Treasury bills have long been regarded as the safest way to invest over a period of time without paying taxes, as well as having the assurance that your initial capital will be returned at the maturity time.
Below are the 10 most important things you should know before investing in Treasury Bills.
What are Treasury Bills?
Treasury Bills (T-Bills) are government guaranteed debt instruments issued by the Central Bank in order to fund its budget and manage liquidity in the banking system. They are sold through a bi-weekly auction conducted by the Apex Bank.
Where can you buy ?
T-Bills can be bought through any official dealer but the easiest channel is through your bank.
Who can buy?
Residents or Non-residents of a country who own a account with the local commercial bank are eligible to buy T-Bills whenever its been sold.
What are bidding rates?
The Bid rate, also known as the stop rate, is the interest rate that you are willing to collect for the amount you are investing in the T-Bills. The bid rate is selected by the marginal rate for the average minimum bid rate quoted by Buyers within the bid window.
Can a bid rate be rejected?
A bid rate can be rejected but you don’t have to worry because you can buy T-Bills from a broker any time in the secondary market Over The Counter (OTC).
What is the duration period(s)?
The tenors for T-Bills are usually 91 days ( three months), 182 days (six months) and 364 days (one year). This means the Central Bank will hold your money for the Duration of T-Bills you purchased. The Central Bank can also decide to sell T-Bills for all the tenors available.
When is your interest payable?
The interest is paid upfront into your account. For instance if you buy a T-Bill of say KES 50,000($546) with an interest rate of 10 percent, the Central Bank will debit your account with KES 45,000 ($493) leaving KES 5000($55) which is your interest. Upon maturity, you are paid the exact value of KES 50,000 ($546).
Can you can sell before the maturity date?
It is also good to note that you may decide to sell your T-Bill before the maturity date through the OTC. Although this is dependent on demand and supply of T-Bills. If you are lucky you may sell your T-Bills at a higher price else you may sell it lower than you invested.
Can you roll over your investment
Although the Central Bank does not roll over investment, you can give your Bank the mandate to roll over your investment and interest upon maturity in order to compound your interest.
Benefits of Treasury Bills
T-Bills are Tax free
T-Bills are good investment for people who wish to save
It can be used as a collateral
It can be converted into cash quickly
It is the safest form of investment because your money is guaranteed
