Treasury Bills (T-bills) In Nigeria
Are you a Nigerian interested in investing in Treasury bill? If you want to make inquiries about treasury bill in Nigeria before so you are sure of what you are about to invest your hard earn money into, you are in the right place.
Treasury bill is one investment that most people don’t know and may have never heard of in their life because only few people are talking about it. Even the banks that are supposed to preach it more to their customers don’t do so because they are using their customer’s money to buy treasury bill direct from the federal government.
Investing in Treasury bills is one of the quickest ways to get money from your government since they have a short maturity period. If you really want to get rich when you have little income on you, a treasury bill will be a good place to start with.
In this post, I will be clearing your thought about treasury bill investing in Nigeria and how you can go about it. I will try my possible best to explain it in simple terms so that even a secondary student should be able to understand it.
- What is a T-Bill?
- Where can I purchase T-Bills?
- What is the minimum amount of T-Bills I can buy?
- When can I buy T-Bills?
- How Do I Purchase T-Bills?
- What is the stop rate?
- When is the interest paid?
- What is a true yield?
- Is it possible to roll over my T-bill investment?
- What are the duration? How long is my (tenor) for T-Bills?
- Can I sell T-bills before maturity?
- How Safe Is An Investment In T-bills?
- What are the benefits of T-bills?
How To Start A Treasury Bill Investment
How does the Treasury bill works? Over the past few months, I have shared practical businesses you can invest your money in. Today, I’ll open your eyes to how you can rest your funds when your are searching for a business idea or planning to start one and still make income while doing so.
One of the ways you can invest your money passively in Nigeria until you are ready to execute a business project is through buying Treasury bills. Though returns on the Nigerian treasury bills issue programme may be lower than what you can get from actively doing business, you are guaranteed a sum that comes from a safe investment.
Treasury bills are backed by the Federal Government and are outsourced through the Central Bank Of Nigeria. For instance if the current rate is 10% per annum, this simply means that an investor in treasury bills will earn an extra 10% on his capital if he invest the money for the whole year. The capital is deposited with the Federal government until the investment matures.
At different times of the year, the Federal government issue out Treasury bills. Just like in Fixed deposit, the duration for investing your money and the interest earned are fixed but in Treasury bills the minimum capital is higher. By investing in Treasury bills, you are not dealing with banks directly but investing in the government.
What is Treasury Bill?
What is a treasury bills? These are instruments of debt relief issued by the CBN. T-Bills are used to control money supply in the economy.
These are highly marketable short-term instruments of indebtedness of the Federal Government, issued in 91 days, 182 days and 1 year maturities. Major participants in this market are commercial banks, insurance companies, other financial and non-financial institutions and wealthy individuals.
In other words, buying treasury bills is like giving your money to the Federal Government as a loan and they pay you interest back based on the maturity period and the rate of interest attach to the maturity period.
With investing in treasury bills, your capital is guaranteed. When I mean guaranteed, I mean you are certain to get your money back after the maturity period you choose. It is a risk free investment unlike other kinds of investments.
There is nothing to be afraid of because it is issued by the Federal Government just to raise funds using individual’s money for national projects.
How Does It Work?
Treasury bills sometimes called T-bills are issued by the Central Bank by a specific discount rate for different maturity periods. Regular weekly T-Bills are commonly issued with maturity dates of 91 days (or 13 weeks, about 3 months), 182 days (26 weeks, about 6 months), and 364 days (52 weeks, about 1 year).
Let’s say you buy a Treasury bill investment of 182 days for ₦100,000 at 10% discount rate. CBN will debit your account with ₦90,000 that same day, leaving a balance of ₦10,000. This means that you have already been paid your interest upfront.
After your maturity period is over, you get credited with ₦100,000. This gives you a total of ₦110,000 for your investment. The only good thing about this investment is that you are paid your interest before the maturity date.
The only downside to T-bills is that you won’t get a great return because Treasuries are exceptionally safe. What’s more, you might not get back all of your investment if you cash out before the maturity date.
How to Buy Treasury Bills in Nigeria?
Investing in treasury bills in Nigeria is so simple. Definitely you can get into treasury bills investing from any bank that you have account with or any financial institutions that sells investment vehicles like ARM (Asset Resources and Management). They act as CBN agents.
When you get to the bank, go to the customer care section and tell any representative you meet that you want to enquire if Treasury bill investment is still available. If yes, enquire about the maturity periods and their interest attach to each period.
