The diaspora community can now have a place to save, invest, and grow their money while they are away from home. The process of opening a CBK-CDS account (central depository system)for Kenyans in the Diaspora is not as complicated as most people think. If you are wondering what you need to do, we have got you covered.
This article will provide you with a step-by-step guide to opening a CBK-CDS account for Kenyans in the Diaspora. Additionally, we will provide information on how to buy Treasury bonds and bills.
A STEP-BY-STEP GUIDE TO OPENING A CBK-CDS ACCOUNT FOR KENYANS IN DIASPORA
The central depository system(CDS) account opening process is a simple and straightforward process that can be completed in just a few minutes. To open a CDS account, you will need to have a Kenyan bank account. If you are in the diaspora and don’t have a bank, then you can invest through a nominee, such as a bank.
Opening a CDS account with the Central Bank of Kenya
Fill in the CDS mandate card.
After that, you need to fill out a diaspora mandate card, either for individuals or corporations. You will need to fill out the following information on the mandate card.
- Personal details include names, county of residence, contact information, and next of kin.
- Provide a specimen signature for the account holder, an ID number or passport, and the account mandate. The mandate requires you to specify who should act on your behalf. Either you or all involved parties must sign.
- The bank details where you send remittances This section requires the bank name, account title, account number or IBAN, routing number or sort code, and intermediary bank details.
Courier the documents to your bank in Kenya.
After signing your portion of the mandate card, you need to send it to your financial institution for certification. The authorized bank signatories will fill in their names and sign. In addition to the mandate card, the bank also needs to certify your passport-size photograph, KRA pin, and ID. The bank needs to certify the original mandate, and therefore you need to courier it to the bank through transporters like DHL or G4S.
Send the documents to the Central Bank of Kenya (CBK).
Once the document is signed by the bank, you need to have it delivered to CBK. Your relationship manager can arrange to have the documents delivered. Banks, such as standard chartered banks, assign their clients a relationship manager.
Alternatively, you can send a friend or family member to collect the documents from the bank and deliver them to CBK. In addition to the above documents, you need to courier the following other stipulated requirements.
- Email an indemnity agreement form; you will need a witness to sign the form.
- Treasury Mobile Direct (TMD) Registration Form if you have a Safaricom line that is roaming.
- Central Bank of Kenya Treasury Mobile Direct Terms and Conditions Form
If you don’t have a bank relationship manager or relative to courier, use the address below. CBK will send the documents to your banker for signing and then open a CDS account for you. They will then email a confirmation to you.
Central Bank of Kenya
P.O. Box 60000-00200
How do I check my CDS account number?
A CDS account number is the unique identifier that represents accounts holding securities in the system. Once your CDS account is opened, you will receive a notification on the CDS account number via email, as mandated in the mandate card provided by CBK.
How does a CDS account work in Kenya?
CBK will send you a notification once your account is ready. After receiving the notification, you can apply for the Treasury bonds and bills on offer. To apply for bonds, download the application form here and fill in the details. You need to fill in the following details:
- Your personal details, including name, CDS account number, and contact.
- Issue number
- Value date
- Total Face Value: Amount the investor is willing to invest in Kenya Shillings (minimum Kes 100,000 and additional in multiples of Kes. 50,000, with a maximum of Kes 20 million per CDS account per investor)
- Interest Rate (Price)
- Sign the form.
Make sure you adhere to the submission deadline.
You will need to contact CBK to find out how much you will need to pay. After obtaining that information, talk to your bank so that they can remit the money.
How much do I need to open a CDS account in Kenya?
Opening a CDS account in Kenya is free. You don’t need to pay anything. Just provide the required documents and follow the above process to open an account. The only costs you will incur are document printing and courier charges.
CBK – TMD PROCESS
The CBK TMD (treasury mobile direct) is a USSD mobile application that enables CDS account holders to buy Treasury securities and check their virtual balance. The code is *866#. Using the application, you can access the following.
