By Gobba Godfrey Kenneth
For the INVESTOR that is looking for a safe place to temporarily park their savings as they consider other long term options, Treasury Bills provide excellent alternatives to traditional savings accounts. Treasury Bills are in the simplest sense short term loans to the government. But are they worth it?
Here are a few reasons why I believe they are.
SECURITY
You probably prefer to park your money in a savings account because the bank’s armed guards; vault and security systems give you a sense of security that you wouldn’t otherwise get if you instead chose to hide your money under your bed.
However what most people don’t know is that Treasury bills are probably safer than savings accounts.
When you lend your money to the government through a Treasury Bill, the government guarantees you that it will pay back that money with a reasonable profit for you, without fail in either 91 days or 182 days or 364 days.
Now whereas a commercial bank could be lending out your savings to unsafe borrowers which could be risky for you, the government has a political and economic reputation to protect both locally and globally and hence will by all means honor its short term debt obligations (Treasury Bills).
LIQUIDITY
One might argue that their savings account allows them to access their money as and when they want it whereas with Treasury Bills they would have to wait for the 91 days or 182 days or 364 days to elapse before they could access their money.
But what most people do not know is that Treasury Bills are in fact very liquid. If you do need urgent cash you can easily sell your Treasury Bills on the secondary market, before they mature.
Now I do agree that the speed of the sale depends on the availability of demand in the secondary market which could be instant, or could take a couple of days or a week and this uncertainty would make the instant withdrawals of the savings account attractive.
However, you can get better liquidity by indirectly holding Treasury Bills through a Money Market Fund which allows you to pull out your cash as and when you need it.
FEES AND RETURNS
Let us suppose that you are saving up for a new car that you intend to acquire in 12 months and you currently have about 20 million in a savings account. But those sneaky little bastards called monthly charges and the close to zero monthly interest seem to be slowing down your progress towards your goal every other month.
What you are probably not aware of is that Treasury Bills could get you to your new car faster than a traditional savings account because they give much higher returns and have zero monthly charges.
For example, whereas a savings account could give you returns that are usually between 0 and 4% per annum, holding a 364 day Treasury bill could earn you a return between 12 to 15% per annum or even higher depending on the interest rates temperature in the economy.
And whereas a savings account will further slow you down with ridiculous monthly maintenance fees and taxes, there are zero monthly charges when you INVEST in Treasury Bills. Even the 15% withholding tax on the return would still leave you way ahead of a savings account.
AFFORDABILITY
Incidentally, 99 out of every 100 people that I have talked to have this misconception that they would need big bucks, perhaps more than a hundred million to be able to INVEST in Treasury Bills. But this is just a fallacy that is a result of a massive lack of information within the masses.
The truth is that Treasury Bills are really very affordable to the common man because all you need is a minimum of Ugx 100,000/= (One Hundred Thousand shillings only) to qualify to INVEST in Treasury Bills as a Non Competitive bidder.
SO ARE THEY WORTH IT?
Treasury bills are just as safe as your savings account if not safer. You can easily sell them when you need to access your money. They give much higher returns than savings accounts and in many cases, Treasury Bills yield between 3 to 6 times more than what most people get in traditional savings accounts.
But most importantly they are affordable to the common man and in terms of maintenance; Treasury Bills are immensely cheaper than savings accounts.
I believe that you ought to reconsider how you think about your savings. It only takes a small mindset change to replace your savings culture with this short term INVESTMENTS culture that I am advocating for.
The facts and the figures speak for themselves. But do you have what it takes to apply this information to your financial life or are you just another browser?
BE BOLD. TAKE ACTION. APPLY KNOWLEDGE. EMBRACE CHANGE.
The writer is C.E.O, Wealthy Mindsets
