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Treasury bills can be a very lucrative investment when done right. Here’s a quick guide on understanding what and how to invest in treasury bills.
What is a treasury bill?
A treasury bill is an instrument of debt.
Let’s say that you have a friend who needs a loan of sh.90,000. You agree to loan your friend this money for 364 days. After which your friend will give you back the money. Not as sh.90,000 but as sh.100,000.
This is what happens when you invest in Treasury bills. You give the government your money at a discount for a particular period. This can be 81 days, 182 days or 364 days. Then the government gives you back your money.
Treasury bills are auctioned on a weekly basis on the CBK (Central bank of Kenya) website.
The amount that is auctioned is called the face value. This is the amount that you will receive upon maturity. Not the amount you need to invest. Remember we said that treasury bills are sold at a discount, therefore the amount to invest is usually less than the face value of the bill.
The minimum amount you can invest in a treasury bill in Kenya is sh.100,000. This amount is purchased in denominations of sh.50,000.
How to invest in treasury bills in Kenya.
1. Method one.
Buy treasury bills directly through a commercial bank in Kenya. This will come at an extra fee on top of the amount to purchase the treasury bill.
2. Method two
a) Open a CDS account. – This account is free to open and maintain.
b) Choose the maturity period of the treasury bill you want. – Is it the 91 days, 182 days, or 364 days treasury bill?
c) Pick the face value of the bill you would like to invest in.
d) Fill in a treasury bill application form and submit it.
Then wait for a message on whether your application was successful or not.
In conclusion, investing in treasury bills is a great way to make passive income while beating the rate of inflation. Let me know, if will you invest in treasury bills or not, and why.