Percentage rates of investments: Interpreting them correctly

percentage rates of investments

Percentage rates appear to be popular in many financial publications. We see them in different forms- either positive or negative. As investors, some common areas we find percentage rates interesting are documents that deal with investment returns or profits. Many investors, as well as prospective ones, look out for rates quoted by financial institutions to make informed decisions. Unfortunately, most prospective investors get confused in the interpretation of these rates. Besides the misinterpretation of percentage rates, others naively compare rates associated with different investment categories. Their naivety reflects in the manner they query or make statements such as:

  1. “Which mutual funds have the highest interest rates?”
  2. “Which stocks have high interest rates?”
  3. “The interest rate of Mfund [money market fund] is higher than that of Epack [equity fund]”

One consequence of misinterpreting percentage rates is the disappointment that follows when lower-than-expected returns are made on an investment. During a chat with John (a follower of Sikasεm) a few days ago, I was not surprised when he expressed the frustration he had recently been through. He revealed:

“I nearly cried when 700 cedis in an account yielded only 4.57cedis.”- John Mensah

I understand many more people have had such an experience before. Yes! It is a very painful experience to go through. However, to avoid or reduce the impact of similar painful experiences, it would be worthy to study a few of the percentage rates we usually come across in investment products.


Annual interest rate

The most common investment products that make use of annual interest rates are Treasury bills and fixed deposits. The interest rates quoted on the various Treasury bills and fixed deposits are annually-based. That is, the return or profit earned on these investment products, when utilising the quoted interest rates, is for a period of one year (12 months). However, T-bill investments do not always mature in 12 months. For instance, the 91-day and 182-day T-bills mature after three months and six months respectively. Hence, the calculated interests need to be prorated (distributed) for the actual maturity periods. That is three months and six months for the 91-day and 182-day T-bills respectively.

To be clearer on this, let’s go through the sample calculation below.

     How to calculate Treasury bill interest

Let’s assume that you invest GH¢1000 at the current 91-day T-bill rate of 13.4700%,

Now, since the quoted interest rate (13.4700%) is an annual (12-month) rate, the total interest on the GH¢1000, after 12-months, would have been (1000×0.1347) = GH¢134.7


However, 91-day T-bill investment matures after three months. Hence the above total interest needs to be prorated for a three-month investment period.

Thus, the real interest to be earned on the GH¢1000 would be (1000×0.1347)/4 = GH¢33.675

Note that 3 months × 4 = 1 year. That is why you see the total (annual) interest being divided by 4

In a similar manner, the annual interest would have been divided by 2 if it were to be 182-day (6 months) T-bill investment.


Another means to estimate your T-bill or fixed deposit interest is to first distribute the calculated annual interest per each month and further multiply the monthly interest by the actual number of months the money stayed invested.  Using the same example above, the interest earned per month would be (1000×0.1347)/12 = GH¢11.225 Remember that there are 12 months per annum (year).

Now, since the money is being invested for 3 months (91-day T-bill), we multiply the monthly interest figure by 3. That is, (GH¢11.225×3) = GH¢33.675


Annual yield

Annual yield is the annual rate of return on an investment, taking into consideration the compounding effect of any intermediary interest earned. Annual yield is most often reported as the investment return on money market funds (a pool of fund invested in fixed income products). Managers of money market funds, while estimating the annual yield, assume that the funds would remain intact in the account for one year (365 days). For instance, the estimated annual yield of HFC Unit Trust on 10th May 2017 was reported as 20.31%. What this means is that assuming the funds in HFC Unit Trust remain intact from 10th May 2017 to 10th May 2018 (one year), the estimated rate of return would be 20.31%. That is, the value of the mutual fund would appreciate by 20.31%. However, since investors continue to deposit and withdraw from mutual funds, the funds are therefore not expected to remain intact throughout the full year. Thus, fund managers keep revising their annual yield on a daily basis to reflect the changes. For this reason, it may be difficult to precisely calculate the return on a mutual fund (money market) investment over a period.

Due to the effect of compounding, investment returns associated with money market funds may not be evenly distributed over the investment duration. Let’s assume that you had invested GH¢1000 in Databank’s Mfund on 12th May 2017. Annual yield of Mfund on 12th May 2017 was 19.88%. Thus, the estimated return (profit) on the GH¢1000 after one year would be (GH¢1000×0.1988) = GH¢198.8 However, the GH¢198.8 takes into account the compounding effects of intermediary profits that are reinvested by the fund managers. As such, it cannot be equally distributed by each of the 12 months. This implies that if the GH¢1000 stays invested for just six months instead of the 12 months, you cannot expect to earn half of the annual profit.

