YOUR MONEY: I still don’t get why I should consider an RSA retail bond
They are a useful way to save if you need to put an amount away for a certain time and a specific purpose
Question: I’ve seen a lot of members recommend RSA retail savings bonds as an investment strategy, but I don’t get it, even after trying my own research. If anyone would be willing to explain in layman’s terms why this is a good idea, I’d appreciate it.
This after assuming all debts are paid, tax-free savings are maxed, retirement is covered and emergency savings are in place.
- Fat Wallet community member
The RSA retail savings bonds are great, but they have their place and time and are not always an essential part of an investment portfolio.
For one thing, as these are bonds and pay interest, they have no volatility. They will go up every quarter when interest is paid, and don’t go down. So they are stable and predictable. This is the benefit of having a different asset class, in this case, a cash savings product.
It especially helps when markets are volatile, as we’re seeing right now, but truthfully, volatile markets should not scare you into this product. Markets are inherently volatile and if you have time on your side (three or more years) that shouldn’t be a concern.
Personally, volatile markets don’t frighten me, but I still have a small part of my portfolio invested in these bonds at 11.5% fixed for five years. This is because, assuming inflation of, say, 5%, I am getting a real return of 6.5% locked in at the beginning of every year, regardless of what happens.
One situation where these bonds are great is when you have money right now that you’ll need only in the next few years. Putting that money into the market carries volatility risk, in that when it comes time to spend it, there may simply be less of it. A savings product such as the RSA retail savings bond gives you security of capital and return. So if that money is for, say, a wedding, or a deposit on a home loan, you know it’ll be there with earned interest when you need it.
- Simon Brown, Just One Lap
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