03:40 PM
Tuesday 04 October 2022
I wrote – Manal Al-Masry:
The interest rate on treasury bills increased to a new record with the last auction that expired last Sunday for the first time in 3 years, exceeding the interest rate on short-term deposits in banks.
Treasury bills, or as they are called (Egyptian debt instruments), are offered by the Central Bank on behalf of the Ministry of Finance on a weekly basis in exchange for an interest rate with the aim of helping the government pay its expenses.
The return on treasury bills after taxes ranged between 12.7% to 13.8%, according to the term of each bid, to compete with the interest rate offered on deposits in banks with the same term, which ranges from 4% to 8% annually.
The government grants the return due on treasury bills to the customer in advance after purchasing them from a bank, unlike deposits in banks, most of which pay the return at the end of their terms, or at intervals over the term.
The terms of treasury bills range between four terms, which are 3 months, 6 months, 9 months and a year, and they give a rewarding return in a short period and without risk, as they are guaranteed by the government represented by the Ministry of Finance.
But the interest on treasury bills is likely to increase or decrease on new bids, according to the Finance Ministry’s approval.
Although the finance imposed taxes at 20% on the total return on the bills obtained by the customer, it is considered the largest return after tax deduction compared to the same tenures of deposits in banks.
In the following lines, Masrawy presents the steps for buying treasury bills from banks:
– The customer goes to his bank branch to apply for the purchase of treasury bills, specifying the required deadlines.
– Permissions terms: ranging from 91 days, 182 days, 273 days, and 364 days.
Minimum purchase of bills: starts from 25 thousand pounds and its multiples.
– Periodicity of interest disbursement: the return is disbursed in advance, and at the end of its deadlines, the full amount is due.
– Return offered: The return is determined weekly according to supply and demand, but the average return rate is currently after tax deduction between 12.7% to 13.8% according to the term of each bid, after tax.
– Breaking the bills: it is allowed to break them from the second day of their purchase, but subject to the gain or loss according to market prices, and in this case the bank deducts the return obtained by the customer in advance from the original amount.
Borrowing with their guarantee: The bank allows the customer to borrow against the security of the promissory notes at a different interest rate according to each bank, but it exceeds the average lending rate in the Central Bank by a small margin.