FG Savings Bond

We have three baskets for investing: yes, no, and too tough to understand.’ – Charlie Munger

 

This week, the Federal Government savings Bond was opened to interested investors (is that you?)

But what is it really about?

The summary is, the federal government wants to borrow money from you to fund it’s operations.

Yeap, that is the short version.

Details?

The interest rate is 12.05% per annum, paid every quarter, if you invest in the 2year bond.

What does this mean? For example, if you invest in this, you are borrowing the government money for 2 years. And in exchange, you get your interest every quarter for each year, till the end of the 2 year period, when your money will be returned.

Sounds simple enough right?

There is also the 3-year savings bond with an annual interest rate of 13.05% with quarterly coupon payments too.

With N5,000, you can invest in the FG Savings Bonds but you might need a brokerage account if you do not already have one with a stockbroker.

Other information that might be helpful is, it is technically one of the safest investment instruments, just like treasury bills, because it is backed by the faith of the federal government.

Unlike many other investments, your income is not taxed. You know how your savings account shows that your interest is N22 and then you get a deduction of N2.2 for withholding tax? Yeap, that’s tax, an often neglected cost of investing. But the FG Savings bond does not have that, to encourage people to start saving and investing

And if you decide you need your money back before the 2 or 3 year period, you can sell it but you might not get it at the price you bought it. This is done on the stock exchange.

The FG Savings bond is a debt instrument and is one of the investment vehicles available to you.

 

Tolu Dima-Okojie