Treasury bills (also called T-bills) are sovereign debt security investments that mature within a year- they are short term investments. The Federal Government of Nigeria issues the T-bills, through the CBN and uses it to control money inflow to the economy. Treasury bills are auctioned at a percentage often referred to as the Treasury bill rate, which determines the interest rate of every investor.
The main aim of the government in the issuance of treasury bills is to generate and control funds in the economy. Therefore, the treasury bill rate is often at a low percentage. Before investing in Treasury bills in Nigeria, you need to understand how to buy T-bills, the advantages and disadvantages of treasury bills, and the current treasury bill rate in Nigeria.
How to buy treasury bills in Nigeria
Treasury Bills are sold on a bi-weekly basis and auctioned once every two weeks by the CBN. Buyers quote their treasury bill bids, and the average minimum bid is often selected.
In buying treasury bills in Nigeria, you’ll need to know when the T-bills are issued and the right percentage to bid (stop rate). The CBN usually announces the issuance of treasury bills through their website and national dailies, but you can also get the information from your bank officer.
When a T-bill is issued, you can obtain a form from your bank or an official dealer, fill in your personal information, the amount you want to buy, and your bid rate. Depending on the bank or official dealer, the minimum amount to invest could be from ₦50,000 or ₦500,000.
Treasury bills and interest rates
The CBN issues treasury bills at a discounted rate (Treasury bill rate), which determines the interest rate of every investor. T-bills have a maturity period- it could be 91 days, 182 days, or 364 days. When the maturity period ends, The Federal Government pays back the bills at the full price. They don’t directly give interest, they let you buy the bills at a discounted price and pay you back in full. For example, if you buy a T-bill of ₦100,000 at a 10% Treasury bill rate, you’ll pay ₦90,000 and get ₦100,000 at the end of the maturity period. Your bid rate, otherwise known as your STOP RATE, is the percentage discount you are requesting to receive. You can bid for any percentage you want, however, the CBN selects the average minimum stop rate and makes it its Treasury bill rate for that period. If you’re unsure of the right Stop rate, you can contact your bank officer or take an overview of the latest treasury bill rates, to help you make the right decision.
Latest Treasury bill rates in Nigeria
Knowing the latest treasury bill rate in Nigeria, would help you in deciding on the right stop rate and help you calculate if the profit is worth the investment. As of 18th March 2020, Nigeria, The CBN revealed that the 364- day treasury bill rate fell to 4.6%, the 90-day treasury bill rate was 2.3% while the 182- day treasury bill rate was at 3.4%.
Below is a table showing the Treasury bill rates for March 2020:
|Tenor||91 days||182 Days||364 days|
|Range of Bid Rates||2% – 5.25%||3% – 7.35%||4.33% – 13.18%|
|Previous Treasury Bill Rates||2.49%||3.78%||5.3%|
|Current Treasury Bill Rates||2.3%||3.4%||4.6%|
Advantages of Treasury bills in Nigeria
The advantages of treasury bills in Nigeria, out ways its shortcomings. With treasury bills, you get your interest paid up-front; since you’re buying T-bills at a discount rate, you would have the profit immediately. Another advantage is the length of investment- T-bills are short term investments, so you can invest in it for a particular event, like your children’s upcoming school fees, or house rent payment. Although The CBN does not automatically reinvest your money, you can tell your bank to reinvest your T-bills upon maturity and benefit from compounding interest.
T-bills are one of the safest investment opportunities in Nigeria. You are sure that upon the fixed maturity period, you would get your invested money back with ease. Treasury bills are also a form of short term saving. It is not so easy to withdraw your money before the end of its maturity period, so you’ll get to save.
Apart from getting your interest rate, you also enjoy the benefit of being tax-free. Your T-bills are not taxable, so you’ll get your exact profit without any deduction. You can also use your treasury bills as collateral when applying for loans.
Disadvantages of Treasury bills in Nigeria
There are also a few disadvantages of investing in Treasury bills. Your investments do not automatically roll over, and you would incur a little cost each time you make a bid. Another disadvantage is the low-interest rate. The returns are mostly low, and just a little about inflation.
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