When you have a surplus after satisfying your needs, you will want to put away some for the future. You can do this either by saving in a financial institution or by investing.


Saving is when you do not use up all of your income but keep some in an account for the future. While persons may save money in their homes or in a “box” it is safer to keep your savings in a financial institution[1].  


Investing refers to the purchase of a financial product or other items of value with an expectation of favourable future returns. In general, terms, investing means committing money in order to make a financial gain.


Other forms of investment are:


  • Purchase Shares: you can purchase shares from the following:
    • Credit Unions are membership organizations that are formed by persons living in a particular community; employed by a business or sector, or members of a religious or other organization. To become a member, you must purchase shares and open an account. This is done by making deposits into the Credit Union. As soon as you deposit funds into a Credit Union account you become a part owner. A Credit Union is called a cooperative financial institution because its members are the owners of the credit union and profits are shared among them. Only members of a Credit Union can deposit to or withdraw money from their account held with the Credit Union.


Usually Credit Unions operate by taking money from its members, on one hand, and lending it to members on the other hand. Generally, loans are offered at lower interest rates than commercial banks. The Credit Union uses your shares as collateral for the loan.


  • The Stock Market or Stock Exchange provides a place for people to buy and sell shares in companies that are listed with the stock market. You can only buy and sell shares on the stock market through companies that are authorised to be stock market brokers. When you purchase a share in a company you become a part owner (share holder). That means that you have a right to attend annual general meetings and to vote. You can also receive money (dividend) if the company makes profits. There is the risk however, that if the company makes a loss, no dividend will be paid. You can sell your shares on the stock market. The price of your shares can go up or down depending on the profitability of the company. If the price of your shares is higher than what you have paid for it then you would have made a gain (capital gain) When the prices of your shares move lower than what you paid then you would have a loss (capital loss).


This is why investing on the stock exchange is for the more experienced investor and for people who can afford to take risk with their money.  People who invest on the stock exchange hope to make a lot more money than with saving with banks or investing in mutual funds, because they take more risk.


  • Mutual Funds: A mutual fund is a form of collective investment because it pools money from many people and invests the pooled money in various financial instruments. People who place their money with mutual funds are called unit holders. They purchase units in the fund which is managed by a fund manager. The returns from the investments are shared among the unit holders as dividends after deducting operating expenses.


Mutual funds pay a higher return than deposits because there is some chance or risk that the money invested may make a loss. The possibility of getting a higher rate of return on their money encourages people to take the chance and invest in mutual funds.



  • Bonds: A bond is simply a loan provided by the government or a private company to help them raise money or capital to finance projects. When the Government or the company issues a bond, it promises to pay you a specified amount of interest for a specified length of time and to repay you the full amount of the loan when the bonds mature or come to an end. Bonds generally pay higher rates of interest than savings because they may be held by government or the company for a long time (as much as twenty years). In general, the longer the bond is held the higher the interest rate paid.


Investing in bonds is a good way of setting aside money for future use. Government bonds are risk free which means that you would always get your money back at the maturity of the bond.  Corporate or business bonds carry some risk. The company may be unable to repay the loan if it does not remain profitable. 


  • Treasury bills: In Guyana, Treasury Bills are issued by the Bank of Guyana. The minimum amount you can invest is $50,000. Treasury bills are issued for 3 months, 6 months and 1 year. Treasury bills usually pay a higher return than an ordinary savings account and are guaranteed by the government. New issues of Treasury Bills are offered on a regular basis. Instead of carrying interest-bearing coupons these bills are sold at a discount below the “par” or “face” value that the holder receives at maturity.  For example one may bid at a price of G$90 per G$100 of 91-day Treasury Bills.  The discount rate which is defined  as the difference between the lower price paid for a security and the security’s face value at issue, can be calculated from the following formula:


((face value-purchase price)/face value) x (356/term) x 100 =  discount rate


where “term” is the term-to-maturity (which may be 91, 182 or 364 days depending on the particular issue) but can also refer to the number of days to maturity in the case of a rediscount operation.  Using the example above the discount rate will be computed as follows:


            ((100-97)/100) x (365/91) x 100 = 12.03 %


((face value-purchase price)/purchase price) x (356/term) x 100 =  yield


The annualized yield, which is defined as the actual rate of return per year, is calculated as follows:


((100-97)/97) x (365/91) x 100 = 12.41%


The amount of treasury bills offered is published in the national newspapers.  Among the information published for each tender are those relating to the issue date, the maturity date, the closing date for tender, the settlement date, and the average discount rate for the previous issue.  After submission, bids are accepted on a competitive basis.  The higher the offer price, the lower will be the discount rate and thus the more competitive will be the investor’s bid and the greater the chances that the bid will be accepted.  As an illustration, let us assume that the Government offers G$1.0 billion of 91-day Treasury Bill to the public and there are three investors; investor A, investor B and investor C each bidding for G$0.5 billion.  Let us further assume that investor A, investor B and investor C have submitted offer prices of G$97.01, G$95.51 and G$93.21 per G$100 respectively.  From the authorities’ standpoint, based on the formula for the discount rate presented above, investor A would have submitted the most competitive bid, followed by investor B.  Since bids are allocated to the most competitive bidders until the amount offered is exhausted, only these two investors would be successful and would be allocated the amounts bid for.


[1] Financial institution is the term used for banks, trust companies, credit unions and other investment companies that deal with money, hold money, invest money and lend money

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