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Czech FinMin launches ‘citizens’ bonds’

  13:13

Ministry of Finance starts taking orders for Czech government bonds for individuals; economists remain skeptical

Finance Ministry department head Jana Hendrichová is first person to be sanctioned for suspected involvement in ProMoPro affair foto: © IlustraČeská pozice

The Czech Finance Ministry started taking orders for state bonds designed for individual investors. The pilot emission includes three bond types: one-year discount savings state bonds, five-year savings coupon state bonds and five-year reinvestment savings bonds. The bonds are available to individuals of any nationality and Czech and foreign non-profit organizations. The ministry expects around 100,000 subscribers.

The Czech state savings bonds for individuals are advertised by the ministry as being among  the “safest and conservative” methods of saving. All three bond types have a nominal value of Kč 1, with the minimal investment being Kč 1,000. The one-year savings bonds have a fixed rate of interest of 2 percent. Sold in batches of a thousand, the client pays Kč 980, and will receive Kč 1,000 upon maturity.

Both five-year bonds have an incremental rate of interest rising each year the bonds are held, from 0.85 percent in the first year to 6 percent in the fifth year. The bonds will be redeemable four times a year without penalties. With the five-year reinvestment bonds, interest accrued is automatically reinvested through the purchase of further bonds.   

Although there is no income tax exemption on the state bonds for individuals and non-commercial entities, the ministry says the tax will be negligible: “Given the nominative price is one crown, due to rounding up, the effective tax will be zero,” the ministry says in its presentation of the bond offer.

A patriotic investment

Finance Minister Miroslav Kalousek (TOP 09) is promoting the bonds as not only a safe, but also as a responsiblFinance minister Miroslav Kalousek is promoting the bonds as not only as a safe, but also as a responsible investment tool that will help the health of the country’s financese investment tool that will help the health of the country’s finances: “Even if there were 10 Kalouseks and 10 [prime ministers Petr] Nečases (Civic Democrats, ODS) speaking daily on television about [financial] responsibility, it wouldn’t have the same effect as when a significant proportion of households has a part of their life savings placed in state bonds,” Kalousek told Czech Television (ČT).  

Interest on the five-year bonds will be paid out annually.   

Some analysts are skeptical that the emission will attract as many investors as the ministry expects: “A return rate of two percent for the one-year bonds is pretty much the same as the interest on savings accounts with the banks offering the highest interest rates, but the advantage of savings accounts is the option to withdraw funds whenever, unlike with the bonds the sale of which the state allows four times a year,” Petr Zámečník, chief editor Fincentrum Media, which operates several specialized financial websites, told ČT.

Orders for the pilot emission of the bonds with a total value of Kč 10 billion can be placed until November 1, and the ministry will issue the bonds on November 11. Standard emissions are due to commence in 2012, though the ministry has yet to specify when exactly. The bonds can be ordered at 378 branches of the banks Česká spořitelna, Československá obchodní banka (ČSOB), and Komerční banka.

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