| Company | Product | Rate % | Apply |
|---|---|---|---|
 | Virgin Saver | 6.75 |  |
 | USaver | 6.51 | |
 | Online Saver | 6.45 | |
 | High Interest Savings Account | 6.40 | |
 | Reward Saver | 6.20 | |
| Company | Product | Rate % | Apply |
|---|---|---|---|
| USaver | 6.51 |  |
 | iSaver | 6.00 | |
| eSaver | 6.00 | |
| High Interest Savings Account | 6.40 | |
 | Online Saver | 6.00 | |
Are bonds a good way to save? |
As governments and companies search for different ways to finance their activities, bonds are coming back into fashion. How do they work? And are they a good place to put your savings?
By Jackie Pearson
3 June 2009
Bonds are basically IOUs written by governments or corporations who borrow your money in return for regular interest payments and the promise they’ll give back your capital at an agreed maturity date. Before the current global recession bonds were seen as boring and conservative investments but they are increasingly being “talked up” as a safer alternative to shares and as offering a better return than most savings accounts. So if you’re looking for a relatively safe place to put your savings that will give you a better interest rate than currently available from term deposits or savings accounts, should you be considering bonds?
Government Bonds Government bonds are considered one of the safest investments around because of the high credit ratings given to “sovereign debts”. It is expected that the Commonwealth Government will have to issue more bonds, and offer attractive ‘yields’ or interest rates, as a way to finance their stimulus packages and ongoing spending commitments. Bonds are also issued by state governments, usually through the state’s Treasury Corporation or Financing Authority. The NSW Treasury Corporation, for instance, is currently issuing TBonds with a coupon rate of 3.5%, a Triple A credit rating and a starting investment of $20,000. The Queensland Treasury Corporation issues Queensland Bonds for a minimum investment of $5000. |
Image by Carly Jane1 |
The Reserve Bank of Australia buys and sells bonds on behalf of the Commonwealth Government and has a facility that can be used by retail investors.
Commonwealth Treasury Bonds can be purchased in amounts of $1000 and the interest rate changes regularly. You will have to fill out a purchase form and an Identification Reference form along with providing certified copies of identification documents.
The Reserve Bank sells two types of bond: Treasury Fixed Coupon Bonds and Treasury Capital Indexed Bonds. The amount you invest is called the “face value” of the bond. With fixed coupon bonds, a prescribed rate of interest is paid on a semi-annual basis and the face value is returned to you at maturity.
With the indexed bonds, interest is still paid quarterly at the prescribed rate but the face value is adjusted to keep pace with inflation so at maturity you receive the face value plus an adjustment for inflation over the life of the bond.
The bank charges $2.50 per $1000 worth of bonds purchased. You can sell your bonds before the maturity date using the Reserve Bank’s facility but you may realise capital losses if you do so.
Corporate Bonds
The corporate bond market may seem like a safer haven for investors than the current volatility of the share markets but the risk involved with corporate bonds varies greatly.
Bonds are rated by Credit Rating Agencies, with poorly-rated or unrated bonds giving the highest return because they come with the highest level of investment risk. Highly-rated or Trip AAA bonds usually offer lower returns but are much safer.
According to the Australian Securities and investments Commission it is advisable to not invest in corporate bonds with anything less than an “investment grade” credit rating. Anything lower should be looked upon as a “junk bond”.
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