Want to become financially independent? And not sure what type of investments to make? Do worry I have something in store for you.
Are you familiar with government securities? Also known as Fixed Income Securities.
The Fixed Income Securities come in two options;
1. Treasury Bills
2. Treasury Bonds
In this article, we talk about Treasury Bills and how to invest and earn from this security.
What is a Treasury bill?
This is described as a short-term borrowing done by the government to the people. The government borrows money from you to supplement its budget.
In simple terms, you are a lender to the government. By supporting the government to run its errands when you invest in treasury bills.
How Treasury Bills Work
Through the Central Bank of Kenya, T. Bills are issued every week. Each bill has different maturity periods which are 91 days, 182 days, and 364 days.
These allow you as the applicant to choose the most convenient periods of investment.
The smallest amount you can buy T-bills on is Ksh; 100,000 invested in denominations of ksh; 50,000.
These bills are sold at a discount amount in the initial buy. But paid in full face value amount after attaining the specific maturity term.
How to apply for Treasury Bills
For you to apply for Treasury Bills you need to have a specific account known as a CDS Account.
Click here for details on CDS Account opening. (A-Z of opening a CDS Account in Kenya)
On the Central Bank of Kenya, website application forms can be downloaded here. Complete the Treasury bill application form by filling in the following information;
· Fill in the T. Bill Issue Number
· T. Bill maturity period
· Face value amount to receive upon maturity
· CDS Account Number
· Source of funds either local or offshore
· Personal Information (As it appears on your CDS Account)
There are two options for determining interest rates;
· Interest/Competitive Rate
· Non- Competitive/ Average Rate
Selecting the Interest/Competitive Rate bid means that;
· You allow CBK to decide on what bids to accept and determine the cutoff.
· All interest rates above the CBK cutoff will not receive T. Bill from that specific auction
· Receiving a T-bill is not guaranteed.
Under the Non- Competitive/Average Rate;
· There is the guarantee of receiving a T. Bill under the auction
· Interest rates are a weighted average of the accepted bids from the competitive rate bids
· The largest face value for Non- Competitive/Average rate bids is Ksh; 20 million
Rollover Instructions
These are specific instructions made by the applicant to CBK on what action to take upon the maturity of a bill.
Instances where you as the applicant want to reinvest your money. This should be well outlined in this section of the T. Bill application form.
Auction and Payment Process of T. Bills
The Central Bank Auction Management Committee (AMC) meets every Thursday of the week at 1600hrs.
This committee decides on the interest rates, cutoffs, and successful weighted average rates of the accepted bids.
Results of the meetings are published through the CBK Website, Twitter, and Treasury Mobile Direct (TMD)
As an applicant visit CBK to determine your bid success and how much you are required to pay.
T-bill payments are made on the Monday before 1400hrs. An exemption is made if that Monday is a public holiday. Then the following day becomes the deadline day of payment by 1400hrs.
Once you have confirmed your bid, payment can be done through cash or a banker’s cheque for all amounts under 1 million.
For larger amounts payments can be done through KEPSS/RTGS
Payment of Matured Bids
Upon the maturity period of your bid, the face value amount is deposited into your commercial account as indicated on your CDS Account.
For example, You plan to invest a face value amount of Ksh; 100,000 for the 364 days maturity period.
Interest rate determined at 8%
Your Initial payment will be Ksh: 78,200 (100,000*0.8)* 0.15
Remember always to factor in 15% Withholding Tax
Upon maturity, you will receive your full face value amount.
In case of rollover into a new forthcoming issue. As such, fill out the form and give rollover instructions to effect the transfer.
Personal Insights
- Using the Treasury Mobile Direct (TMD) you can access all the information that regards your T. Bills. USSD Code (*866#)
- Returns are calculated using the simple interest
- This is a low-risk investment since your lending to the government guarantees repayment
- Be clear on funds you want to invest in any government securities. The liquidation process of funds before maturity is not permitted.
Let’s continue this conversation in the next article as we talk about Treasury Bonds. Shall we!
