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Faulu Kenya now beats T-Bills for fixed deposits
Rank: Elder Joined: 12/7/2012 Posts: 11,911
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The reasoning here reminds me of the BODMAS thread last year. thought we all use the same syllabus up-to form 4. Interest is paid upfront. In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: Veteran Joined: 2/2/2012 Posts: 1,134 Location: Nairobi
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mwekez@ji wrote:chiaroscuro wrote:Banker wrote:Are we really holding this discussion ? With a t-bill you earn your discount upfront less witholding tax and give CBK the net.
A bank FDR is always more liquid and less punitive than a t-bill. Should you require your money before the maturity of the tenor, you can always get it back from the bank and the worst is that you will forfeit the interest. But a 182-day t-bill would be a nightmare to liquidate.
A little secret. If you have a reasonable figure (>5mn),walk in to a newly opened branch of any top-tier bank and ask the manager to give you the best rate. You will be shocked how much backward he is willing to bend. If the figure is 100 million, you will just have secured yourself a lunch date with the CEO. Aih mboss! Ati nini? I have just done a cheque for KSh90,576.05 which I will invest in one-year t-bill - issue 1897/364. This money will earn 12.504% interest and come 14 April 2014, I will get my KSh90,576.05 back plus KSh9,423.95 interest..... making a total of KSh100,000. Clearly, the interest will be paid AFTER maturity!! Aih Mboss! Interest is paid upfront!! You had KES 100,000/- to invest but CBK has taken KES 90,576.05 and left you with your interest of KES 9,423.95 (net of withholding tax). Now go invest that interest of KES 9,423.95 and watch yourself beating the Faulu FDR returns No!!! I actually had KES 344,285.65!
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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chiaroscuro wrote:mwekez@ji wrote:chiaroscuro wrote:Banker wrote:Are we really holding this discussion ? With a t-bill you earn your discount upfront less witholding tax and give CBK the net.
A bank FDR is always more liquid and less punitive than a t-bill. Should you require your money before the maturity of the tenor, you can always get it back from the bank and the worst is that you will forfeit the interest. But a 182-day t-bill would be a nightmare to liquidate.
A little secret. If you have a reasonable figure (>5mn),walk in to a newly opened branch of any top-tier bank and ask the manager to give you the best rate. You will be shocked how much backward he is willing to bend. If the figure is 100 million, you will just have secured yourself a lunch date with the CEO. Aih mboss! Ati nini? I have just done a cheque for KSh90,576.05 which I will invest in one-year t-bill - issue 1897/364. This money will earn 12.504% interest and come 14 April 2014, I will get my KSh90,576.05 back plus KSh9,423.95 interest..... making a total of KSh100,000. Clearly, the interest will be paid AFTER maturity!! Aih Mboss! Interest is paid upfront!! You had KES 100,000/- to invest but CBK has taken KES 90,576.05 and left you with your interest of KES 9,423.95 (net of withholding tax). Now go invest that interest of KES 9,423.95 and watch yourself beating the Faulu FDR returns No!!! I actually had KES 344,285.65! Agreed @chiaroscuro. We need some more info for the SC to determine the case! What was the amount paid upfront as tax? The opposite of courage is not cowardice, it's conformity.
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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Pesa Nane wrote:Ngong wrote:Using @jerry example: Give CBK 90 bob instead of 100bob Get 100bob after 12 months! Jameni hii upfront discount/interest iko wapi? Ama tujoin masomo ya wazee kwa ufupi ngumbaru! YOU JUST ASSUME CBK HAS GIVEN YOU THE 10 BOB NOW
THEY HAVENT! @Ngong, with above example, try and see it in this way: If you pay 90 purchasing an item (Tbill) worth 90 and get 100 after 1Yr, that is an INTEREST of 10. Nothing upfront, agreed?Now, if you pay 90 purchasing and item (Tbill) worth 100, you keep the DISCOUNT of 10 upfront. Right? So, TBill DISCOUNTS are upfront! Just seen this pesa nane! 10/= is not 10% of 90/=!!! The opposite of courage is not cowardice, it's conformity.
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Rank: Veteran Joined: 11/11/2006 Posts: 972 Location: Home
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After all the heated arguments, investing in T-bills is still simple. Let no one be discouraged.
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Rank: Elder Joined: 5/25/2012 Posts: 4,105 Location: 08c
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jerry wrote:
Just seen this pesa nane! 10/= is not 10% of 90/=!!!
@jerry that was just for illustration, otherwise you will say there are no t-bills of 100!! Anyway, lets try again. If you pay 90 purchasing an item (Tbill) worth 90 and get 100 after 1Yr, that is an INTEREST of 11.11. Nothing upfront, agreed? Now, if you pay 90 purchasing and item (Tbill) worth 100, you keep the DISCOUNT of 10 upfront. Right? nb. interest vs discount So, TBill DISCOUNTS are upfront! Pesa Nane plans to be shilingi when he grows up.
