You can do this by investing in Fixed Income Securities.
As shown in the flow chart above, there are two types of Fixed Income Securities:
- Treasury Bills
- Treasury Bonds
They’re referred to as fixed-income securities because the return the investor gets is usually paid out in fixed interest payments on fixed dates over a fixed period of time.
If you’re a visual learner, we have a visual version of this on our YouTube Channel:
Key Differences between Treasury Bills & Treasury Bonds
For the ultimate guide on investing in treasury bonds, click here. In this article, you will learn everything you need to know about Treasury Bills (T Bills) after I tell you about an e-book of the most requested article on this blog in 2020 & 2021!
Drum rolls please…Tadaaaa!!! 🥳
Black tax is the extra money that black professionals are expected to give every month to support their less fortunate family members.
How much of your income should go towards extended family support?
You’ll be able to both easily prioritize where your money should go and know EXACTLY how much to spend on each family member. You’ll also learn how to say NO to money requests without feeling guilty.
Here are the topics the e-book covers:
Chapter 1: What is black tax + the origin of black tax
Chapter 2: Benefits of black tax (YOU HEARD RIGHT!)
Chapter 3: How black tax impacts your finances
Chapter 4: How to deal with black tax
Hint: you’ll be able to map them into primary, secondary & tertiary responsibility categories!
Chapter 5: How to avoid black tax (😉 )
This e-book will guide, equip, and stir conversations that can help navigate black tax. Its aim is to provide practical solutions that, if well applied, will ensure that you help without jeopardizing your financial health and freedom.
What is a Treasury Bill?
A Treasury Bill, often referred to as a T-Bill is a short-term, fixed-income security issued by the government through The Central Bank of Kenya (CBK).
Types of Treasury bills in Kenya
Treasury bills are classified based on their maturities.
There are 3 types of Treasury bills that you can buy in Kenya:
- 91-day T bills
- 182-day T bills
- 364-day T bills
The longer the T-bill period, the higher the returns (interest rate). This means a 364 day T-bill will give you higher returns as compared to the 91-day T-bill.
How much are T-Bills? How much money do you need to start investing in Treasury Bills?
You need a minimum of KES 100K to start investing in T Bills.
This is a large amount of money for a beginning investor which poses a barrier to entry unlike investing in Money Market Funds where you can begin investing with as little as KES 2,500.
If you cannot raise the KES 100,000 don’t despair. Baby steps is the way to go! Start with a Money Market Fund then onboard Treasury bills & bonds in your investment portfolio later.
Note: Money Market Funds also invest in T-bills thereby giving investors indirect ownership of T-bills at a fractional amount.
How T-bills work in Kenya
Instead of investing your KES 100,000 shillings and getting X% in interest after a certain period of time, treasury bills are sold at a discount to the face value and redeemed at face value at maturity.
For example, a 100k (face value) bill may be sold at 95k (this is the amount you’ll pay).
At the end of the period (91, 182 or 364 days depending on the bill you chose) you get the full 100k.
The 5,000 return in the above example is subject to 15% withholding tax.
Note: Don’t be alarmed about the technical term ‘face value’. I will explain all the technical terms at the end of this article. For now, keep the above example in mind. We’ll revisit.
How often are treasury bills auctioned/issued in Kenya?
T bills are auctioned by the Central Bank of Kenya on a weekly basis.
Why the government issues T-Bills
The government issues T-bills as a way to raise money to fund its various projects. If you ever read the government budget, issuance of T-bills and T-bonds is collectively referred to as domestic borrowing by the government.
How to buy T-Bills
To buy Treasury bills, you need a Central Depository for Securities (CDS) account maintained at the Central Bank of Kenya.
This is different from the CDSC (Central Depository Securities Corporation) account that you need to buy equities/shares.
Requirements for a CDS account
1. Complete a CDS account application (referred to as a Mandate Card) form issued by CBK.
You can get this form from any CBK branch countrywide. You can pick this card from the branches on any weekday before 2 pm.
2. One recent coloured passport size photograph.
The back of the photograph MUST be certified by your Banker and stamped. The passport photo shouldn’t be stapled or glued to the card.
3. The original and clear ID or passport copy or alien certificate.
CBK will retain the copies.
4. A signatory
Your banker should witness and confirm your signature on the mandate card. He/she should also stamp and sign your mandate card.
Central Bank Guidelines for filling the CDS application form (Mandate card)
- Should be filled in BLOCK LETTERS in a neat and clear manner.
- Names must be written in the order they appear in your identification document.
- There should be no corrections or errors.
- Don’t fold the card or disfigure it in any way.
For a joint account:
- Each applicant should fill the application form (mandate card).
- All signatories are required to appear in person and sign the card in the presence of a designated CBK officer or authorised agent.
- All other guidelines above apply to joint account applicants.
Can you get a second form if you mess up one? When you go to CBK, collect at least 3 forms so that you have an extra one if you mess up. You can also share the other forms with your family, friends or colleagues. Wealth building is better when your whole tribe is winning!
