treasury bills
Treasury bills are short term loans to the Federal Government of Nigeria, bought below face value and repaid at full face value on a fixed date.
In plain English
You have ₦500,000 you will not need for a year. Leaving it in a current account means watching inflation reduce what it can buy.
Treasury bills are one of the places Nigerians put money like that.
A treasury bill is a short term loan to the Federal Government. The Central Bank of Nigeria issues them on the government's behalf, usually for 91, 182 or 364 days.
The mechanics catch people out, because you do not receive interest the way a savings account pays it. You buy the bill below its face value. If a 364 day bill has a face value of ₦500,000 and you pay ₦440,000 for it, you receive the full ₦500,000 on the maturity date. The ₦60,000 difference is your return, and it reaches you at the end rather than month by month.
Because the Federal Government is the borrower, treasury bills carry very low risk of default in naira terms. That is the main attraction, and it is a real one.
The honest caveat is that low risk is not the same as growth. When inflation runs higher than the rate on the bill, you finish the year holding more naira that buys less than what you started with. Compare the rate you are offered against inflation, not against zero.
Your money is also committed. You can sell a bill before maturity on the secondary market, but the price depends on where rates are that day, and it can be less than you expected.
You buy a 364 day bill with a face value of ₦500,000 and pay ₦440,000 for it. On the maturity date you receive ₦500,000. Your return is ₦60,000, which is about 13.6 percent on the ₦440,000 you actually put in.
Questions people ask
Can I get my money back before the bill matures?
Yes, by selling it on the secondary market through your bank or broker. The price depends on interest rates on the day you sell, so you may receive less than you expected, and in some cases less than you paid.
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