As at the time of writing this post,
• 91 days – 3 months (13.5% to 14%)
• 182 days – 6 months (16% to 17.5%)
• 364 days – 1 years (17.5% to 18.5%)
After you have been told about the rate and you are okay, ask for the form and fill choosing your preferred maturity period. If your application is received by the CBN, you will get a debit alert that same day.
Know that there is a transaction fee attached to this investment which will at the end reduce your interest a little.
Where can I purchase T-Bills?
How do you buy Treasury bills? You can buy T-Bills from official agents. The easiest method I’ll recommend is buying through your bank.
Minimum Amount You Can Buy Treasury Bills in Nigeria
What is the minimum amount of T-Bills I can buy? It was formerly ₦100,000 but the federal government has reduced it to ₦50,000 due to the effect of the great recession on the economy. It was done so that the average citizen of the country can participate in the investment.
Another thing is, the minimum is also predicted by the bank. So banks go with the ₦50,000 while others will tell you that their minimum is ₦100,000 (Access Bank Plc) or ₦500,000 (GTB).
Although T-bills can be purchased for a minimum of #1,000 and in multiples of #1,000 thereafter. It is important to note that most Nigerian banks accept a minimum purchase of #100,000. However, you may decide to buy more.
When can I buy T-Bills?
T-Bills is usually offered for sale every other Wednesday (bi-weekly) as announced by the CBN. You can get this announcement of the cbn treasury bills auction dates on their website or on the pages of newspaper. If you don’t want to miss this information, you can tell your bank account officer to notify you ahead of an issuance.
How Do I Purchase T-Bills?
If you want to buy T-Bills, you will need to visit your bank and request for an application form. The form contains spaces for your personal data, amount of T-bill you want to buy and your stop rate. Please consult with your bank if you are confused about the stop rate to use. Examples are Zenith Bank treasury bills, Stanbic IBTC treasure bills and treasury bills in First Bank Nigeria,
What is the stop rate?
Stop rate (also called Bid rate) signifies the interest rate that you are willing to receive for the principal that you are investing in the T-Bills. For instance if you indicate an interest rate of 10% as your expected rate, this will be different for other investors who may bid lower or higher than yours.
When is the interest paid?
Please understand that you get your interest credited into your bank account upfront. For instance if you buy T-bill worth of #500,000 with a current treasury bill interest rate of 10%, CBN will debit your account with #450,000 leaving a balance of #50,000. This means your interest of #50,000 has been paid to you upfront. When your investment matures, your are still paid your face value of #500,000. This shows you were actually paid #550,000 for your investment of #500,000.
What is a true yield?
How is interest on treasury bills calculated? A True Yield is calculated as the actual return on your investment. Using the example above, the initial yield for treasury bills Nigeria GTbank on the N500,000 at 10% is #50,000 However, because your interest is paid upfront your actual true yield is the #50,000 in interest divided by the #450,000 deducted from your account. That is #50,000/#450,000 which equals 11.11% which is higher than the 10%. You can only enjoy true yield when you hold your investment to maturity.
Is it possible to roll over my T-bill investment?
Your investment does not roll over automatically. If you want to roll over your capital and interest, instruct your bank to do so on your behalf. Re-investing your capital and interest ensures that you enjoy interest that compounds.
What are the duration (tenor) for the T-Bill?
Tenor is the duration of your T-bill investment. It is how long you are willing to let your funds stay with the Federal Government. Tenor is usually in 91 days, 182 days and 364 days (3 months, 6 months, 1 year respectively). Your investment matures after the expiration of the tenor.
Can I sell my T-bills before it matures?
Can I Sell my Treasury Bills Before It Maturity Date? If you are in urgent need of funds, you may sell your T-Bills before it matures using the OTC market. But, have it in mind that you might make a loss if you choose to sell before the maturity date. Whether you will sell for more or less of your face value depends on the forces of demand and supply.
Here is an instance, a #500,000 face value T-bill may sell for less or more depending on the yield expectation of the buyers. You can sell this for #505,000 (higher value) provided your face value is trading at a higher price. However you may have to sell at a loss (#545,000) if your face value is trading at a lower price.
Are T-Bills Safe And Secured?
Investment in T-Bills is regarded as one of the most secured investment ideas because it is backed by the trust of the Federal Government.
What are the benefits of T-bills?
Apart from the returns through treasury bills rate in Nigeria, what are the benefits of T-bills?
==> It gives a steady flow of income
==> You can enjoy high interest rates from a passive investment
==> Your investment is safe and guaranteed
==> Investment in T-bill is passive (requiring little or no physical effort)
==> T-bills can be used as a collateral
==> It can be converted to cash quickly
So, here you have it. Everything you need to know about treasury bills in Nigeria. Need more information on investing in Treasury bills?