How to open a CDS account
1. Return the filled mandate card and the documents to CBK.
You’ll be directed to a counter where your application will be received by an officer and checked for compliance.
2. Once your account is set up, you will be sent an email by the National Debt Office which reads like this:
CONFIRMATION OF UPDATE ON CDS ACCOUNT
We have processed your application for amendment of your CDS account details held in our books as per your recent request and confirm that we have affected the changes as requested.
CDS/PORTFOLIO ACCOUNT NO. 123454-1
VIRTUAL ACCOUNT NO. 1000259781
Please note that CDS accounts without balances for a period of one year automatically become dormant.
When transacting always quote CDS/Portfolio account number in Treasury Bill/Bond primary tender applications or any other correspondence. Also while making payments for investments in Government Securities, send the funds to your Virtual account number as given above.
In the event of any change in your bank/branch details or reactivation of a dormant account, you are required to complete new mandate cards to effect the change in your CDS account.
Monetary Operations & Debt Management (MODM)
Financial Markets Department
Central Bank of Kenya
Note: To prevent your CDS account from becoming dormant, ensure that there is always a security (either T-bill or T-bond) running in your account.
It takes 7 working days to process your application at the CBK.
Where to buy Treasury Bills
Once your application is approved, the next step is to start investing in Treasury bills. There are two ways you can buy Treasury bills:
1. Directly through the Central Bank of Kenya (manually or through CBK-TMD USSD Application)
2. Through approved investment companies such as
- Commercial banks
- Non-bank financial institutions
- Licensed stockbrokers
- Licensed investment advisors.
These investment companies charge you management fees (a portion of your investment capital).
A smart investor breaks the chain of going through intermediaries which is why investing directly through CBK is the best option and the only option we’ll teach you in this article.
Here are the steps to follow when investing through CBK.
Step 1: Check the Treasury Bills on offer on the CBK website.
Remember that these are auctioned on a weekly basis so they keep changing.
The screenshot below shows the Treasury bills on offer as of 07th March 2021.
Step 2: Select a Treasury Bill of your choice based on your preferred investment period.
You have three options: 91 day, 182 day & 364 day T-bills.
The CBK website has a listing of the upcoming offers, and results of the previous offers. Taking time to check the previous auction results gives you a good guide on the kind of returns to expect. You can see that information here.
Step 3: Make an application to invest.
The Treasury Bill Application form has a few technical terms that you need to understand:
- Face value
This is how much the bill is worth. It is also referred to as the par value.
In the example we used at the beginning of the article, the face value is KES 100,000.
In our example, the discount for the KES 100,000 T-Bill where you pay 95,000, is 5%.
5,000/100,000 = 0.05
0.05*100 = 5%
The difference between the value date (when CBK starts counting the starting period) and when you get your money. So this period is either 91, 182 or 364 days.
- The Issue Number
Every T-Bill has a special code that’s used to identify it. In the screenshot above from the CBK website, the issue number for the 91-day bill is 2412/091.
Now that you know what all the technical terms mean, let’s go back to step 3 of filling the Treasury Bill application form…
- You’ll need to fill in the issue number, the maturity period and the face value you want to receive when the bill matures.
- Personal information such as name, phone number, CDS number and source of your funds.
- Choose your preferred discount rate or return rate.
When picking the rates of return, you have 2 options:
1. Competitive bid: This is where you state your preferred rate of return, say 10%
2. Non-competitive or average rate: This is where you let the T-bill auction decide the rate of return/cut-off rate.
This is the best option for beginners and those with investable funds of less than 20 million.
- The final part is the rollover instructions.
This is for existing investors where they give CBK permission to roll over funds from their maturing bills & bonds to upcoming government securities. This makes reinvestment easier.
Step 4: Getting auction results
CBK’s Auction Management Committee (AMC) determines the cut-off rate and the successful weighted average of the accepted bids after considering all received bids.
The results of this auction are published in the daily newspaper & on the CBK website.
You should check the website or newspaper if you had placed a bid as you’ll need to send your investment money to CBK by the following Monday before 2 pm. If Monday happens to be a public holiday, you have to send the money by the following day.
They will also send you an SMS to your registered mobile number.
Note: The Auction Management Committee’s decision is final and cannot be contested.
Step 5: Making the payment to CBK
The payment period for your bid closes the following Monday before 2 pm. You can pay via cash or cheque for amounts below 1 million. For amounts larger than 1 million, a bank transfer is used.
Note: You can be barred from future investments in government securities if you fail to make your payment by the deadline. Make sure you have ready money by the time you start the application process.
Step 6: Receiving your money!
You will receive the face value amount in your bank account that’s linked to your CDS account when the 91, 182 or 364 period is over.
If you had given rollover instructions, your principal amount will remain in your CDS account until you bid for the next treasury bill or bond.
Your interest amount will be sent to your bank account.
You give rollover instructions at the beginning of the investment through the application form as explained earlier.