Once again, let’s go through another example using real historical data.


Table: Historical investment value of an Mfund account

Date Mfund value, GH¢ Monthly return, GH¢
30/09/2016 879.41 —–
31/10/2016 894.71 15.3
30/11/2016 912.03 17.32
31/12/2016 928.61 16.58
31/01/2017 945.83 17.22
28/02/2017 958.98 13.15
31/03/2017 971.49 12.51
30/04/2017 988.82 17.33


The table above shows the value of an Mfund investment account (a money market fund) over a seven-month period. Based on the investment values, the monthly returns are also calculated by subtracting preceding values from current ones.

Even though the fund manager (Databank) had estimated an annual yield of about 23% at the time, the returns (as seen in the table) were not equally distributed over the period- They differed from one month to another. For instance, November return of GH¢17.32 had increased from the October return of GH¢15.3. On the other hand, the return in January (GH¢17.22) had dropped to GH¢13.15 in February. Factors that account for non-equal distribution of Mfund returns include, but not limited to, compounding effect of intermediary profits as well as changes in interest rates of fixed income products during the investment period.


Year to date return (YTD)

Whenever we mention year to date, we refer to the period between the start of a calendar year and the present date of the same year. The beginning of the calendar year often has 1st January as the baseline. Year to date return therefore refers to the return or profit made so far, from 1st January to the present day of the calendar year. For instance, a year to date investment return of 10%, as of 30th April 2017, implies that from 1st January to 30th April 2017, a return of 10% had been made on the investment.

Year to date returns are usually reported on equity-related investment products such as the Ghana Stock Exchange (GSE), Epack investment fund, SAS fortune fund and HFC Equity Trust. Similar to the annual yield explained earlier, year to date returns can drop or increase from time to time within a calendar year. Again, year to date returns do not accumulate in a linear functional manner. In other words, they do not distribute proportionally along the calendar year. The mere fact that a year to date return after the first four months (30th April) was 10% does not necessarily mean that the return at the end of the year (31st December) would be 30%. This is due to price fluctuations on the equity markets. On every business day, equity fund managers recalculate their year to date returns based on the present prices of stocks.

It is also important to note that published YTD returns mostly affect existing shareholders than prospective ones. Now let’s have a look at the scenario below:

percentage rates of investments_scenario

From the scenario above, it is clear that the investor lacked understanding of YTD returns. This is a common mistake many prospective investors make when investing in equity funds. As I mentioned before, YTD returns mostly affect existing shareholders. Thus, the 45% the prospective investor noticed in September 2016 was a profit that had been ‘earned’ already by the existing shareholders of the equity fund. To accurately estimate his return, he needed to do that in reference to September 2016 since that was when he made the deposit. According to the scenario, the fund had lost 5% (45% to 40%) from September to December. Hence, the investor had actually lost part of his deposit.

In a similar situation, an existing shareholder who topped up his account in September 2016 would not enjoy profit on the additional deposit that was made in September. Nevertheless, he would enjoy the 40% return on his previous investment (prior to the deposit in September) if that investment had stayed in the equity fund from January to December 2016.


Comparing percentage rates

It is important not to compare percentage rates of different categorical investments. For example, the annual yield of HFC unit trust (a money market fund) as of 10th May 2017 was 20.31%. On the same day, the year to date return on HFC equity trust (an equity mutual fund) was 9.68%. It would be a big mistake to compare these two percentage rates and assume that HFC unit trust performs better than HFC equity trust. This is because the 9.68% return on HFC equity trust is only for the period of 1st January 2017 to 10th May 2017 while the 20.31% on HFC unit trust is a 12-month estimated rate.

On another note, it may not be appropriate to compare the year to date (YTD) returns of two different equity funds in the early part of a year. As stated earlier, YTD returns do not distribute proportionally along the calendar year. For instance, the YTD returns of SAS fortune fund and Epack investment fund, as of 11th May 2017, were 14.51% and 5.4% respectively. While the rate for SAS fortune fund is higher than that of Epack, it may be premature to conclude that SAS fortune fund performs better than Epack investment fund. This is because the YTD return of SAS fortune fund may drop while that of Epack can rise steeply before the year ends. Thus, a more appropriate comparison could be done at the end of the calendar year.