- Apply and bid for Treasury bills and bonds.
- Receive notifications of bid outcomes.
- Check your account balance.
- Status of alerts for sales or purchases in the secondary market.
To get CBK-TMD, fill out the application form available on the CBK website or visit their headquarters. Diaspora residents need to have a Safaricom SIM card with roaming services. To get the above services, normal charges from the mobile provider apply.
How to Buy Treasury Bonds and Bills in Kenya
To buy Treasury bonds and bills, you will need a CDS account. Follow the above steps when buying Treasury bonds and bills.
- Open a CDS account. Follow the above process to open a CDS account.
- After opening the account, you need to decide on the investment options. The options include Treasury bills that mature at 91 days, 182 days, and 364 days. Find the Treasury bills and bonds on offer here. Check the interest rates offered and decide how long you want to invest. Treasury bills have a minimum face value of ksh 100,000, and you must invest in denominations of ksh 50,000.
- Complete the application form and submit it. You need to fill out your personal data, and the interest rate. Rates are either competitive or non-competitive. The rate you choose determines how much you pay and how you pay it.
- CBK then decides which bids to accept and gives a cutoff. Those who provide interest above the cutoff don’t receive Treasury bills from that auction. All investors who opt for non-competitive bids receive their bills. However, their interest rate is the weighted average of the accepted bids at the competitive rates.
- The CBK auction management team meets on auction days to determine the cutoff rates. The successful rate and weighted average rate of the bids is announced. You will get the results through Treasury Mobile Direct (TMD), Twitter, and the statistical section of the CBK website.
- Follow up to determine whether your application was successful. It’s important to establish how much you owe on the Treasury bills. You are expected to make the payment the following Monday, or Tuesday if Monday is a public holiday.
- At the end of the maturity period, the face value amount will be sent to the bank on the CDS account opening form. You can also opt to rollover the amount to the next treasury bills by issuing CBK the mandate to rollover the funds.
Understanding Certificates of Deposit (CDs)
A certificate of deposit CD, is an account with a fixed interest rate for a fixed period of time, such as six months, one year, or five years. You earn the agreed-upon interest after the fixed period elapses. When you cash in on your CDs, you will receive the money you invested plus the interest paid.
CDs are different from savings accounts because you don’t touch the money until the agreed-upon period elapses. If you opt for a withdrawal, you will be penalized. You open the account the same way you open a bank account. Here is what you should consider when choosing a CD:
CDs offer fixed interest rate. This gives you a predictable return on your investment. It’s therefore important to check the offer and select the best.
This is the length of time you will leave the money in a fixed deposit. Check the maturity date and compare the returns from various CD accounts.
This is the initial deposit .
Bank or financial institutions where you will open the account.
Make sure your deposit is insured. Also, ensure you check the terms and conditions the bank or institution is offering.
Why Would I Open a CD?
A certificate of deposit CD account is a great way to save money and earn interest on your deposited funds. When you open the account, you agree to leave your money in the account for a set period, typically anywhere from six months to five years. In exchange for agreeing to leave your money in the account for the specified time period, you earn a higher interest rate than you would with a traditional savings account.
Opening a CD account is a good way to save money for short- and long-term goals. For example, you could open the account to save for a down payment on a house or a new car. Or, you could use a CD to save for retirement.
If you’re looking for a safe and reliable way to grow your money, a CD account is a good option to consider.
How are CD Earnings Taxed?
Interest earned from banks, building societies, or Central bank (CBK) is known as qualifying interest. They are subject to a 15% withholding tax, which is final.
How are CD Rates Determined?
CD rates are influenced by several factors, including the current economic situation, inflation, and market dynamics. For example, when inflation is low, the rate of interest is usually low. Conversely, high inflation results in high interest rates.
Every six to eight months, the monetary policy of the central bank reviews the interest rate and, depending on the economic conditions, decides whether to change the interbank rate or not. The interbank rate is the rate banks use to lend each other money overnight.
