of this was where investors in funds that were holding ABIL debt had part of their investment ‘side-pocketed’.  Much has been written about the ABIL default, some examples are given below:

Of current relevance is the Steinhoff saga, and an early article about possible effects on the owners of the debt can be found here:

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

BondClub Market Data

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