₦airaland Forum

Bluecollarguy:
LEAVE YOUR N10m IN YOUR SAVINGS ACCOUNT OR INVEST IT IN TREASURY BILL

CASE STUDY:

My people, I know this case has been analyzed severally by the gurus in the house, but I post this to remind those who already know and also to encourage the ones willing to learn what treasury bill, in essence, is really all about as well as how it differs from the money sitting in your savings account. Below is a practical example.

N10m IN YOUR SAVINGS ACCOUNT:
I have N10m(principle) to invest. If I leave the money in my GTB savings account(which I used to do), GTB would apply 0.3% to my N10m to determine my monthly gain,ROI, interest earned or interest capitalised. So, 0.3% of N10m = N30K monthly....N30K x 12 months = N360K yearly. As long as your principle and interest rate from GTB remain constant for the year, you'll receive N360K from GTB on top of your N10m. Therefore, your income statement on Jan. 1 will show that you're worth N10,360,000

N10m IN TREASURY BILL:
We all remember the formula for simple interest, right? Simple interest(I) = Principle(p)xRate(R)xTime(T) OR I= P × R/100 ×T/364
Tenure options: 91 days, 182 days and 364 days. Assumed Rate and principle are 14% and N10m, respectively.

91 DAYS: I= N10m × 14/100 ×91/364, your automatic interest(ROI) = N350K(if you choose 3 Months)

182 DAYS: I= N10m × 14/100 ×182/364, your automatic interest(ROI) = N700K(if you choose 6 months)

364 DAYS: I= N10m × 14/100 ×364/364, your automatic interest(ROI) = N1,400,000(if you choose 1 year)

From above, your ROI from Tbill in 3 months is almost the same as your ROI from your savings account in 12 months. In fact, your ROI will be higher if interest rate from Tbill is greater than 14%.

BOTTOM LINE: Would you rather leave your N10m in the savings account for ONE YEAR and make extra N360K OR Invest your N10m in Tbill
for ONE YEAR and make extra N1,400,000 on top of your invested capital? The choice is yours...

PLS NOTE: Consider principle and interest rate used above as random numbers, however calculations are 99.9% accurate. You may verify!

Hello,

There is no doubting the fact that T Bills are be eternal investment securities with higher returns than most other money market instruments available in the Nigerian Financial system.

However,your calculations and assumptions are quite innacurate and may not potray the exact analysis for practical purposes.

As a guide, T Bills can be done from as low as N500,000 & not N50mm as quoted by a commenter. However certain investment buckets in the T bills market have a minimum of such (where you wish to determine or bid your own rate as aginst that to be set by the CBN during sales).

For savings accounts, interest is compounded monthly and not in simple interest format. You invest N10mm principal, in month one. By month 2 your Total amount becomes N10mm plus N30k interest.
Therefore when calculating the interest for month 2, you no longer use N10mm but N10,030,000 as principal and incrementally so on till month 12.

You should be receiving some few thousand above your straight line calculation of N30k monthly time 12 months.

Also , T bills rate are guided by the MPR (Monetary Policy rate , which Is at 14% today). The are always lower than this rate, once they are issued by the CBN. T Bills are priced based on Tenors rather than amounts. So the interest rate for a 91 days differs from that of a 182 and 364 days (The lower the tenors, the lower the rates).

Also, unlike T Bills, Savings deposits could be negotiated (on a fixed term) & these rate could sometimes rival T bills in some banks, depending on the liquidity appetite for such banks at the time of your proposed investment.

T Bills have an advantage of having no WHT (Witholding Tax) payments, so you get your full interest, tax free, except for some few fees of less than N1,000 charged for transfer and monitoring.

In all, I'd go for a T Bill for higher returns, longer tem investment purpose and funds security. But a fixed deposit for shorter periods and if the funds needs to show on my account statements for related purposes.

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