When is it convenient to redeem postal savings bonds early?

In order to keep pace with the market, Cassa Depositi e Prestiti has revised upwards the interest rates paid on newly issued postal bonds, to try to bring them into line with the rise in government bond yields recorded after the outbreak of the war in the Gulf. A manoeuvre that for Cdp will lead to a worsening of the cost of funding. And what for the issuer is a cost, for subscribers is an opportunity: in fact, it is possible to increase earnings, simply by taking back to the counter the bonds already subscribed, in order to replace them with the latest and most profitable issues.

Once a bond has been subscribed, the investor must always assess whether or not it is worth taking it to maturity. Sometimes even a temporary rise in rates is enough to make early redemption of the bond subscribed in the previous months/years worthwhile, even at the cost of losing the interest accrued up to that moment.

Let us try a few examples. Let us take the case of the Ordinary Bond, which offers an increasing fixed yield until reaching its peak at maturity after 20 years. In particular, the one in placement since last June at the end of the 20-year period offers the possibility of collecting a gross annual yield of 2.5 per cent. Taking it back to the counter today to replace it with a 3x4 bond with a premium, the saver would take home a higher annual yield at maturity (2.87%), also shortening the duration of the investment from 20 to 12 years.

But going further back in time, without however extending the investment horizon, the apex of convenience would be achieved by cashing in the Ordinary Bonds subscribed 8 years ago (April 2018), which on maturity (April 2038) offer a gross annual yield of only 1.5%. Subscribing the new 3x4 Voucher with premium, with the amount accrued so far (10,288 euros on a hypothetical initial investment of 10,000 euros) the saver would obtain - always in 12 years - a net amount of 13,933 euros, with an increase of 887 euros compared to the 13,046 euros he would collect by cashing in the Voucher initially subscribed at maturity.

These are all calculations that can be made in a few seconds by accessing the Poste Italiane and Cdp websites or by going to the post office consultant. Recall that in 2018, over 2.6 billion ordinary bonds (13% of the total) were placed despite the risky yields offered.