The interbank rate determines the prime rate the banks offer their customers. The rate they offer customers is the interbank rate +3 percentage points.
CD rates are determined by the prime rate. The higher the prime, the more you are likely to earn on CDs. Beyond the prime rate, each bank determines how much they are willing to offer their customers for their CDs.
Building a CD ladder
A CD ladder is an investment strategy to help you hedge against rate changes over time and maximize returns. It enables you to access the higher returns offered by 5-year term CDs. The strategy is to take a fifth of the money you intend to invest in CDs and put it in a top earning CD for one year, another fifth in a top-earning CD for two years, another into a top-earning 3-year CD, and so forth.
After the first CD matures in one year, you will take the money and a top-rated 5-year CD. Continue with the trend until you have five CDs earning you a 5-year annual percentage yield (APY), but you have access to your money every 12 months.
Which CD Term Should I Choose?
When it comes to certificates of deposit (CDs), there are a lot of different options to choose from. How do you know which CD term is right for you?
The answer to this question depends on a few factors, including your goals and your financial situation. If you need access to your money sooner, a shorter CD term may be a better option. If you’re looking to grow your money over time, a longer CD term may be a better choice.
Ultimately, it’s important to weigh all of your options and choose the CD term that best meets your needs. If you’re not sure where to start, our team of experts can help you choose the right CD for your financial goals.
Can you lose money on a CD?
It is possible to lose money on a CD if you withdraw the money before the CD reaches maturity. When you invest in a CD, you agree to leave the money in the account for a set period of time, usually between six months and five years. If you withdraw the money before the CD matures, you will usually forfeit some interest. In some cases, you may even have to pay an early withdrawal penalty.
This is why it’s important to carefully consider your investment timeframe before buying a CD. If you’re not sure you’ll be able to keep the money in the account for the entire term, it may be better to invest in a different type of account.
Early Withdrawal Policies
Before you sign up for CD, it’s important to check the early withdrawal policy (EWP) and whether it suits you. Most CDs charge a number of months interest as early withdrawal penalty.
It’s important to check for EWP that may eat into your principal. Check the following in EWP before you sign up for a CD.
- Penalty for withdrawing before the CD matures
- Whether you can withdraw all your money
- Time it takes to withdraw after you send the notice to withdraw
Knowing all of this, you can decide if withdrawing money from your CD early is the right decision for you. If you do decide to go ahead with it, just be sure to understand all of the potential consequences before you do.
Compounding interest: interest rate vs. APY
When it comes to saving money, one of the most important things to understand is compound interest. Compound interest is when you earn interest on your initial investment, and the interest that you have already earned. This can help you grow your money much faster than if you were simply earning interest on your initial investment.
There are two different ways to measure compound interest: interest rate and annual percentage yield (APY). The interest rate is the percentage of your investment that you’ll earn over a certain period, while the APY is the percentage of your investment that you’ll earn over the course of a year. The main difference is that APY takes compounding interest into account. Assuming all other factors are equal, APY will always be higher than the interest rate.
CDs vs. a Savings or Money Market Account
There are several savings options available. You can put your money into a savings account, a money market account, or a CD. Each of these options has its pros and cons, so it’s important to understand the difference between them before making a decision.
A savings account is a bank account where you can deposit money and earn interest on it. The interest rate is typically lower than what you would earn on a CD, but the money is more accessible because you can withdraw it at any time.
A money market account is like a savings account, but the interest rate is usually higher. Money markets have higher liquidity and rates than savings accounts. CDs are a type of investments, and they typically offer a higher rate than money markets but have low liquidity.
The choice you make depends on your investment goals and objectives.
If you are a Kenyan in diaspora looking to invest back home, opening a CBK-CDS account is a great way to do it. This guide provides easy-to-follow steps on how to open an account. If you need any assistance along the way, please don’t hesitate to reach out to us.