Treasury Mobile Direct (CBK-TMD Code)
For a long time, investors complained about the cumbersome process explained above.
The CBK finally responded by launching a USSD mobile application which makes it easier and faster to invest in both T-Bills & Bonds at the comfort of your home, office, vacation etc!
What’s CBK-TMD and how to navigate the app
Central Bank of Kenya Treasury Mobile Direct (CBK TMD) is a USSD mobile system application that enables CDS account holders to buy treasury securities (treasury bills & bonds) and query their virtual account balances using the *866# short code on their mobile phones.
When your CDS account is set up, CBK will send you a text message on your registered mobile number. This is a notification that you can start using TMD using the CBK USSD code *866#.
When you dial the *866#, the interface will recognize you as a CDS account holder.
This is the process we recommend here at The Wealth Tribe. Use it to buy your first security!
How to buy a T-Bill using TMD
Step 1: Dial *866#
Step 2: enter your PIN
Step 3: Select option 2-Auction Bids
Step 4: Select Security Type
Step 5: Select Security on offer
Step 6: Enter Bid amount
Step 7: Enter bid Rate (Enter 0 for average rate)
Step 8: Confirm and send
When your bid is accepted (you will receive a text message), you can proceed to make your payment.
You can pay via:
- Direct deposit at any bank
2. Real-Time Gross Settlement (RTGS)
3. Electronic Funds Transfer (EFT)
5. Take cash to CBK if you wish; they’ll credit it.
When making a bank transfer, in the place of A/C number, put the virtual account number that CBK will send to you through email (e.g VIRTUAL ACCOUNT NO. 1000259781). When asked for a reference, write your CDS/Portfolio account number as provided by CBK ( e.g CDS/PORTFOLIO ACCOUNT NO. 123454-1)
When you log in to your CDS A/C, you should be able to see your credit reflected.
Why we love CBK-TMD!
TMD is accessible through all types of phones including kabambes. This makes it accessible to all Kenyans. You do not need a smartphone or internet connection to access TMD.
You will be able to access the following services at the touch of a button:
- Applying & bidding for T-Bills & Bonds
- Notifications of bid outcomes
- Your account balance
- Status of alerts for sales or purchases in the secondary market
The different sections of TMD App
Check the TMD brochure from CBK here.
Are Treasury Bills taxable in Kenya?
Yes. Your gains are subject to a 15% withholding tax.
You receive your money less the 15% withholding tax. CBK is an authorised withholding agent by Kenya Revenue Authority (KRA).
How much Treasury bills can I buy?
As stated earlier, the minimum amount you need to buy treasury bills is KES 100,000.
If you choose a non-competitive or average rate, the maximum is 20 million.
Can I invest in Treasury Bills while living in the diaspora?
Yes! Kenyans in the diaspora can follow the instructions in this document to start investing in Treasury Bills. Invest at home 😉
The process of opening a CDS account used to be easier when done from the diaspora as CBK did not require Kenyans to submit hard copy documents. Unfortunately, this changed recently. You have to send your documents via courier to CBK.
The list of documents required:
1. Duly filled mandate card
2. Passport or ID copy
3. Email Indemnity Agreement form
4. Treasury Mobile Direct (TMD) Registration form if you have a Safaricom line that is roaming
5. One passport photo
6. KRA pin certificate
7. Central Bank of Kenya Treasury Mobile Direct Terms & Conditions form
Contact CBK to email you the Email indemnity agreement, TMD registration form and the CBK TMD terms & conditions form.
From experience, call them instead of emailing them. Their emails either bounce or they never reply.
When done, send your documents via courier to:
Central Bank of Kenya
P O Box 60000- 00200
Treasury Bills Pricing Calculator
Both the pricing calculator and the rediscounting calculator can be found at the bottom of this page.
How to use treasury bills
1. Since Treasury bills are short term in nature, you can use them to accumulate investment capital that you will later use in bigger and more lucrative investments.
Treasury bills returns are calculated using simple interest and not compounding interest.
2. To remove the temptation of spending money by having it in a current account, invest it in a Treasury Bill.
Why invest in Treasury Bills?
1. Diversification of your investment portfolio.
Remember the rule: don’t put all your eggs in one basket!
2. T- Bills are a low-risk investment
If you’re a beginner in investing or are risk-averse, then investing in Treasury bills is a perfect option. T-bills and bonds are considered to be the least risky investments in Kenya.
3. Capital preservation
You don’t want your money to sit in a current account or under your mattress where it will lose value due to inflation. Preserve the value of your capital by investing in T-bills
4. No management fees
The biggest risk to most investors portfolios is management fees or the cost of managing their investment portfolios charged by fund managers.
Investing in T-bills directly through CBK as opposed to investing through other financial institutions is free.
Are T-Bills risk-free?
They are risk-free in that they are backed by the full faith and credit of the Kenyan government.
Are T-Bills liquid?
T-bills are the most liquid in that cash for alternative investments is tied for a short time. Cash flow is king!
You officially have one more investment opportunity to explore! Go forth and build wealth!
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