A Treasury bill is the simplest thing the government sells. You lend it money for 91, 182 or 364 days; it pays you back a round sum at the end. There is no interest payment along the way — your return is the difference between what you paid and what you get back.

That structure is why the quoted rate needs work before you can set it beside anything else.

You buy it below face value

A bill with a face value of KES 100,000 might cost you KES 97,900 today. In 91 days the Central Bank pays you KES 100,000. The KES 2,100 is the whole return.

So when a 91-day bill is quoted at 8.7498%, that is not a rate you earn for a year. It is the rate for its own 91 days, stated in annual terms so it can be printed next to the other tenors.

Three corrections

One: it is three months, not a year. To compare it with a year of anything else you have to assume you re-buy when it matures — four times, near enough, for a 91-day bill. Each rollover is at whatever the rate is then, which nobody knows, so this is an assumption and should be written down as one.

Two: 15% is withheld. Interest on Treasury bills is subject to withholding tax at 15%, deducted at source. It is taken off each maturity, so what compounds into the next bill is the after-tax amount.

Three: compounding. Four quarters of a taxed return is slightly more than four times a quarter's taxed return, because the third quarter earns on the second quarter's interest.

Put together, that quoted 8.7498% on a 91-day bill becomes 7.65% — what a year of rolling it actually keeps.

The same 8.7498% on a 364-day bill comes to 7.44%. Lower, from an identical quoted rate, for the plain reason that it only pays once: there is no reinvestment inside the year. People read this backwards surprisingly often and assume the longer bill must be worth more.

The practical side

  • Minimum: KES 100,000. Not a small amount, and it is the reason a money market fund is where most people start — a fund buys the same paper and lets you in for a few thousand.
  • Bought at auction, weekly, through a commercial bank or directly through the Central Bank's DhowCSD platform.
  • You can sell early on the secondary market, but at the price the market gives you that day, which may be less than you paid.
  • The rate is not fixed for ever. You are locking in today's rate for this bill only. In a falling-rate year, a rolled 91-day bill ratchets you down four times.

Bill or fund?

They hold much the same thing — a money market fund's portfolio is largely government paper and bank deposits — so the difference is not really about risk.

The difference is access and threshold. A bill is KES 100,000 minimum, locked for its tenor unless you sell at market, and you handle the rollover. A fund takes small amounts, pays out in a couple of days, and handles the rolling for you — and charges a management fee for it, which is why its rate is usually a little below what the underlying paper yields.

Neither of those is better. One is a decision about how much you have and when you will need it.

Where Ipahco's figures come from

The bill rates on Where to put money come from the Central Bank's own published auction results, refreshed weekly, and are converted to a net annual figure using the rollover and tax treatment above. The rollover assumption is printed on the row, because an assumption that changes the number belongs next to the number.