T-Bills vs T-Bonds: Which Is Better for You?

Both Treasury Bills and Treasury Bonds are issued by the Bank of Uganda and backed by the government. They're among the safest investments you can make in Uganda. But they're designed for different situations.

The Quick Comparison

When T-Bills Make Sense

Choose T-Bills if you: - Need your money back within a year - Want to "park" cash safely while deciding on longer-term investments - Prefer reinvesting frequently to capture rising rates - Are building an emergency fund that earns better than a savings account

The trade-off: You accept a lower yield and higher tax rate (20% WHT) in exchange for getting your money back quickly.

When T-Bonds Make Sense

Choose T-Bonds if you: - Can commit money for 2+ years - Want regular income through semi-annual coupon payments - Want to lock in today's rates for the long term - Prefer the lower 10% WHT rate

The trade-off: Your money is locked up longer, and if interest rates rise after you buy, your bond's market value drops (though you still receive the full coupon payments).

The Tax Factor Is Bigger Than You Think

Consider two investments of UGX 100,000,000:

364-day Bill at 13%: - Gross return: UGX 13,000,000 - WHT (20%): UGX 2,600,000 - Net return: UGX 10,400,000 (10.4% net)

5-year Bond at 16%: - Gross annual coupon: UGX 16,000,000 - WHT (10%): UGX 1,600,000 - Net annual return: UGX 14,400,000 (14.4% net)

The bond gives you UGX 4,000,000 more per year — partly from the higher rate, but also because you keep 90% of it instead of 80%.

The Secondary Market Option

Don't want to hold a bond until maturity? You can sell it on the secondary market through a licensed dealer. This gives you an exit option, though the price you get depends on current market rates.

If rates have fallen since you bought, your bond is worth more than face value. If rates have risen, it's worth less.

A Balanced Approach

Many savvy investors use both:

1. T-Bills for short-term liquidity — Keep 3-6 months of expenses in rolling 91-day Bills
2. T-Bonds for long-term growth — Invest surplus funds in 5-10 year Bonds for higher net yields
3. Ladder your maturities — Spread investments across different tenors so money comes due at regular intervals

Tools to Help You Decide

• Net Yield Calculator — Compare the actual net returns of any Bill or Bond after tax
• What-If Simulator — See how a past investment would have performed
• Yield Curve — Visualize current rates across all tenors to find the best value

Understanding the tax impact is crucial. Read our detailed guide on How Withholding Tax Affects Your Returns.