Treasury Bills - T-Bill

Short-term (usually less than one year, typically three months) maturity promissory note issued by a national (federal) government as a primary instrument for regulating money supply and raising funds via open market operations. Issued through the country's central bank, T-bills commonly pay no explicit interest but are sold at a discount, their yield being the difference between the purchase price and the par-value (also called redemption value). This yield is closely watched by financial markets and affects the yield on municipal and corporate bonds and bank interest rates. Although their yield is lower than on other securities with similar maturities, T-bills are very popular with institutional investors because, being backed by the government's full faith and credit, they come closest to a risk free investment. -- www.businessdictionary.com

BREAKING DOWN 'Treasury Bill - T-Bill'

T-Bills are attractive to investors because they offer a very low-risk way to earn a guaranteed return on invested money. They benefit the government because the government uses the money raised from selling T-bills to fund various public projects, such as the construction of schools and highways. T-bills can have maturities of just a few days up to the maximum of 52-weeks, but common maturities are one month, three months or six months. The longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.

Source: mrpepe.com

Where can I purchase T-Bills?

T-Bills are sold via commercial banks and official agents such as merchant banks, and sales are open to individuals and corporate investors.

Benefits to Investors

There are a number of advantages that T-bills offer to investors. They are considered low-risk investments because they are backed by the government. With a minimum investment requirement of just ₦50,000 or ₦500,000 in some other banks, they are accessible by a wide range of investors. In general, interest income from Treasury bonds is exempt from state and local income taxes. They are, however, subject to federal income taxes, and some components of the return may be taxable at sale/maturity. The main downfall of T-bills is that they offer lower returns than many other investments, but these lower returns are due to their low risk. Investments that offer higher returns generally come with more risk.

Can I sell my T-bills before it matures?

It is possible to sell your T-Bills before maturity using the OTC (Over The Counter) market. Because this is governed by the forces of demand and supply, you might make a loss if you choose to sell them before their maturity date.

How secure are T-Bills?

As T-Bills are based full faith of the Federal Government of Nigeria, they are considered one of the most secure investments to make. They can also be used as collateral, and are accepted by all banks.