The Bank of Jamaica (BOJ) has cut the minimum bid size for its 30-day certificate of deposit (CD) offerings by a 10th, from $1 million to $100,000, a move which has opened up greater access for the general public to higher-yielding financial instruments.

The change took effect at the May 22 auction, whereby any applicant only needed $100,000 to access the 30-day financial instrument which has a quoted 7.50 per cent annualised interest rate. That auction, which had $34.50 billion in CDs on offer, was oversubscribed to the tune of $41.72 billion with an average yield of 10.19 per cent and average bid prices of $99.75. This CD is set to mature on June 21.

The BOJ highlighted that this move not only aligns its auctions with best practice, but also improves financial inclusion for investors with smaller sums of money. Participants in the BOJ’s CD auctions also benefit from holding the securities in their name in their account at the JamClear® Central Securities Depository (CSD), the depository for all BOJ and Government of Jamaica (GOJ) instruments. This is opposed to it being held in custody by a securities dealer.

“Based on market surveillance, recent issuances of securities by financial institutions within the domestic market have set the minimum bid size at One Hundred Thousand Jamaica Dollars (JMD100,000.00). Accordingly, the adjustment to the minimum bid size aligns the Bank’s auctions with the industry norm. Notably, the minimum bid sizes for Government of Jamaica (GOJ) instruments are lower than the JMD100,000.00; Treasury Bills are JMD5,000.00 while Benchmark Investment Notes are JMD1,000.00,” the BOJ said in an emailed response to the Jamaica Observer.

Nicole Adamson, VM Wealth Management Limited manager – research, business planning and investor relations, also highlighted that the reduction in the minimum has lowered the barrier for entry for the average Jamaican to access another finacnial instrument.

“Furthermore, the CDs are still very attractive in the current economic environment which should serve as a further impetus to investors to take positions in them. With greater accessibility we should see greater demand from more local investors, which may, however, drive down the yield. It also gives a greater platform for diversification in an asset class that has been doing well while the equities market has been underperforming. This move by the BOJ should see a greater demand for CDs and more possibilities for diversification for investors,” Adamson added.

The BOJ’s CD auction takes place every Wednesday with a wide range of high net worth and institutional investors ‘parking’ their excess funds into the BOJ financial instrument. Any investor can access a BOJ CD by contacting a designated primary dealer such as Barita Investments Limited, Jamaica Money Market Brokers Limited (JMMB Investments), JN Fund Managers Limited, Mayberry Investments Limited, NCB Capital Markets Limited, Sagicor Investments Jamaica Limited, or Scotia Investments Jamaica Limited. The dealer would place the bid on their behalf and would follow the instructions of the investor to either ‘roll’ the CD along with the interest into the next auction or to disburse it back to the investor’s settlement account.

Although the BOJ has reduced the minimum bid size for CDs, some primary dealers can maintain the minimum they will facilitate at $1 million. However, this is still a major win for Jamaicans with smaller bank accounts who can now seek better fixed returns on their money.

“While we may see increases in the total number of investors, whether this increased number amounts to a larger absolute dollar value in the instrument and auction remains to be seen. Ultimately, whether it achieves the desired effect will be determined in part by the opportunity cost to the Jamaican who would have been participating in other instruments before the change in entry point,” stated Ryan Strachan, vice-president of investor relations at GK Capital Management Limited.

While commercial banks offer certificate of deposit offerings, they are way below the BOJ’s CD rate as shown in the table. The BOJ even published a table in January 2023 which showed the weighted average interest rates on different deposit accounts. Citbank N A had the best time/fixed-term weighted average deposit rate of 8.01 per cent, while the Bank of Nova Scotia Jamaica Limited (BNSJ) was the lowest at 0.42 per cent. JMMB Bank (Jamaica) Limited had the best weighted average savings rate on offer for savings accounts at 1.46 per cent, while JN Bank Limited had the lowest at 0.08 per cent. National Commercial Bank Jamaica Limited’s weighted average time/fixed-deposit rate was 4.34 per cent and its weighted average savings rate was 0.62 per cent.