Q: Can you tell me more about these Waratah Bonds that the NSW Government announced on Sunday. Should I buy some?

A: The recently announced “Waratah Bonds” are a fixed interest investment with an investment time frame of 3 years or 10 years. The rates for the 3 year bond are an underwhelming 4.25% p.a and 10 years 5.10% p.a. The Bonds pay interest half yearly with the original investment returned to investors at maturity. Further issues into the future may offer different investment time frames and more flexibility (stay tuned). The minimum investment is $10,000 with increments of $1,000 thereafter. These Bonds are actually very similar to existing bonds issued by NSW Treasury albeit denominated for smaller deposits with a new name.

Who should buy these?

Yes, good question!

Anyone looking to invest with the added security of NSW Government backed guarantee on their funds.

Investors concerned that the Australian Banks may not be able to guarantee their deposits beyond the 12 October 2011 end date for the fee free Australian Government deposit guarantee.

Those who feel interest rates available on deposits will fall below the Waratah Bond interest rates available.

Offshore investors looking to invest money into Australia in a fixed interest investment.

Why you wouldn’t buy the bonds?

With bank interest rates around 4.5%, there are bank savings accounts paying much higher rates with a lot more flexibility.

These Bonds are illiquid so cannot be cashed in prior to maturity.

Frankly there are far more compelling options available in the market with better rates of return.

This article was published in The Australian on 3 September 2011. A direct link to the article can be found here.

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