Where to keep money safely and get good interests?
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
22 March 2009
Wangui is planning to take a loan to finance her further education. The course she has chosen comes in two parts, each lasting six months. She plans to borrow an amount that will cover the full course but pay for the first part initially and keep the balance in a safe place.
In her plan, the unutilised amount will be about sh40,000. Her question then is: “Where can I put this money for 6 months and get a good interest out of it? I don't want to keep the money in the bank…”
Wangui, the investment that gives the highest guaranteed interest is a
Treasury Bond issued by the Central Bank of
The highest return is the 14.5 percent per year paid by the 15-year Bond issued in early 2007. It will mature in the year 2022 and the interest is paid twice a year in the months of March and September.
Even though Treasury Bonds are available in the secondary market through the Nairobi Stock Exchange, there are two problems that you might face. First, they are traded in units of sh50,000 thus your sh40,000 will not be enough to get one. You will need to top it up with some money. The additional amount might be greater or less than sh10,000 depending on whether you buy at a premium or at a discount, respectively.
The second problem will be availability. The Bond trade is not as vibrant as that of shares, thus it might take a very long time before your broker finds a seller offering the specific Bond and the amount that you want. In addition, when the time for selling comes, you will also face difficulties getting a buyer who wants to purchase your specific Bond. For these reasons, I would not recommend that you take a Bond.
Outside the banking sector, you can get good returns from the registered Unit Trusts. There about ten companies operating these schemes and they are listed in the finance pages of the Daily Nation every day from Tuesday to Saturday.
I would recommend the so-called “money market funds”. Even though their rates vary on a daily basis, these schemes pay fairly high returns compared to conventional banks. At the moment, the interest varies between 7 and 10 percent.
Having explained all that, I think you should compare the gain to the headache to going through the whole process. If you put the sh40,000 in a fixed deposit account at you bank, you might get about 5 to 6 percent per year…heck; my bank pays 7 percent for a six-month holding!
Your sh40,000 will between sh1,000 and sh1,200 in the six months. If you go for the money market fund in a Unit Trust, you may get and average of eight percent, that is, sh1,600. Now ask yourself this: is the extra sh400 in six months worth the bother?
A final word of caution: don’t fall for the numerous scams that promise to double your money in a few weeks. If you do, you will be joining the list of thousands of Kenyans who have lost their savings in pyramid schemes.
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