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GOVERNMENT SAVINGS BONDS have been around since 1980, the year they were first issued by the Central Bank. Now, 35 years later, the Central Bank has launched a campaign in an effort to get Barbadians to invest in these securities.
The new initiative, said senior operations officer, banking, currencies and investments, Linel Franklin, was partly due to a survey conducted by local economies consulting firm Antilles Economics, which showed that the current generation was generally unaware of the savings bonds option. Governor Dr DeLisle Worrell also acknowledged that it was also the Central Bank’s response to the liberalisation of the minimum savings rate.
Franklin, also indicated that in recent times, including the $5 million issue of savings bonds that hit the market at the end of last year, there was significantly reduced interest in savings bonds.
Savings bonds, like Treasury bills and debentures, are broadly categorised as Government paper. In the case of the savings bonds, they are five year securities sold at a discounted rate, which meant that “investors pay less than the nominal value of the savings bonds but receive the full value when they have matured”.
Barbados’ savings bonds are considered a low-risk investment, since purchasers know their full return up front. The interest earned during the investment period is also tax-free.
One of the questions raised as a result of the new issue of savings bonds is the impact this will have on commercial banks, whose minimum savings rates are small when compared to the 5.5 per cent the savings bonds guarantee. The irony is that the commercial banks themselves sell and cash savings bonds.
Reacting to the new issue of bonds with improved terms, the Barbados Bankers’ Association president Glyne Harrison said savings bonds were an investment option for Barbadians “for decades”, a trend the banks expected to continue.
“Since savings bonds were first issued in 1980, commercial banks have been the agents for them. In continuing with this tradition, all commercial banks will continue to support the sale of savings bonds in Barbados,” the First Citizens Bank (Barbados) chief executive officer said.
His colleague, Republic Bank Barbados chief executive officer and managing director Ian De Souza had anticipated the new issue of savings bonds once the previous mandatory 2.5 per cent minimum savings rate was removed effetive April 21. He told the BARBADOS BUSINESS AUTHORITY that any new issue of savings bonds might warrant a response from the commercial banks.
“If the Central Bank intervenes with Government savings bonds and they mop up liquidity in the market, and if the demand for the cash that I have increases, and when I compete I am not going to compete for deposits, I will be competing for the term deposits because I want those large long-term deposits on my books, and that is where the market correction is going to take place and Barbados is going to operate like a normal market,” the senior banker said.
There are no reports of Government having ever defaulted on its savings bonds repayments and market watchers do not expect that to change with the $10 million in savings bonds issued on June 1.
However, financial advisors, including Fortress Fund Managers and Sagicor Asset Management Inc have advised Barbadians to carefully weigh their investment options.