How Much You’ll Earn by Investing Ksh 50,000 in Treasury Bonds in 2025

Are you curious about investing in Kenya’s treasury bonds? Well, you’re not alone. The Kenyan government is looking to raise Ksh. 30 billion through two reopened treasury bonds. You have until January 15th to place your bid. This guide breaks down how these bonds work, the returns you can expect, and which one might be a better choice for you.

What Are Treasury Bonds?

Treasury bonds are a way for the government to borrow money from individuals and institutions. In return, investors earn interest over a specific period. Think of it as lending the government money and getting paid for it.

In this case, two bonds are up for grabs:

1. FXD 2018/15
2. FXD 2022/25

Both bonds were issued in the past but have been reopened to attract more investors.

Bond #1: FXD 2018/15

This bond was originally issued in 2018 for a 15-year period. Since we’re now in 2024, it has 8.3 years left.

• Coupon Rate (Interest): 12.65% per year
• Minimum Investment: Ksh. 50,000
• Withholding Tax: 10%

Let’s do the math. If you invest Ksh. 50,000, your annual interest will be:

Ksh. 50,000 x 12.65% = Ksh. 6,325

After deducting 10% tax, you’ll take home Ksh. 5,692.5 annually. Over 8.3 years, that totals Ksh. 47,247.75. In essence, you invest Ksh. 50,000 and earn almost the same amount back in interest.

Bond #2: FXD 2022/25

Issued in 2022 for 25 years, this bond has 22.8 years remaining.

• Coupon Rate (Interest): 14.18% per year
• Minimum Investment: Ksh. 50,000
• Withholding Tax: 10%

If you invest Ksh. 50,000, your yearly earnings are calculated as:

Ksh. 50,000 x 14.18% = Ksh. 7,090

After tax, you’ll take home Ksh. 6,384 annually. Multiply this over 22.8 years, and you’re looking at a total return of Ksh. 145,568.

Comparing the Two Bonds

At first glance, the second bond offers a higher return, but it comes with a longer commitment—22.8 years. Many investors shy away from such a long-term lock-in. The first bond, with its 8.3-year period, is shorter but offers slightly lower returns.

It all boils down to your goals. Do you prefer a shorter investment period or higher returns over a longer time?

Understanding Bond Pricing: Par, Discount, and Premium

When buying treasury bonds, it’s important to know the terms par, discount, and premium:

1. Par: You pay exactly the investment value (e.g., Ksh. 50,000) and get the same back at maturity.
2. Discount: You pay less than the investment value (e.g., Ksh. 48,000 for a bond worth Ksh. 50,000). At maturity, you get the full value.
3. Premium: You pay more than the investment value (e.g., Ksh. 52,000 for a bond worth Ksh. 50,000).

Most bonds are offered at a discount, but some with higher coupon rates may come at a premium. For example, a bond with a 16% coupon rate might require you to pay Ksh. 111,000 for an investment value of Ksh. 100,000.

Should You Invest Now?

Before rushing to invest, consider market trends. Treasury bond rates have been dropping recently, which might make some investors hesitant. Are you willing to lock in your money now, or would you rather wait for rates to rise again?

Also, keep in mind that the market rate may affect whether the bond is issued at a discount or a premium. For example, if the coupon rate is lower than the current market rate, you might get the bond at a discount to compensate.

Final Thoughts

Treasury bonds offer a relatively safe way to grow your money while supporting the Kenyan government. Whether you go for the shorter 8.3-year bond or the longer 22.8-year bond, both options have their benefits.

So, what’s your pick? The shorter bond with moderate returns or the longer one with higher earnings? Remember, investment decisions should align with your financial goals.

Don’t forget, the deadline is January 15th, so make your move before it’s too late.