Inflation: What You Should Know About FGN Savings Bond
Federal Government of Nigeria`s Savings bond is a short term financial instrument you can use to cushion the effect of inflation on your income.
It is not really an investment that covers long term horizon. Let me explain.
As prices of goods changes in the market, we get poorer or richer depending on the areas where the swing is directed.
Many of us have fixed sources of income and we buy things on variable basis in the market.
So, how do we make up for upward change in prices when our income is fixed for the period? Without protection, quantity demand must be adjusted downward.
That is, we won`t be able to buy more as we used to. Financial literacy is not specialty of great many people here.
It is understandable.
In a situation where great numbers of people are living below $2 (or N720) per day, it is unlikely to see so much interest in savings and investment. Some would say deposits in the banks are savings.
Nah! Most people that deposited their monies in banks are not saving in the real sense of it. They just want their money protected.
On the average, many people make withdrawals more than 15 times before month end. In that sense, it is clear that such person intention is not to save, but to protect the money from being stolen.
On the other hands, there are many people that keep more than enough in their banks.
They don’t really have use for it in the short to medium term.
Sometimes, bulky funds that would have been invested lie low on savings account with quite insignificant interest amount per month.
Some corporate accountants also don’t know this. If you don’t, now you know.
If a company has an inflow of cash, or perhaps some amount in cash/bank balances that it intends not to use in the short to medium term (If any, but not impossible), the right thing is to pick short term instrument, having systematically provided for its working capital.
Treasury Bills for 90-days, 180-days, Commercial papers or even Government bonds are there. It is all about timing.
Suppose a company has surplus cash, it should be invested – in an instrument that can be converted in short term.
If you have relationship with your bank, the instrument can be used in an asset backed up loans offering.
It is all about expertise, ability to analyse trend and estimate properly with time as benchmark.
Unfortunately, many people keep more in their savings account. The amount that can be invested. It is an economic blunder, but you can’t give what you don’t have.
They don’t know. Those that know don’t tell them. Or if they were ever told, they were never cleared.
If they were ever cleared, they are simply just financial illiterate! I have a gist for you, here is the deal!
FG Savings is always available.
It usually goes for N1000 per unit subject to a minimum subscription of N5, 000 and in multiples of N1, 000 thereafter, subject to a maximum subscription of N50, 000,000.
If you invest in this, though it is not really an investment in the real sense of it, I see it as a better saving window.
You want to know why? Because it has annual rate quoted at 11.745% for 2-years bond and 12.745% for 3-years bond.
If I balance this with inflation rate, let’s say 11%, then your net return is just to “hold body”.
As a bondholder in that sense, your interest income is paid quarterly directly into bond holder’s account. Wait, let’s be clearer.
The rate quoted is per annum. So, when a quarterly interest income is paid, we are talking about annual rate divided by four (Four quarters make a year)
The Bond is acceptable as collateral for loans by banks and can be sold for cash in the secondary market before maturity and good for savings towards retirement, marriage, school fees, house projects, etc.
Read Also: FGN Bonds: Why Parents Should Teach Children Financial Literacy
If you put fund in FG Savings, you haven’t taken any risk really. The only underlie risk you take is there is World War 3 or global recession and financial system crash.
Inflation: What You Should Know About FGN Savings Bond
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