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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holycow wrote:After all the heated arguments, investing in T-bills is still simple. Let no one be discouraged. Very true @holycow. It's just the fine details that we want to iron out. You don't even have to bid, you can leave the others to do it for you when filling the forms! The opposite of courage is not cowardice, it's conformity.
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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Pesa Nane wrote:jerry wrote:
Just seen this pesa nane! 10/= is not 10% of 90/=!!!
@jerry that was just for illustration, otherwise you will say there are no t-bills of 100!! Anyway, lets try again. If you pay 90 purchasing an item (Tbill) worth 90 and get 100 after 1Yr, that is an INTEREST of 11.11. Nothing upfront, agreed? Now, if you pay 90 purchasing and item (Tbill) worth 100, you keep the DISCOUNT of 10 upfront. Right? nb. interest vs discount So, TBill DISCOUNTS are upfront! What are you saying Wazuan! In eiher case you are paying same and returns are same. Whether it's worth 90/= or 100/=, (get interest or discount) does it matter? The opposite of courage is not cowardice, it's conformity.
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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mwekez@ji wrote:jerry wrote:@mwekez@ji.. I'm not able to open the CBK site using my phone but what we need is the step-by-step workings leading to 90,576.05 starting with 12.504%.  Where, P = Price per Ksh 100 which investor will pay r = interest rate or yield per annum quoted by the investor d = days to maturity or tenor (91, 182 and later 364 days) P = 100[1/{(1+( 12.504/100 x 364/365)}] = 88.913 This implies for every Ksh 100 investor wishes to lend to the Government, s/he will pay KES 88.913 on the value date (the day the government borrows) and receive KES 100 on maturity date (the 364 day). This translates to a net return of KES 11.087 per KES 100. Therefore for Ksh 100,000, the investor will pay the Government an amount of 100,000 x 88.913/100 = 88,913 Giving a discount of 100,000 - 88,913 = 11,087 then 15% withholding tax on the discount is paid upfront 11,087 x 15/100 = 1,663.05 Meaning s/he writes a cheque to CBK of 88,913 + 1,663.05 = 90,576.05And the net return (net of withholding tax) is 100,000 - 90,576.05 = 9,423.95 The 9,423.95 is available upfront The above calculations have been modeled in the following calculator http://www.centralbank.go.ke/index.php/calculatorSummary of the results http://www.centralbank.go.ke/im...182%20and%201897-364.pdfCC @Ngong et al . @mwekez@ji; Fantastic job but it's not upfront I'm afraid. Just because we are programmed by CBK to starting calculations with 100/= doesn't mean we have 100/=!!! 88,913*112.504=100,030.68150 or simply 100k. Just see that. The opposite of courage is not cowardice, it's conformity.
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Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
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[quote=mwekez@ji][quote=jerry]@mwekez@ji.. P = 100[1/{(1+( 12.504/100 x 364/365)}] = 88.913 100,000 x 88.913/100 = 88,913 Giving a discount of 100,000 - 88,913 = 11,087 then 15% withholding tax on the discount is paid upfront 11,087 x 15/100 = 1,663.05 Meaning s/he writes a cheque to CBK of 88,913 + 1,663.05 = 90,576.05
And the net return (net of withholding tax) is 100,000 - 90,576.05 = 9,423.95 The 9,423.95 is available upfront Thanks @Mwekezaji I have written a cheque of the amount above in RED TODAY. CBK writes a cheque of 100,000/- to me AFTER 12 MONTHS. You are saying l got my interest[9,423.95] 12 months ago and what the CBK is paying me now [12 months later] 100,000/- is my principle investment! And l wrote them a cheque of 90,576.05! HAYA SAWA,I WIL TALK TO MY ISANGOMA!
 
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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chiaroscuro wrote:mwekez@ji wrote:chiaroscuro wrote:Banker wrote:Are we really holding this discussion ? With a t-bill you earn your discount upfront less witholding tax and give CBK the net.
A bank FDR is always more liquid and less punitive than a t-bill. Should you require your money before the maturity of the tenor, you can always get it back from the bank and the worst is that you will forfeit the interest. But a 182-day t-bill would be a nightmare to liquidate.
