Treasury Bills Investment | All You need to Know Q and A | Damie Ojo

The beautiful thing about Treasury Bills Investment is that it is found everywhere in the world just one or two minor differences in one country to another. The information you get here is the part the internet wouldn't tell you. The Pros, the Cons, the good, bad and ugly. This is not just going to be reading from a book or theoretical explanations, I am going to be giving you real life, practical and useful tips.

What are Treasury Bills?

Treasury Bills are short term investment plans offered by the Federal government of any country to raise funds or finance its projects. Now if the government wants to build roads, wants to build schools and companies, they don’t just go to the central bank and tell the Central Bank Governor they need N20 billion. No! That's not the way government finance works, the government creates avenues to raise funds for itself through taxation or through borrowing internally or externally. The government could decide to borrow externally from other countries or from the World Bank or the government can choose to borrow internally from its own citizens. Treasury Bills are one of the ways, the government can borrow internally. If the government wants to commence a project, they can decide to issue out Treasury Bills for people to buy, so they can use these funds gotten from the people to finance its projects, of course at an interest! So Treasury bills is just a way of borrowing your money to your government to assist them finance their projects.

Do State Government offer Treasury Bills?

State governments do not offer Treasury Bills, if anybody comes to you telling you that Rivers state or Lagos state is doing one special Treasury offer, that person must be a fraudster. Treasury Bills are only offered by the Federal Government.

How safe are Treasury Bills?

Treasury Bills are one of the safest means of investing as it has the full backing of the Federal Government. The Federal Government can not owe you Treasury Bills, in fact the Central Bank of your country has the right to print money just to settle Treasury Bills debt. Treasury Bills are extremely safe.

What is the difference between Treasury Bills and Govt. Bonds?

They are extremely similar, the major difference between the two is that one is for a very short term i.e. Treasury Bills within a one-year cycle while Government Bond can stretch to as long as 10 years. So if you’re disposed enough to borrow money long enough for as ten years, go for Government Bonds, but if you want a very short period of time then go for Treasury Bills.

Where can I buy Treasury Bills?

As mentioned earlier, the Federal Government tissues Treasury Bills, through the Central Bank of Nigeria or through the Central Bank of whatever country you are in. You can't exactly go to the door of Central bank to buy treasury bills, so treasury bills are sold through commercial bank. 

Does the bank have any benefits selling Treasury Bills?

We know that banks don't do anything for free. Definitely, the bank is not an N.G.O. It is a capitalist industry and it is out there to make money. The bank acts as an intermediary between its bank’s customers and the central bank. There is a tiny little charge banks charge for playing that informative role. It is just 0.15%, it might vary very slightly from bank to bank, that like N150 on a N150,000 treasury bill, so relax, its not so much.

Minimum and Maximum amount you can invest in Treasury bills?

Now this would depend on whether you’re buying from the primary market or the secondary market. The CBN offers its treasury bills through two markets/ platforms. You have the primary market and the secondary market. You can also buy Treasury Bills either from the Primary Market or the Secondary Market depending on the amount to be invested. The minimum amount to be invested in Treasury Bills is N100,000 in many institutions and the maximum is any higher amount you have, as much as 2Billion naira at a Treasury Bill. However, if you want to purchase Treasury Bills directly from the Central Bank, the minimum amount auctioned is N50 million naira and above. You’ll agree with me that it’s not very rampant as a lot of people don’t have that kind of money. But if you have below N50million naira, N100,000, N200,000 or N1million naira, ou have to buy from the secondary market. The secondary market are commercial banks which buy TB from the Central Bank and now resell into little bits to people that don’t have that huge amount of money to buy directly from the CBN.

What days are Treasury Bills sold?

If you’re buying from the primary market i.e. buying from CBN directly, it is every forth night i.e. every two weeks. However, if you’re buying from your own bank which is the secondary market, you can buy any working day of the week. But Treasury bills always have a cut off time daily to enable the staff of the bank treat this request. Some end their cut-off time at two o’clock, some end at three o’clock, it depends on the bank. You just have to find out the cut-off time for your bank to deal with a treasury request for a particular day. If you miss on the cut off for that day, your bank account officer can keep the request and treat it for you the next day.

What is my proof/ evidence of investment in Treasury Bills?

There is a Treasury Bill certificate that comes out few days after you purchase your Treasury Bills. So whenever you purchase your Treasury Bills, you can always go back to your bank to ask for your investment certificate.

