RSA retail savings bonds

INVESTMENTS: EXPLORATION OF SOME GREAT INSTRUMENTS THAT OFFER GREAT RETURNS

- Simon Brown

We dig into another investment vehicle – RSA Retail Savings Bonds. These offer great returns in a couple of flavours.

The December fixed term rates have fallen by 0.75% (three-year) and 0.5% (two and five-year) in line with the underlying government bonds.

The inflation-linked bonds have also reset as they do twice a year. The changes are up 0.5% for three-year, unchanged for five-year and down 0.25% for the 10-year and are valid until the end of May next year. Both the income and capital increase is taxed as income.

Bonds - tell me more

Bonds are really just debt instruments. In this case, you’ve lent money to the government and it promises to pay a set interest rate and return your capital at the end of the term.

With these retail bonds, you’re buying in the primary market, so there is no risk of capital loss.

How safe is the money?

I would say very safe, practically 100% safe. The government could default on the debt, but that’s unlikely for two reasons:

First, these retail bonds are a small part of the overall government debt, so defaulting on them would not save much money.

Second, governments very seldom default on debt issued in their sovereign currency, as they own the printing press.