A little secret. If you have a reasonable figure (>5mn),walk in to a newly opened branch of any top-tier bank and ask the manager to give you the best rate. You will be shocked how much backward he is willing to bend. If the figure is 100 million, you will just have secured yourself a lunch date with the CEO. Aih mboss! Ati nini? I have just done a cheque for KSh90,576.05 which I will invest in one-year t-bill - issue 1897/364. This money will earn 12.504% interest and come 14 April 2014, I will get my KSh90,576.05 back plus KSh9,423.95 interest..... making a total of KSh100,000. Clearly, the interest will be paid AFTER maturity!! Aih Mboss! Interest is paid upfront!! You had KES 100,000/- to invest but CBK has taken KES 90,576.05 and left you with your interest of KES 9,423.95 (net of withholding tax). Now go invest that interest of KES 9,423.95 and watch yourself beating the Faulu FDR returns No!!! I actually had KES 344,285.65! We can tell with certainty that the cheque you wrote relates to KES 100,000/- that you had for investment in the one-year t-bill - issue 1897/364. ... You may tell us what become of the rest that you are now talking about
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Rank: Elder Joined: 3/2/2009 Posts: 26,330 Location: Masada
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Phew!!! Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Veteran Joined: 2/2/2012 Posts: 1,134 Location: Nairobi
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Assuming the Faulu 12% is net, I give them 100k today and the give me 112k after one year. Here you say that I had to wait one year for my interest, true?
What if I give them Sh89,285.71 today; they'll give me 100k after one year [mathematicians invited to confirm the figures]. Now can you argue that I got the interest [Sh10,714.29] upfront?
Same bank, same account; only the amount deposited is changing.
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Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
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chiaroscuro wrote:Assuming the Faulu 12% is net, I give them 100k today and the give me 112k after one year. Here you say that I had to wait one year for my interest, true?
What if I give them Sh89,285.71 today; they'll give me 100k after one year [mathematicians invited to confirm the figures]. Now can you argue that I got the interest [Sh10,714.29] upfront?
Same bank, same account; only the amount deposited is changing. THANKS @CHIAROSCURO,IF ONE CAN'T SEE THAT, LET THE MATTER LEST
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Rank: Veteran Joined: 2/3/2012 Posts: 1,317
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@chiaroscuro correct me if am wrong. If you invest Ksh 90,576.05 for a 1 yr t-bill and 12 months later you earn interest of Ksh 9,423.95 that makes an interest of 10.4% not 12.504% as you allege.
This amount is earned 'after' maturity because it pertains to the 90.57K you had invested. If you had planned to put in 100K the other 90.57K that remained with you is still yours. It does not qualify as an "interest upfront" as people would want you to think.
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Rank: Veteran Joined: 11/11/2006 Posts: 972 Location: Home
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Phew!!! Am joining @impunity in backbench on this matter with following parting shot:
1. Interest on Fixed Deposit Receipts (FDR) with banks is accrued and paid at the end of the FDR tenor (The 2 illustrations by @chiaroscuro in post 73 fall under this category)
2. Discount (to a layman "interest") on Treasury Bills with CBK is awarded upfront (well illustrated in post 25 followed by post 52)
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Rank: Elder Joined: 12/7/2012 Posts: 11,911
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see what you started!  you guys are very STUPID. These are BILLS and can only be discounted yawa tho! In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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chiaroscuro wrote:Assuming the Faulu 12% is net, I give them 100k today and the give me 112k after one year. Here you say that I had to wait one year for my interest, true?
What if I give them Sh89,285.71 today; they'll give me 100k after one year [mathematicians invited to confirm the figures]. Now can you argue that I got the interest [Sh10,714.29] upfront?
Same bank, same account; only the amount deposited is changing. @All. When I was a teacher I could at times move with a few students when I thought the rest would take a centum! to understand concepts that I thought were easy. The point is we must "move on" and ask ourselves; what is it that is really paid upfront? Below is a quote from post #70; ......then 15% withholding tax on the discount is paid upfront? 11,087 x 15/100 = 1,663.05 Meaning s/he writes a cheque to CBK of 88,913 + 1,663.05 = 90,576.05 It is the Treasury that gets 15% tax upfront!!!! The opposite of courage is not cowardice, it's conformity.
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Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
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jerry wrote:chiaroscuro wrote:Assuming the Faulu 12% is net, I give them 100k today and the give me 112k after one year. Here you say that I had to wait one year for my interest, true?
What if I give them Sh89,285.71 today; they'll give me 100k after one year [mathematicians invited to confirm the figures]. Now can you argue that I got the interest [Sh10,714.29] upfront?
Same bank, same account; only the amount deposited is changing. @All. When I was a teacher I could at times move with a few students when I thought the rest would take a centum! to understand concepts that I thought were easy. The point is we must "move on" and ask ourselves; what is it that is really paid upfront? Below is a quote from post #70; ......then 15% withholding tax on the discount is paid upfront? 11,087 x 15/100 = 1,663.05 Meaning s/he writes a cheque to CBK of 88,913 + 1,663.05 = 90,576.05 It is the Treasury that gets 15% tax upfront!!!! Hapana! wewe unalipa tax upfront na mara hiyo hiyo CBK wanakuandikia cheque ya interest/discount pap! kwa sababu hio ni bill yani discounted na wewe sio stupid! 
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