Fgn savings bond, one of best means of savings and investment for low income earners like me and you.
Wandering the reason why i said that?
Is because it is the reason why the federal government introduced it to the public.
To actually make low income earners or i will say retailers invest in the federal government bonds.
Please incase you are confused, let me clarify this to you. Fgn bonds and fgn savings bonds are different.
Federal government savings bonds is a type of fgn bond. The government introduced the savings bonds because of the high price of investing in the fgn bonds.
To invest in fgn bond will cost you fifty to hundred million naira, whilst the fgn savings bond is just five thousand naira to fifty million naira.
When the government introduced the bond in Nigeria as a means of investment, it was tagged at N50,000,000 as the least minimum amount and it was the rich individuals and rich organisations that went for it.
It’s just like the treasury bills if you’re buying from the primary market in which the minimum amount is twenty five to fifty million naira.
The truth is many Nigerians couldn’t afford buying the fgn bonds, then the government had to introduce the fgn savings bond.
It is relatively cheap to invest, as the minimum amount required from an investor is just N5000 to N50,000,000 respectively.
Let me explain what bonds is all about.
What is bonds
You can say simply put it that bonds are long-term lending agreements between a borrower and a lender.
You can as well say that the Fgn bond is an investment instrument or a debt security issued by the federal government to the public with the aim of raising fund.
As long as Nigeria is concerned, bonds, treasury bills are sold by the federal government. I can’t recall any time that the state government is making such public offer.
What is fgn savings bond
When you see fgn savings bond, please note that it is federal government of Nigeria savings bond.
The reason why i’m saying this is because you may think that fgn is a type of bonds.
And that is very wrong.
Fgn bond or savings bond is only applicable here in Nigeria as it is a short form of saying Federal Government of Nigeria.
You can simply say that fgn bonds is a type of bond issued by the federal government of Nigeria through the debt management office to the public which targeted low investors.
As the central bank issue treasury bills on behalf of the federal government, so as the debt management office acts on behalf of the FG in issuing bonds to the general public.
Central Bank of Nigeria is very popular to us, but debt management office isn’t common to many of us.
Let me help you with the explanation.
The body which was formed on 4th October 2000 was introduced to see and manage debts in Nigeria.
When you hear that Nigeria owes this amount of money, who do you think that makes such announcement?
You think it’s the central bank?
No, it’s the duty and work of the debt management director general.
Just like the cbn have director and governor, the department of debt management office have director general.
How to invest in FGN Savings Bond
This is where the main deal lies, how to invest in FGN Savings Bond.
- Minimum amount required from an investor to invest in fgn savings bond is N5,000 and the maximum is N50,000,000
- Debt management office (DMO) are the one issuing it to the public on behalf of the federal government of Nigeria
- The tenors or duration is two to three, whilst fgn bonds is two to twenty years
- You can only buy from a licensed Stockbroker
- Interest is paid quarterly (three months) while principal (amount invested) is paid at maturity
- The interest rates usually falls between 4.131% and 5.131% respectively
- It is one hundred percent risk free
- There’s no payment of tax or fee
Whenever it comes to investment what matters most to an investor is the returns on investment.
However, in capital and money market investment, the interest rate given to an investor matters a lot.
Reason being that the higher the interest rate, the higher the returns on investment.
Fgn savings bonds as at January, February and March offered an adequate interest to their investors.
There was no public offering in the month of April, and even right now there’s no announcement from them.
Another thing to check when planning to make an investment is the duration or tenors.
I’m always saying this that the longer the duration, the higher the interest rate.
For example two investors planning to invest in savings bonds. One planned to invest for a duration of two years, while the other is three years with same amount of money.
There’s no way that the two investors will get the same offer on interest rate.
The one investing for three years will get high or better offer, than the investor investing for two years.
All these financial instruments be it bonds, stocks, treasury bills, mutual funds, fixed deposit etc you’re lending your money to the borrower which can be the government or an organization.
The longer it stays the higher interest you’ll be offered than lending money for a short period of time.
How do you invest in fgn savings bond?
First you need to make up your mind on hoe much you’re willing to invest.
Is it the minimum amount to which is five thousand naira N5,000 or the maximum which is fifty million naira N50,000,000.
What’s the duration or tenor which you want to invest.
How long can you endure your money being in the hands of the federal government?
The durations are two and three years.
You can’t invest for just one year, no my brother or sister it isn’t possible at all.
But let me tell you this.
You can choose to sell off your fgn savings bond and wouldn’t get any penalty for it.
What i’m trying to say is that you can choose to invest for two years, after six months you can close the investment.
However, the government will still pay you your principal without any form of deduction in the name of penalty.
