Looking for a safe and reliable way to grow your savings while supporting the Ugandan economy? Look no further than Treasury bills and bonds, issued by the Bank of Uganda on behalf of the government.
Treasury bills, or T-bills, are short-term government instruments with maturities of less than one year. Maturities include: 91 days, 182 days, and 364 days. Think of it as lending money to the government for a short period of time. Unlike a normal loan where you’d receive interest payments, with T-bills, the government sells them at a discount to their face value. This means you pay less than the value of the bill upfront, but when it matures, you get the full (face) value back. The difference between the purchase price and the face value is your return on investment.
Treasury bonds (T-bonds) are longer-term investments with maturities of two to 20 years. They provide regular (every six months) interest payments (called coupons) throughout their life, and your original investment is returned when they mature.
It is important to note that investments in T-bills and T-bonds are subject to withholding tax on the interest earned. However, T-bonds with a maturity of more than 10 years attract a lower rate of withholding tax. It’s important to discuss these tax obligations with your bank or a financial adviser before investing to ensure you fully understand your potential returns.
Your options
There are two main ways of investing in government securities. The primary market is where BoU holds auctions to issue new securities. You can participate directly in the primary market, even with investments below Shs200mn, by simply placing your order through any commercial bank. However, a key limitation is that these auctions take place on specific dates: twice a month for treasury bills and once a month for treasury bonds. This means you may have to wait for an auction date, leaving your money idle in the meantime. What’s more, there’s no guarantee that the T-bill or T-bond you want will be available on the auction date you want.
Alternatively, the secondary market allows investors to buy and sell existing T-bills and T-bonds amongst themselves through any bank of your choice. This market offers more flexibility as you’re not tied to specific auction dates. Additionally, with T-bonds in particular, you’re not restricted to the bonds sold on specific auction dates, giving you more choice in your investment.
Buying directly from the government in the primary market often offers the best interest rates, but individual participation can be more complex if the investment amount exceeds Shs200mn and is limited by the auction schedule. The secondary market offers greater flexibility and the potential to diversify investments for more frequent income, but interest rates may be slightly lower.
Why Treasury securities?
Backed by the government [of Uganda], they are seen as a low-risk investment with a reasonably high return. T-bonds provide a steady stream of income, and you can start with as little as Shs100,000. Also, both government bills and bonds can often be sold on the secondary market if you need your money sooner.
Of course, investing comes with risks. Interest rates can fluctuate, inflation can affect your returns, and other opportunities may offer higher potential returns (but usually with much higher risk).
Your investment journey
To get started, you’ll need a savings or similar account at a commercial bank in Uganda. Next, work with your bank to open a Central Securities Depository (CSD) account with the Bank of Uganda. Once you have this in place, decide whether T-bills or T-bonds best suit your objectives and whether you want to participate in the primary or secondary market.
With this clarity, contact your bank to place your investment order. It is important to note that there must be funds in your account with the commercial bank at the time you place your order. This means that if your participation in the primary or secondary market is successful, your bank will automatically debit your account with the cost of your chosen investment.
Don’t let your savings sit idle! Discover the benefits of treasury bills and bonds. Contact your bank or an investment adviser to learn more, discuss the nuances of the primary and secondary markets and applicable taxes, and develop a strategy that supports your financial goals.
Finding more information
The Bank of Uganda’s website provides valuable resources to assist you with your investment decisions. Visit the Financial Markets section for the auction calendar, auction results, and more information on investing in government securities.
Kenneth Egesa is the director of communications at the Bank of Uganda
