LOUISE FAIRSAVE: Cashing savings bonds
CURRENTLY, MORE GOVERNMENT SAVINGS BONDS are being made available. Typically, an issue is advertised in advance and so the bonds are often quickly sold out in a couple of days of being available to the public.
It is therefore useful to let your bank manager know of your plans to purchase Government savings bonds as soon as you are aware they will be issued.
During the period of structural adjustment in Barbados, there was a long span when no bonds were issued. Currently a total of $45 million in Government savings bonds have been made available to the public within a four-week period.
There are no transactional fees for these bonds either on purchasing or on redemption. They are very accessible since you can start investing with less than $100. And unlike some other investments, including bank deposits, there is no tax on earnings of bonds purchased at face value of $50 000 or less in any one issue. Even if you earn, say two per cent on your bank deposit, the earnings are subject to 12 per cent withholding tax.
The most attractive feature of the Government savings bonds are their liquidity. At any time that you need your funds, you take them in person to any commercial bank and request the cash value. It is not necessary to give notice of your plans to cash the bonds as with some other investments. For this reason, the actual documents should be stored in a secure place, yet somewhere that is easy to get to if you should need to cash them in a hurry. Your bonds are not transferable but can be used as security for a debt.
In the past, the bonds could be purchased so that the investor was not forced to cash say, a $1 000 bond in an emergency when only $200 was all that was needed. For instance, for bonds being offered at a discount of $30 on each $100 and with $700 to invest, it would have been prudent to buy, say, eight $100 bonds and four $50 bonds rather than one $1 000 bond. Then, if an emergency arose, you could have cashed enough bonds to suit the need and keep holding the other bonds which would continue to earn additional interest.
For the current issue, the arrangement is somewhat different. Purchasers are offered a single bond for the total sum which they seek to invest.
Thus, the investor may be more motivated to hold the full amount invested to the maturity of the bond by the desire to get the full face value. For the investor, having to cash the bond before maturity, even just in part, may feel like failing.
Parents who include their children in their investment planning will be glad to know that bonds can be bought in monetary trust for children under 18 years. Charities and not-for-profit organisations can also buy bonds. To be registered as a holder of bonds, you must be a resident of Barbados or a Barbadian national.
Government savings bonds also serve as a handy investment for retirement funds that would otherwise be subject to tax. Typically, if such funds are invested in Government securities for a five-year period, the funds would thereafter be free of tax. With a similar five-year term, this Government security fits well for facilitating avoidance of tax on such retirement funds.
Investment of retirement funds however must be done directly through the Central Bank, subject to the same maximum of $50 000 in the face value of the bond issue that can be held free of tax. If the amount of retirement funds exceeds this limit, alternate Government securities may be available. However, the term of those securities may well exceed the five years.
Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.