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Picture: 123RF/159752599
Picture: 123RF/159752599

Question:

How safe are government retail bonds, given that you are essentially lending money to our government? And is there is a penalty for withdrawing your capital before term on a five-year bond?

— A Fat Wallet Facebook community member

Answer:

As you point out, you’re lending money to the government, so investing in retail bonds is about its ability to pay the interest and then repay the capital at expiry.

Though nothing is 100% certain, our government has never defaulted on its debt and is highly unlikely to do so in the years until your five-year bond expires. Moreover, the government owns the printing press, so it could just print more money, though that would create inflation and weaken the rand. But I consider my RSA retail savings bonds as being very safe and have no concerns.

As for early withdrawal, after one year you can elect to do so, but you lose any accrued interest that hasn’t yet been paid. If you have held the bond for less than a year you can request an early withdrawal;  the issuer will assess the reason and decide whether to grant the request.

Simon Brown, Just One Lap

We’d like to hear from you. E-mail us on yourmoney@fm.co.za

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