What you need to know about investing with a microfinance company


The primary objective of microfinance is to create financial inclusiveness and provide an avenue for the delivery of essential financial services to sections of the society who would otherwise be largely uninvolved or unable to fully access them.

Ghana’s microfinance sector has been immensely beneficial to the economy. It has expanded the scope of participation in Ghana’s financial services sector, created jobs and also become an avenue where individuals are able to create residual income or progressively build their financial assets over time.

Nonetheless, it has also been a source of deep pain, disappointment and resulted in the monumental loss of the life savings and investments of some.

The proliferation of Microfinance Institutions (MFIs) has spawned the infiltration of the industry by some operators who are probably unauthorised, illegitimate and whose activities are frequently out of sync with the authorised and permissible activities of MFIs.

These operators are generally imprudent, reckless, unprofessional and avariciously ambitious in their activities and the consequential damage to the image of industry has been immense.

In view of the critical importance of the microfinance subsector and its relevance in the growth of developing economies like Ghana, it is essential that legitimate players of the sector are protected, supported and insulated against the activities of these intractable few.

Companies or business failures are not entirely strange but frequent failures with a particular subsector should incite deep concern and probably raise the ire of its well-meaning stakeholders.

While a business may fail for a variety of reasons, a preponderant number of MFI failures are largely attributable to the following key factors:  Funds Diversion, The Hubris of Success and The Undisciplined Pursuit for More, Inexperience Management, Lack of Credible Outlets for Funds Mobilised in Savings and Investments, Funds Diversion and Excessively High Interest Rates on Fixed Deposit Investments.

1) The Hubris of Success and The Undisciplined Pursuit for More:

In his book on “How The Mighty Fall” Jim Collins notes that “Great Enterprises can become insulated by success; accumulated momentum can carry on enterprise forward, for a while even if its leaders make poor decisions or lose discipline.”

Some microfinance companies who have recently achieved a modicum of success suddenly begin to feel invincible. They begin aggressive branch expansion, introduce products out of the realm of their core competence and engage in financial transactions that significantly stretch their existing financial capacity.

The consequences of these actions may not be immediately apparent and usually take a while to manifest. They progressively squeeze the finances of the MFI, creating a huge liquidity gap that eventually makes it extremely difficult for them to meet their maturing short to medium-term obligations.

2) Inexperienced Management:

Like most businesses, MFIs are often set up by Entrepreneurs. These entrepreneurs may or may not have had any knowledge of banking or general working experience within the financial services sector.

The entrepreneurs or founder-owners who lack such experience would ordinarily have to employ experienced, qualified personnel and seek the guided goading of experienced professionals at the Board and Management levels. In most failed MFIs, the practice has been to engage the services on the basis of familiarity and personal trust rather than individual competence, knowledge, and experience.

3) Lack of Immediate and Credible Outlets for Funds and Deposits:

Microfinance funds and deposits are typically expensive, often at interest rates that are reasonably above the prevailing BOG Treasury bill and Banks’ Fixed Deposit rates.

Additionally, they are usually placed for short periods and so MFIs are under enormous pressure to immediately trade with these funds at margins high enough to pay for the average cost at which such deposits were secured while still retaining a surplus as profits.

Unfortunately, some MFIs obviously lacking any credible outlets for the efficient and profitable deployment of these funds may wilfully or unwittingly apply these funds to some unauthorised activity or transactions whose returns are either not guaranteed or not easily realizable.

4) Funds Diversion:

This is the tendency for some MFIs to engage in activities that are completely out of sync with those which are permissible by the Bank of Ghana. Such activities would usually include the utilisation of depositors’ funds for Aggressive Branch Expansion, Investment in Real Estate, Transport, Fuel Stations and other such ventures. These activities may not only require a vast array of expertise to manage but also have a pay–back period that is a lot longer than what the standard operational cycle of an MFIs can accommodate.

5) Excessively High-Interest Rates on Deposits:

Some MFIs in seeking to get ahead of the competition and to grow inordinately faster than what could be considered normal growth offer excessively high-interest rates for deposits to attract investors. DKM, which is easily the most recognizable recent failures in the industry, is known to have been offering interest rates ranging between 17% – 20% per month. These interest rates which are evidently unsustainable invariably threaten the long- term survivability of these MFIs.

There may be several other reasons why an MFI may fail. However, I consider the factors enumerated above to be the most dominant precursors and eventual precipitators of most MFI failures in Ghana.

