Stories by Omodele Adigun

As most banks only pay between 3 per cent and 4.2 per cent interest per annum on savings account, the Federal Government of Nigeria (FGN) Savings Bond, which re-opened yesterday, Monday, may become investors’ honey pot this month with higher interest rate, called coupon.

The savings bond, which guarantees quarterly coupon payments, came with 13.386 per cent coupon on the two-year tenor, due on July 13, 2019, and 14.386 per cent on the three-year tenor due on July 13, 2020.

According to the Debt Management Office (DMO), the retail savings bond , the first of its kind in the country, is accessible to all income groups for subscription at N1,000 per unit with a  minimum subscription of N5,000 and maximum of N50 million.

The outgoing Director General of DMO, Dr. Abraham Nwankwo, stated recently that the Federal Government’s plan was to democratize its activities in the bond market by making it easily accessible to most Nigerians.

His words: “By promoting retail participation in the bond market, the goal is aimed at encouraging participation in investments. And driving financial inclusion in the country will be further enhanced”.

What is FGN Savings Bond?

This is a retail savings product issued by the DMO on behalf of the Federal Government which is accessible to all income groups and guarantees interest payment and repayment of principal.

Can savings bonds be sold before maturity?

The bond can be traded on the floor of the Nigerian Stock Exchange (NSE) through any designated stockbroker.

Benefits

•The savings bond earns you an interest that will be paid quarterly directly into your bank account.

•It is safe and is backed by the full faith and credit of the Federal Government. FGN Bonds hardly default, so you are nearly 100 per cent sure that you will get your money back in full along with the interest.

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•You need not be rich to invest as anyone with as little as N5,000 can invest in the bond.

•FGN savings bond is a good way to save towards your marriage, an occasion, school fees, project, retirement etc.

•You can also use the savings bond as a collateral to get a loan from a bank and/or finance house.

The risks

FGN Bonds are often said to be ‘risk free’ because the government hardly defaults on debt repayments, especially if it is a naira denominated debt. However, being a bond, there are a few risks, should you decide to sell before maturity.

Like a stock, you can invest N1 million in a bond and get only N900, 000 in principal.

•You also face the risk of losing the value of your investment to inflation. If the interest rate on the FGN Savings Bond is lower than inflation rate, then your returns are lower in real terms.

How to invest

Retail investors looking to invest in the FGN Savings Bond only need a minimum of N5,000 to invest. Subsequent investment over N5,000 will be in multiples of N1,000, meaning that you cannot invest N5,500 or N12,700.

It’s either N6,000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the bond is N50 million.

As regards the procedure, investors will be required to complete and submit subscription forms and make payment to stock broking firms and a CSCS account would be opened by each investor through a stock broking firm for the lodgement of the bond before the offer and to enable retail trading of the bonds on the floor of the Exchange.

If an investor already has a CSCS account, he will be required to provide bank account details at the point of account opening for coupon payment.