How to Earn Fixed Income from South African Government Bonds

Government bonds offer a reliable way to earn fixed income by lending money to the government in exchange for regular interest payments. These bonds provide predictable returns with low risk, making them an attractive option for conservative investors seeking stable income and portfolio diversification. End-of-year bonuses could also be a great opportunity to invest in such assets, helping to build wealth over time while securing a steady income stream. 

Bonds are debt instruments issued by governments and corporations to raise money, with the issuer promising to repay the principal at a future date. In return, buyers receive regular predefined coupon payments, typically twice a year. These investments offer a predictable cash flow, with predefined coupon percentages and fixed maturity dates. If held to maturity, the buyer realizes the Yield to Maturity, representing the total return.

Bonds are considered less volatile and risky compared to other asset classes and typically offer higher returns than bank savings. They also help with portfolio diversification. In South Africa, bonds are quoted in yield format, but EasyEquities allows investments by value (e.g., R100 or R1000), with bond prices displayed in rands. Bonds on the platform represent specific points on the local yield curve with maturities ranging from 3 to 25 years.

A bond’s coupon rate is fixed and paid at regular intervals, usually semi-annually. The coupon is expressed as a percentage of the bond's face value and remains constant throughout its term. To receive the coupon payment, the buyer must own the bond at least 14 days before the coupon date. 

For the South African Government bonds available on the platform 

SAGB R186 (Annual Coupon of 10.5% or 5.25% twice a year)

• Coupon Payments: June and December 
• Last date to trade to qualify for the semi-annual coupon is at the close of business, 4 business days before 11 June and 11 December each year. 

SAGB R2030 (Annual Coupon of 8% or 4% twice a year)

• Coupon Payments:  January and July
• Last date to trade to qualify for the semi-annual coupon is at the close of business, 4 business days prior to 21 January and 21 July each year.

SAGB R2035 (Annual Coupon of 8.875% or 4.4375% twice a year)

• Coupon Payments: February and August
• Last date to trade to qualify for the semi-annual coupon is at the close of business, 4 business days prior to 18 February and 21 August each year.

SAGB R2040 (Annual Coupon of 9% or 4.5% twice a year)

• Coupon Payments: January and July
• Last date to trade to qualify for the semi-annual coupon is at the close of business, 4 business days before 21 January and 21 July each year.

SAGB R2048 (Annual Coupon of 8.75% or 4.375% twice a year)

• Coupon Payments: February and August
• Last date to trade to qualify for the semi-annual coupon is at the close of business, 4 business days before 18 February and 21 August each year.

When the coupon is paid, the bond price typically decreases, similar to how the price of an equity drops when a dividend is paid. It’s also important to note that any income or coupon payments received from investments, including dividends, rental income, or bond interest, are subject to income tax in accordance with tax regulations. However, for the first time, South African government bonds are now available in a tax-free investment environment. like the tax-free savings accounts (TFSAs) , allowing investors to enjoy the benefits of stable returns while maximizing tax efficiency; these South African governement bonds are also avaialbe in the Retirement Annuity (RA) wallet on EasyEquities.  

• A Tax-Free Savings Account (TFSA) lets you invest up to R500,000 tax-free, with no taxes on profits, dividends, or interest earned.
• A Retirement Annuity (RA) is a tax-efficient pension plan that offers tax deductions on contributions and tax-free investment growth. Governed by Regulation 28, it limits high-risk investments to ensure diversification and long-term security.

TFSAs are effective for retirement savings but have a R36,000 annual limit, while RAs allow higher contributions, with tax rebates on up to 27.5% of your salary or R350,000 annually

To learn more about South African government bonds, you can head over to our Bond FAQ by clicking here.