See also: 3 financial institutions that promise high interest rates on fixed deposits


Investing in MFIs could pay the highest return but it is also essential for prospective investors to give consideration to these key issues before making any such investment decision:

1) At the minimum, please ensure that the MFI you desire to invest with is duly licensed by the Bank of Ghana.

2) Ensure to know that the company has a proper and functioning board and a qualified team that serves in its Executive Management. This should most likely be provided on the MFI’s website if it has one.

3) Ask to know the calibre of assets or loans they apply their deposits to and further seek some clarity on the proportionality of loans to various sectors. How are these loans secured? What is the recovery rate for these loans? What are the inherent risks associated with these kinds of assets? How does the MFI mitigate against these risks? Do not invest if these questions are not satisfactorily answered.

4) Think twice if the MFI is offering an interest rate that is significantly higher than the Government of Ghana Treasury bill rate and Average Banks’ Fixed Deposits interest rates.

5) Do not be needlessly swayed or impressed by a wide network of branches, massive physical Structures, Cars and other movable assets. While these may be genuine signs of a growing and blossoming business entity, they may also be mere appearances of splendour and a facade for an entity that may not be doing as well.

These guidelines are by no means exhaustive. Further, Individuals or institutions who are desirous of making investments in Equity, Quasi-Equity, Long Term Debt and Convertible Debt may require deeper insights and need to ask further questions on the operations of the MFIs in which they have chosen to invest.

The MFIs subsector is critical to fostering financial inclusion, creating jobs and contributing meaningfully to the development of the Ghanaian economy. It is essential that we harness the advantages and opportunities it presents and ensure that it is beneficial to all its current and future stakeholders.



3 financial institutions that promise high interest rates on fixed deposits

fixed deposits

As interest rates of Treasury bill continue to drop, finding alternative rates on the market seems laudable. Higher rates come with higher risks though. Therefore, investors must be cautious when making these decisions. A number of financial institutions claim to offer attractive interest rates on fixed deposits. Even though a few of these institutions openly publish their rates, the majority fail to publicly declare their supposed attractive interest rates. Of the few financial institutions that are open about their interest rates, three are listed below.

See also: Treasury bill investment: Choosing between 91-Day, 182-Day & 1-Year Note
 1. BOND savings and loans limited

BOND savings and loans limited is a non-bank financial institution which had been operated as a finance house since 2008. BOND acquired a savings and loans licence in its fifth year of operation and has since been mobilising deposits and giving out loans to the general public. Bond offers three main investment products. They guarantee to pay interest rates higher than that of Treasury bill on two out of the three investment products. These products are BOND fixed deposits (aka Daakye Dwetiri) and BOND Duapa.

The BOND fixed deposits are 91-day, 182-day and 365-day tenured investments with promising interest rates of (T-bill rate + 1 to 8%) depending on the tenure and the amount of invested money. In other words, the more and the longer you invest, the higher interest rate you are paid. The BOND Duapa is however a variable monthly investment that can be opened with a minimum contribution of GH¢100. The interest rates on BOND Duapa are fixed at (T-bill rate + 1%) for the 91-day, 182-day and the 365-day tenures. BOND savings and loans limited can be reached via their website at

See also: Ecobank introduces Treasury bills via mobile phones
2. New generation investment services (NGIS)

New Generation Investment Services (NGIS) Limited, an investment management firm, has operated for over a decade now. NGIS promises a premium rate of 2 to 5% higher than the prevailing Treasury bill rates for their fixed deposits. The minimum one can invest to earn these rates is GH¢500. NGIS can be reached on their website at

You may also like: Percentage rates of investments: Interpreting them correctly

 3. First Allied savings and loans limited

Since 1996, First Allied savings and loans limited has been providing financial services to the small, micro and medium enterprises. Their fixed deposit products come with negotiated rates (higher than the prevailing T-bill rates) depending on the amount and tenure of the investment.

Rates currently displayed on their website, as of today (10th January 2017), are *28%, *29% and *30% for the 91-day, 182-day and 365-day tenures respectively. In comparison, the prevailing Treasury bill rates are 16.2478% and 17.8796% for the 91-day and 182-day tenures respectively. Unfortunately, these published rates do not have any associated dates. Thus, it would be difficult to ascertain if their rates are up-to-date. A follow-up on their updated rates has still not yielded a response. First Allied savings and loans limited can be reached on their website at