The Bond Market: Treasury Bills vs. Bonds & The Power of Compound Interest

In the quest to maximize returns over a long time and accumulate wealth, I have decided to focus on the pros and cons of investing in a relatively low interest rate on the 91- Day Treasury bill in Ghana with a rollover of interest and principal, the 182-Day Cocoa bill with similar rollover option compared to  investing in a long-dated investments like the 15-Year, 30-year Bonds on the fixed income market. This is to clarify the best times to choose any of this investments to suit your investment objective whether you desire regular income to spend or to accumulate wealth in the long run.

Many people in the fixed income space choose the treasury bills option even without doing the numbers for the sake of being risk-averse or not having time to actively manage their funds. Surprisingly, the numbers turn to support them if we hold all other factors equal and rollover principal and interest over time. Some key economic factors affect the Treasury bill yields over time, and these factors include interest rates, inflation and economic growth. However, in this analysis, we will hold all factors constant and dive into the figures in the simplest way possible.



  • Offers relatively reliable returns and suitable for risk-averse investors.
  • Benefits from the power of compound interest when you rollover with interest.
  • Relatively safer since it is issued by the government. (Default risk low)
  • If set up right from the onset, it safes you time and does not require active management.
  • Minimum amount required is very low (GHS1,500 for some banks).
  • Liquidity is not a problem.
  • Topping up is not complicated.


  • Rollover suffers interest rate risk, economic growth risk and inflationary risk.
  • Relatively low yields per annum.



  • Also benefits from the power of compound interest when you rollover with interest.
  • Relatively low minimum amount required compared to long-dated bonds.
  • More liquid than some bonds & stocks.
  • Topping up is not complicated.
  • Does not require active management.
  • Relative to the T-bills, yields are higher.


  • Rollover suffers interest rate risk, economic growth risk and inflationary risk.
  • Lower yields relative to bonds.
  • Higher minimum amount required compared to the treasury bills (secondary market).
  • Higher default risk compared to the treasury bills.



  • Higher yields compared to the bills.
  • Does not suffer much interest rate risk, economic growth risk and inflationary risk. (Debatable).
  • Low default risk.
  • Presents better opportunities to be used as collateral security for loans. More acceptable by lenders.
  • Offers fairly reliable returns and are also better suited for risk-averse investors.
  • Some corporate bonds can be converted into shares where necessary.
  • More suitable for active investors than passive investors.
  • Good for investors who prefer to take timely interests / income whiles they keep their principal invested.


  • Bonds are more complex instruments to understand by investors than the bills, especially in the secondary market where coupons and yields differ.
  • Less liquid than Treasury bills.
  • Do not enjoy much of the power of compound interest over time. (Coupons can be reinvested though).
  • The downside of long-term bonds is that you lack the flexibility that a short-term bond offers. If interest rates rise, for instance, the value of a long-term bond will usually go down.

Do share with us all other pros and cons you think of for each of the securities that are not listed above.


Below are some very basic computations on holding a 91-Day Treasury bills investment in Ghana at a 13% rate (holding the rate constant) and rolling over with interest for the period of 15 years with a face value of GHS10,000.00, compared to investing in a 16% rate Cocoa Bill (a bit riskier) and rolling over both principal and interest for the same period and then holding a 15-Yr bond with face value of 10,000 and coupons of 20% reinvested over the period. 

Disregarding all charges, levies or commissions in these computations, you will see the impact of compound interest and the power of active investing.

Computation 1 – 91-Day Treasury Bills, rolled over with interest for 15 Years:

Tbill 1Tbill 2


With a lot of factors held constant, it is clear that, holding a 13%, 91-Day treasury bill for 15 years without the compounding of interest will get you a total of GHS29,500.00 since interest every year will be GHS1,300. However, reinvesting the interest alongside the principal for each quarter adds a total of GHS38,640.23 to the GHS29,500 to make GHS68,140.23 for the period.

In the normal case where interest rate changes after each 91-Day period, the holder stands to gain or lose based on the degree of rise or fall and that is the main takeaway factor in this model of investing. Nevertheless, it is the simplest, less active, better interest-compounding investment in the three options, hence preferred by most retail investors in the space.

Computation 2 – The 182-Day Cocoa bills, rolled over with interest for 15 years:

182day 1


As indicated earlier, there is power in compound interest over time and this has also reflected in the 182 –Day Cocoa bill computation with a Face value of GHS10,000.00 and an interest rate of 16% (Rate factors in the risk level attached to this investment). This also indicates how relatively higher rates in a particular year can earn you more money than rolling over at a lower yield over time. With a 17% yield per annum, the final amount will change to GHS105,387.21 if rolled over with interest.

Computation 3 –15 Year Bond

15 yr 1


You would notice that, the outcome even if you reinvest coupon payments at a 16% rate would still not match the final total for the 182-Day Cocoa bills or the 91-Day bills despite the compounding factor. This is simple due to the less amount (coupon of GHS1,000) being compounded in the case of the 15Yr-Bond. The difference won’t be very significant even if you reinvest coupon at a 20% rate per annum.

However, there is one important thing to notice, which is that, the yield per annum for the 15-yr bond is significantly higher than that of the two indicated above. This takes us into another angle of actively trading your bond portfolio in order to get more over time. For instance, selling the 15-yr bond after 2 to 3 years at a probably lower rate (or higher price) to gain more and then you reinvest the entire amount and not the coupon alone. By so doing, you also expose yourself to the forces of the market but if you do your homework well enough, you will earn significantly higher over time and still enjoy the compounding effect.

Key Takeaways:

  • There is power in compound interest when you invest over time. Albert Einstein famously said that compound interest is the most powerful force in the universe. He said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
  • To businesses and individuals interested in taking loans, bonds can be used as collateral securities.
  • Bonds offer relatively higher yields than bills, however over the long term, when bills are rolled over, they benefit more due to the powerful force of compounding.
  • Actively trading your bonds (buy and sell) can earn you more over a long time.

In conclusion, with a more passive view of investing, it makes sense why most people prefer to invest in 91-Day Treasury bill and rollover with interest zillion times. The only problem is, some prefer to take the interest and reinvest the principal and by so doing, lose out on the compounding effect.


I have some positions in the 182-Day Cocoa Bill, but have no plans to initiate any positions in 91-Day Treasury Bills or 15–Yr Bond within the next month. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any issuer of the securities mentioned above.

2 thoughts on “The Bond Market: Treasury Bills vs. Bonds & The Power of Compound Interest

    1. Yes, bonds are quite complex even though I tried to simplify it. May be in another post I’ll delve deeper into bond investing. Cocoa bills also carry some extra default risk since it’s not directly a Government of Ghana instrument. Thanks for the feedback.


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