April 24, 2017

FG’s savings bond very attractive than banks’ rates, say shareholders

FG’s savings bond very attractive than banks’ rates, say shareholders

David Erigha, Frank Chigozie, Fapohunda Foluso and Prince Nnamdi

By Ilechukwu Chidiebere
Frank Chigozie  – A shareholder and business man

YES, I am aware of the savings bond introduced by the federal Government. Well, 13 per cent interest is a big one as no bank in Nigeria can pay you that. However, you can only invest the money you don’t need on savings bond.

For example, if I am   having fifteen thousand naira with me and know I will need that money to solve one problem or the other in the next two weeks or probably next month, then I cannot put such money into savings bond. But, if I have like say, one million naira, which I know I won’t make use of for a couple of years, then I can invest it in savings bond and recoup 13 per cent during maturity time.

David Erigha, Frank Chigozie, Fapohunda Foluso and Prince Nnamdi

We all know that bond is all about long term investment. Yes it pays more to invest in savings bond than equity at the moment because of the high coupon, since equity prices on the NSE is becoming too volatile. However, for you to invest in bond favourably you need to have surplus or extra money which you don’t need for a certain period of time or years. Savings Bond is guaranteed by government.

This is a monetary policy that government is using to mop up funds in circulation. If I have sufficient fund I will invest in the savings bond with the hope of reaping the attractive returns after maturity.

Prince Nnamdi  – Independent shareholder

THIRTEEN per cent on savings bond  is a better offer when compared to 2 or 4 per cent interest from commercial banks in Nigeria. I will rather invest in the savings bond than keep the money in a savings account.

The saving bond works in such a way that your interest is paid into your account once every three months until after maturity as the Debt Management Office, DMO has stated.

As an investor I can spend the interest as I like once it is paid to me. But the principal is still intact until after maturity. However, inflation could encroach on the return I make from the bond. So we must not forget the impact of inflation on bond.

When inflation rate is high and it eats up whatever returns the investor makes and when inflation drops a higher benefit from the bonds in terms of yield. In other words the government bond should always be considered when you don’t have a better profit yielding venture.

Fapohunda Foluso – A shareholder and Banker

FIRST of all, I think the Government wants to reduce the money in circulation which they believe is one of the causes fuelling inflation. They will always find a way to fight inflation. Investing in government bond comes with safety, except in the event where the country goes bankrupt and it becomes difficult for the government to meet its obligation.  Under such situation, the savings bond becomes risky.   I am very much aware of the savings bond as it is a welcome idea. Investors, savers and even regular bank depositors should take advantage of it.

With 13 per cent interest, it is a sweet and tempting offer and it will be hard to turn down. Bonds are usually long term investments and with 13% interest, it looks capable of tempting people to withdraw their money from the commercial banks and lend to Federal Government.   If I have huge amount of deposits in a bank,  I will withdraw from it and invest in government’s savings bond. So, in all, the target audience by the government is defeated since only bigger investors can invest for long term.

David Erigha –  A shareholder  and entrepreneur

YES, I am aware of the savings bond just introduced by government.   Government intend to raise capital to pursue the ongoing economic reform.   13 per cent is an attractive interest rate; more attractive than most banks’ rates for savings and even time deposits. So, it would be a better option to invest in bonds than equity.

However, it will benefit the huge investors more than small investors.  Government need to create more awareness of the savings bond as it will encourage people to invest in the instrument and help government realise its objectives.

Investment in government’s savings bond guarantee more returns on investment as the interest will be paid quarterly in a year; that is, having four times returns on investment in one year at a good interest rate that is fixed for two to three years is a good deal.