Having made up your mind on the amount which you want to invest, and the duration, next is getting yourself a Stockbroker.
How do i find a good stockbroker?
You can do that right away by going through the link below;
Mind you the link above is from the Nigeria stock exchange.
I’m sorry i can’t just recommend anyone to you before it looks like i’m doing a bit of advertisement.
Through the list you will get good stock brokers that reside within your location.
The debt management office issues fgn savings bond every first week of each month after making the announcement.
Having gotten yourself a stockbroker, you’ll have to open an investor’s account with the your stockbroker.
It the duty of your stockbroker to send you a notice anytime the debt management office is issuing new fgn bonds.
The stockbroker will give you a form to fill.
You’ll state your full name, address, tenor, the amount you want to invest etc.
How do i make payment?
Everything goes with what your stockbroker tells you. The stockbroker will tell you the procedure for the payment, and bear in mind that it isn’t just you alone.
I’ve got to find out that the way stockbroker A ask his clients to make payment is different from how stockbroker B and his clients.
What matters to you is to receive a notification or message from Central Securities Clearing System (CSCS) that you fgn savings bond investment is confirmed and successful.
You’ll receive the message on your sim number used in opening your account.
However where an investor already has a CSCS account, there will be no need to open another account for bonds trading.
Investors will be required to provide bank account details at the point of account opening for coupon payment.
The fgn savings bonds pays interest quarterly.
What i mean is that it pays you your interest every three three months till maturity, and then the money you invested (principal) will be paid to your account.
How will the interest be credited to my?
The interest will be paid directly into the account you provided when filling the form.
At the end of the tenor (maturity) the principal will be paid to your bank account.
Note You can choose to sell your bonds if you’re no longer interested or desperately in need of cash.
What do i mean by selling off the bonds.
You can do it through your stockbroker. You will receive interest you’re entitled to, as well as your principal.
FOR Example you invested in fgn savings bond on May 5th 2020 for a duration of three years. You couldn’t wait for three years to reach and sold it on October 5th 2020.
You’re entitled to interest from the month of May to October which is five months only.
To sell off your bond, you have to contact your stockbroker for the process.
NB bond can be traded (sold) on the floor of The Nigerian stock exchange through licensed or designated broker.
One of the best features of the fgn savings bond is that you can add more money to your already existing account.
For example you invested with N100,000 for two years, and wants to add extra money to the one hundred thousand naira.
That’s very much possible to do.
However, it must not pass the maximum limit which is fifty million naira.
Interest rate on fgn savings bonds
Let me repeat this again.
The Interest you earned from FGN savings bond investment is paid quarterly or every three months into your account as indicated in the submitted subscription form.
The last interest rate on fgn savings bond was 4.131% for two years and 5.131% for three years.
It was quite low compared to what the government offered last december which was 5.91% for two years and 6.91% for three years respectively.
Let’s say you invested N1,000,000 for three years on fgn savings bond with an interest rate of 5.131%.
In this case, you’ll get N51,310 as you annual interest.
That is to say that you’ll be paid a quarterly interest of twelve thousand eight hundred and twenty eight naira (N12,828) respectively.
- Interest income (coupon) is tax exempt and paid quarterly directly into bond holder’s bank account.
- Invest with as low as N5, 000.00.
- The Bond is acceptable as collateral for loans by banks.
- Easy mode of divestment: can be sold/traded in the secondary market
- (that is on the floor of the Nigerian Stock Exchange).
- Good for savings toward retirement, marriage, school fees, house projects, etc. Safety:
- The savings bond is backed by the “full faith and credit of the Federal Government of Nigeria”.
Major types of bonds
The major types of bonds we have include the followings;
1. TREASURY BONDS: Treasury bonds are government debt securities with a maturity of more than 10 years but less than 30 years.
Treasury bonds pay a fixed rate of interest each year.
The interest payments are made twice a year. Investors receive the face amount of the bond at maturity.
The market price of a treasury bond may be higher or lower than the face amount, depending on the rate paid by the bond compared to prevailing market interest rates.
Fgn savings bond is a typical example of the treasury bonds.
2. CORPORATE BONDS: These are debt obligations issued by corporations. They pay an annual coupon (interest) payment that is typically fixed until the maturity of the bond.
3. ASSET BACKED SECURITIES: This is types of bond is typically securitized include credit card receivables, auto loans, and student loans.
When consumers take a loan, the debt amount becomes an asset on the balance sheet of the lender.
The lender sells these assets to a trust or a special-purpose vehicle, which packages them into an asset-backed security that can be sold in the market.
That’s all i have for now on fgn savings bond. Note that since the month of April till now there’s no announcement for a new offer.