How can I automatically roll over my Treasury Bills investment?

Remember, Treasury bills are short term investments plan, with a maximum tenure of one year. So if you want your Treasury Bills to run more than one year to about two three years, you have to re-invest when it matures. Unlike fixed deposits where the roll over is set automatic for you, Treasury  Bills are not automatically renewed. So when your Treasury Bill investment expires, you have to go to the bank or write your bank and give them a fresh request to re-invest. 

How do I invest from diaspora?

Now this is a very common question, as not everyone that wants to invest is in their home country. Every bank has a contact us number that you can find directly on their website, you can always search for the customer care number of the bank, you can place your request to purchase treasury bills. Or if you have an existing relationship with your account officer, you may place the request through them. You can write and scan your instruction via email to the person, and the person would treat it.

What is the interest rate on Treasury Bills?

Sometime three, four years back, Treasury Bills used to be so lucrative, you’ll be getting up to 18%, 19% on Treasury Bills, but very sadly, the rates in Treasury Bills has really come to an all-time low to 4-5% per annum.

Why did the rates on Treasury Bills crash?

There are divergent opinions on why Treasury Bills market crashed. Business men took low cost loans and instead of taking it to grow the economy, they used the loan to buy Treasury Bills. For instance, The CBN gives a low cost loan of 7% per annum to people just to boost the economy, just to help micro, small and medium businesses to grow, now Mr. Okeke takes this loan with interest of 7% and instead for him to put it into his business with the aim and intention of the Central ank, he would take this loan and put it in Treasury Bills to earn 18% interest and give 7% to the central bank for the loan and keep the 7% to himself. This action depicts the whole purpose of the loan and that is why the government has really cut the interest on Treasury Bills.
Another reason for the Treasury Bills interest cut is because the government felt or feels like it is paying too much on recurrent expenditure. Now, Nigeria as a country spends so much money on recurrent expenditure to capital expenditure, so the government is like instead of using funds to pay loans (treasury bills), let us divert this money to capital development and cut down the interest being paid on treasury bills. And as you can see, that is why taxation rates are going higher. Value added tax has increased from 5% to 7.5% in Nigeria. Stamp duty charge and many others have now been introduced. Another reason why Treasury Bills seem to have crashed is because the government does not have so much money as it used to have. The major source of funds for the government in Nigeria is the sale and importation of crude oil, but the price of crude oil has completely fallen. So the government is not as buoyant as it used to be. So, all these factors put together has impacted the interest rates offered on Treasury Bills.

Is my interest from Treasury Bills subject to TAX?

The interest on treasury bills is tax free. The interest that comes from your savings account or fixed deposit account is subject to value added tax at 7.5%. But whatever interest you make on treasury bills investment or government bonds is tax free.
 

How do I calculate my interest rate?

All you need is your calculator. It is the rate/100 *tenor/365*amount.
The rate is the interest rate.
The tenor is the time period invested while principal is the amount you’re investing.
So if you’re investing N100,000 at an interest rate of 4% for 90 days.
It is 4%/100* tenor 90days/365days *amount/1.

How does the interest on Treasury bills work?

The interest on Treasury Bills come up front. So if you invest in Treasury Bills today. N100,000 in treasury bills today and the interest is N10,000 and it’s for 90days. Your N10,000 would not come at the end of the 90days. The beautiful thing about Treasury Bills is that the interest comes upfront on the day of investment, so you can either choose to reinvest your interest or you can use your interest to take care of yourself. Treasury Bills are a discounted instruments i.e. the money that would be debited from your account is your principal short your interest. Let me explain further, so if you have N100,000 to invest in treasury bills, and your interest is N10,000. What would be debited is N90,000. So the N10,000 that remains in your account is the interest. At the end of the tenor the N100,000 comes back into your account.

What are the disadvantages of Treasury Bills?

One of the major disadvantage of treasury bills is the risk of inflation. There is a possibility that at the end of the tenor, your money would have lost its value or its purchasing value.

What are the advantages of Treasury Bills?

There are so many advantages of treasury bills such as getting your interest upfront, so you can use your interest to take care of your needs without having to wait till the end of the tenor. Secondly, it’s extremely safe because we don’t envisage the local government running away with your money. Thirdly, just a one like instruction is okay to request to invest in treasury bills. Lastly, Treasury bills could serve as a collateral for a loan. Treasury bills are admissible as collateral for a loan.