What are Treasury Bills?
Treasury Bills are short term government debt instruments issued by the CBN. This is one of the several ways the government raises funds. The CBN also uses treasury bills to control money supply in the economy. Treasury Bills are discount instruments and they are so-called because the investor gets its interest upfront. This means that the interest promised on a T-bill instrument is payable on the very day the investment commences. For instance, if a T-bill promises a 10% rate per annum and an investor wants to put in ₦100,000, the investor pays only ₦90,000 from the day of investment but gets back ₦100,000 at maturity. The maturity value (₦100,000) is referred to as face value while the initial investment (₦90,000) is discount value.
When is Treasury Bills Interest paid?
The interest element of a treasury bill is paid to you upfront and credited to your bank account. For example, if you purchase a ₦100,000 T-Bills with an interest rate of 10% and your account is debited with ₦90,000 as such your ₦10,000 interest is paid up front. Upon maturity, you are paid the face value ₦100,000.
How are Treasury Bills sold?
Treasury Bills are sold through a bi-weekly auction conducted by the CBN. Buyers are requested to quote bids which the average minimum bid is selected.
Where can I Buy Treasury Bills?
Treasury Bills can be bought through official dealers, Agents or Banks. The easiest way is to buy from banks.
When are Treasury Bills sold?
Treasury Bills are sold every other Wednesday (bi-weekly) as announced by the CBN. The CBN announces issuances on their website and in the pages of the Newspaper. This information can also be found on the DMO’s (Debt Management Office) website
How Can I Buy Treasury Bills?
To buy Treasury Bills you will have to approach your bank requesting for a form. You fill the form with your personal information also indicating the amount you want to buy as well as your bid rate.
What is the bid rate?
The bid rate otherwise called your STOP RATE is the likely interest rate that you have indicated to receive for the principal that you are investing in the T-bills.
What if I don’t have a Bid rate?
If you do not have a Stop Rate or you are not sure of a rate you can select the prevailing market rate option on the application form.
What are the durations (tenor) for the T-Bills?
The durations for Treasury bills are usually 91 days, 182 days and 364 days. In other words, your money will be held for 91 days(3 months), 182 days(6 months) or 364 days(1 year) depending on the duration you chose when you bought the treasury bills.
Are Treasury Bills Safe?
Treasury Bills are one of the safest forms of investment and are backed by the full faith and credit of the Federal Government of Nigeria.
Apart from the Interest Rates, what are the benefits?
A good source of steady stream of income.
Treasury Bills are a good investment outlet for your free and disposable cash.
Treasury Bills are good investments for people who wish to save.
Treasury Bills are also tax-free.
Treasury Bills are very liquid and can be converted to cash quickly.
They can be used as collateral.
Are Treasury Bills Taxable?
Interest derivable from Treasury Bills is not taxable.