Investing in Treasury Bills (T-bills) is a great way to grow your wealth with minimal risk, as these government-backed securities are considered one of the safest investments in Kenya. Treasury Bills are short-term securities issued by the government, and they offer a fixed return at maturity. In this guide, we’ll explain how to buy Treasury Bills in Kenya, including everything you need to know about the process.
What Are Treasury Bills?
Treasury Bills (T-bills) are short-term securities that the government of Kenya issues to raise funds for its budget. These bills are sold at a discount, and investors earn a return based on the difference between the amount paid for the bill and its face value when it matures.
- Short-Term: T-bills in Kenya are typically issued for 91, 182, or 364 days.
- Risk-Free: T-bills are considered risk-free since they are backed by the government.
- Discounted: T-bills are sold at a discount, and the difference between the purchase price and the face value is your return.
Difference Between Treasury Bills and Treasury Bonds
While both are government securities, there are key differences between Treasury Bills (T-bills) and Treasury Bonds (T-bonds):
- Maturity Period:
- T-bills are short-term, with maturities ranging from 91 to 364 days.
- T-bonds have long-term maturities, ranging from 1 year to 30 years.
- Interest Payments:
- T-bills do not pay interest. Instead, they are sold at a discount, and the difference between the purchase price and face value is the return.
- T-bonds pay periodic interest (usually semi-annually) to the investor throughout the life of the bond.
How Treasury Bills Work
Treasury Bills are sold at a discount, meaning you pay less than the face value of the bill when you purchase it. At maturity, the government will redeem the bill for its full face value. The difference between the price you pay and the face value is your return.
Example:
If you purchase a Ksh 100,000 T-bill at a 1.5% annual rate with a 182-day maturity, the calculation is as follows:
- Face value: Ksh 100,000
- Rate: 1.5% per annum
- Maturity period: 182 days (half a year)
Your return would be:
- Discount = Ksh 100,000 × 182/364 × 1.5% = Ksh 750
- You pay: Ksh 100,000 – Ksh 750 = Ksh 99,250
After 182 days, you will receive Ksh 100,000 back, earning a profit of Ksh 750.
How to Buy Treasury Bills in Kenya
Now that you understand how T-bills work, let’s dive into the process of buying them.
Step 1: Open a CDS Account
To buy Treasury Bills in Kenya, you need to open a Central Depository System (CDS) account. This account is used to track your investment in government securities, including T-bills and T-bonds.
How to Open a CDS Account:
- Visit a CBK Branch:
Go to any Central Bank of Kenya (CBK) branch with the following documents:- Original and copy of your National ID
- KRA PIN certificate
- Two **passport-sized photos
- Some brokers may also ask for a bank statement or utility bill.
- Fill Out the Forms:
Complete the required paperwork and submit it to CBK. It typically takes 10-14 days for CBK to process and open your CDS account. Once your account is ready, you will receive an SMS notification. - Activate TMD Service:
After your account is activated, you’ll need to sign up for TMD (Treasury Management Service), which allows you to bid for T-bills and bonds through the USSD code*866#.
Step 2: Check for Available Treasury Bills
Treasury Bills are auctioned weekly, and you can check the available offers and details on the CBK website or through the TMD service.
- You can find information about the auction dates, the size of the offer, and the interest rate for the upcoming auctions.
- Treasury Bills are available in 91, 182, or 364-day options.
Step 3: Complete the Application Form
Once you’ve selected the Treasury Bill you wish to purchase, the next step is to complete the T-bill application form. You can download the form from the CBK website or obtain it at the CBK office.
- The form requires you to fill in basic details like:
- Your CDS account number
- Mobile number
- The quantity of T-bills you wish to buy
- Preferred interest rate (you can choose either Interest/Competitive Rate or Non-Competitive/Average Rate)
Competitive Rate vs Non-Competitive Rate:
- Competitive Rate: You specify the rate you want to earn. The Central Bank will accept bids based on the rates, and there is no guarantee that you’ll get the full amount you’ve applied for.
- Non-Competitive Rate: You are guaranteed to receive the T-bills, but the interest rate will be based on the weighted average of accepted competitive bids.
Step 4: Submit the Application Form
You must submit your completed application form by 2 p.m. on Thursday before the auction. You can submit the form at any CBK branch or head office.
Step 5: Pay for the T-Bills
Once your bid is successful, you’ll need to make the payment for the T-bills. Payment is typically done in the following ways:
- Cheque Payment: For amounts Ksh 1 million or less.
- Bank Transfer: For amounts greater than Ksh 1 million.
The payment deadline is typically by 2 p.m. on the Monday following the auction (or the next business day if Monday is a public holiday).
Step 6: Waiting for the Auction Results
After the auction, you can check whether your application was successful and how much you owe for the purchased T-bills. You can find this information at the CBK branch or through their website.
Step 7: Receive Your T-Bills
Once you have made the payment, your T-bills will be credited to your CDS account. The face value of the T-bills will be redeemed into your bank account at the maturity date.
Conclusion
Buying Treasury Bills in Kenya is a simple and secure investment option for those looking for a low-risk, short-term investment. By following the steps outlined above, you can easily purchase T-bills, track your investment, and earn returns upon maturity.
If you are looking for a stable investment with minimal risk, T-bills are an excellent option to consider.
