Though they both relate to short term investment, there is a misconception between these two terms and often times, people confuse one for the other. This article will help to clear the misconception and educate you more on both terms.
NIGERIA TREASURY BILLS (NTBs)
NTBs also short term investment in government instruments. They are usually placed for a 91 days, 182 days or 364 days tenure.
Source: Thecable.ng
Facts & Features of NTB
Interest rates on NTBs are always higher than what any Bank would offer you on Fixed Deposit. Especially if your NTB investment is for a 364 day period. Such interest are not subject to 10% Withholding Tax as it is with Fixed Deposits.
Often times, your negotiating skill is not needed as the determined rate on the auction date between the concerned parties (the CBN, Commercial Banks, investment houses, etc) applies to everyone's investment irrespective of the bank or place through which your investment was placed.
Interest is usually paid up-front, though the option to collect such interest at maturity is also available (see No. 5). For instance if you are investing #100,000 @ 12% per annum for 91 days, the interest figure, in this case which is expected to be #2,884.30 (less handling charge and commission) will be credited to you immediately while only your principal will be returned at maturity.
NTB interest is subject to #100 as handling charge & 0.25% commission charged on the interest, both in favour of the processing bank or investment house.
While placing the investment, one can choose to rollover both principal + interest, principal only or have the principal returned to his/ her account at maturity.
One who wishes to terminate at maturity can also do so through the bank or the investment house where the investment was placed. The investment can also be terminated before maturity. However this is subject to a pre-liquidation charge which only affect the interest payment. Presently 20%.
NTB investments are absolutely risk free investments, and are the best forms of investment recommended for short term and risk conscious investors.
FIXED DEPOSITS
Fixed deposits are also short term investments, usually placed for a 30, 60, 90, 180, or 365 day period.
Facts & Features of Fixed Deposits.
- Interest on fixed deposit is subject to 10% withholding tax which is credited to the government.
- In most Banks, if you are terminating the investment before maturity, on your accrued interest, a 20% penal charge is applied.
- The bigger the amount and the longer the investment period should translate to a higher interest rate, but in most banks, 99% of the time, the banker you are interfacing with will never offer you the highest interest rate. Thus, your negotiating skills matters as well as your willingness to move your money to the next bank.
- Unlike NTB interest which can be claimed up-front, interest on fixed deposit are paid only at maturity.
- In most banks, you can start fixed deposit investment with N100,000. In some other banks, it is lower.
- While filling the fixes deposit request form, at maturity, you can chose to rollover principal only, rollover principal + interest or have both principal + interest credited back to your account.
- Fixed deposit investment are risk free investment if the bank doesn’t windup.
- Treasury bills Issuance calander is released every quater by the Central Bank of Nigeria and from practical experience the auction usually takes place twice in every month, usually around 15th and 30th of every month.
A system or an individual with a well-planned “cash flow” can periodically invest its excess funds wisely thereby growing the funds with investment interest, which in return also bridges the inflationary effects on the invested funds especially if such funds were left idle.
For short term investments, 100% of the time Fixed Deposits & Nigeria Treasury Bills (NTBs) are better as they often times offer rates that are two or more times higher than what Banks pay on conventional savings account per annum.
Our savings to a large extent determines our balance and our future. Lets grow and invest it wisely.