EMY Africa

It Makes Cents

A common myth about investing is that a big fat bank account is required just to get started. In reality, the process of building a solid portfolio can begin with a few thousand – or even a few hundred – cedis. 

Treasury bills are a great starter investment. It’s also a great way to save if you think you struggle with saving and you find yourself dipping into your savings more often than not. If you’re the type who keeps telling himself that the last time was the last time, this is a sure way to make sure you stay on track. 

Treasury bills are government traded securities. They are issued by the Bank of Ghana (BOG) on its own account or on behalf of the Government of Ghana (GOG). Think of treasury bills as a loan you give to the government, and in return for loaning your money, they pay you back with interest. 

This is a great low-risk method of investing. If you’re someone who hasn’t invested much but are thinking of dipping your toes in investing, this is one great way to do it. 

T-Bills are normally held until the maturity date. The types available in Ghana are the 91-day, 182- day and 364 – day T-Bills. The longer the maturity date, the higher the interest rate the T-Bill will pay to the investor. You may roll over both the principal and interest or continue with the investment (roll over the principal) and take your interest. 

Here’s why you should invest.

You don’t need to have a lot of money to invest. Most banks require a minimum of one hundred Ghana Cedis. This is probably one of the most liquid investment options and if you quickly need cash, you can easily sell but you will be charged a fee. 

Interest earned is not taxed and therefore can end up saving you a lot of money! You’re insured by the government and banks accepted this as collateral. It’s a great idea to keep up with your treasury bills for as long as you can. 

There is no limit to how much one can buy. It depends on how much you are willing and able to buy. You can ask you bank to top up on your principal with money in your account every time it matures and purchase a new treasury bill. Talk to your banker about this and it can be arranged accordingly. 

You’re insured by the government and banks accept this as collateral. It’s a great idea to keep up with your treasury bills for as long as you can. 

It’s much better than a regular savings account. Compared to treasury bill rates, most savings account rates for most banks in Ghana are pretty low. 

How interest is calculated 

Treasury bills are sold at a discount. This means that you pay less but receive a higher figure at the end of the maturity period. Essentially, the difference between the price you paid, and the amount repaid at maturity is the interest. So, say you invest one thousand Ghana Cedis in a treasury bill, nine hundred and sixty Ghana Cedis will be deducted from your account but at the end of the period, you will be repaid one thousand Ghana Cedis. 

To know how much interest, you can earn from a treasury bill, you need to know the interest rate. Rates are published by BOG and the last rate published by the BOG was 13.5% for 91-day, 13.1% for 182-day, 14.4% for 364-day per annum as at 17th August 2020. Different banks will quote a different rate for the same treasury bill. It is important to shop around and find out which banks have the best rates before you invest. Treasury Bill rates are annualised rates and therefore, to calculate your return, the rate has to be divided by a full annual period and then multiplied by the number of days requested. You can easily calculate the rate online. 

Published in the print edition of the September 2020, Awards issue of the EMY Africa Magazine, with the headline “It Makes Cents.”

Idrys Mbiah

Idrys Mbiah is a lawyer in the energy sector and a writer/editor at SheMoney finance, a personal finance blog. Idrys is on a mission to help individuals in Ghana and around Africa to build sustainable wealth and financial security through various mediums.