Treasury Bills vs Fixed Deposit: Which is Better?

T-Bills and FDs are two secure investment options that can help you accumulate wealth. FDs, issued by banks and NBFCs, offer attractive returns surpassing those of savings accounts. On the other hand, the Government of India issues T-bills, which cater to short-term needs and offer competitive returns. 

 

Both of these are generally considered secured instruments, so explore which one can help you get higher returns while reducing your exposure to risk.

The Reserve Bank of India (RBI) issues short-term debt securities known as Treasury Bills on behalf of the Indian Government. The government uses them to address its short-term funding needs. 

 

Their government guarantee makes them one of the safest investment options. Treasury bills have different maturity periods from 14 days to 364 days. 

 

To understand how they work, consider the following example: You purchase several units of treasury bills valued at ₹200 each but at a discounted price of ₹190. Upon maturity, you can redeem them at ₹200, earning a profit of ₹10 per unit.

Treasury bills are of three types varying as per their maturity periods. Each type has a specific auction frequency and minimum investment requirement. Here's a breakdown:

Before you decide to invest in this instrument, consider the advantages they offer and whether they align with your financial requirements: 

• Secure Investments

T-bills are issued by the Government of India and offer a high degree of safety.

• Predictable Returns

Returns earned from T-bills are based on the purchase price and maturity value, allowing you to plan your investments with clarity. 

• Flexibility

T-bills offer liquidity as you can sell them before maturity in the secondary market.

• Supports Diversification

Adding T-bills to your investments can reduce overall risk in the portfolio since they are a secure asset class. 

• Liquidity

You can resell treasury bills in the secondary market and convert your holdings into cash whenever needed, especially during emergencies.

FDs are a widely preferred savings instrument where you deposit a specific amount for a set period at a fixed interest rate. Over the chosen tenure, the deposit accrues interest, and upon maturity, you receive the amount you have invested plus the accumulated interest.

 

You may choose to receive interest either when the deposit matures or at regular intervals. 

 

FDs provide secure and predictable payouts, making them a low-risk investment option. They are particularly suited for you if you prioritise safety over higher, but uncertain, returns.

 

A stable and secure way to grow your savings, fixed deposits offer different rates based on the tenure and the bank or NBFC. Compare fixed deposit interest rates and the ICRI/CRISIL rating of financial companies to get the highest assured returns. 

Before investing in this savings instrument, let’s understand its benefits to make an informed decision:

• Compounding Interest

Cumulative FDs allow you to earn interest over time to help maximise your returns. 

• Effortless Application

Booking an FD is simple and convenient. Many banks and NBFCs offer online application processes.

• Higher Returns

FDs typically offer higher interest rates compared to regular savings accounts.

• Overdraft Facility

Most issuers provide overdraft facilities to help depositors access their invested funds during financial emergencies.  

• Liquidity 

You can access your fixed deposit anytime with the premature withdrawal facility subject to certain penalty charges. 

• Safety

FDs are ideal for anyone who prefers guaranteed returns over the potential volatility of market-linked investments. 

If you want to compare the features of treasury bills vs fixed deposits to choose one over the other, check out the table below:

When deciding between these two instruments, compare the potential returns you can make. Here are the interest rates offered on FDs by some of the top banks and NBFCs and the yield on T-bills:  

Recognising the aspects that significantly affect your investment returns is essential for making smart financial choices. Here are the primary factors that determine interest rates and yields for FDs and T-bills respectively:

Fixed Deposits 

• RBI’s repo rate influences the FD interest rates. A higher repo rate translates to higher FD interest rates.

• Issuers offer higher FD interest rates to attract more deposits during favourable economic conditions to meet their financial requirements.

• Fixed deposits with longer maturity periods typically have higher interest rates. Short-term deposits usually offer lower rates.

• Issuers may hike interest rates during economic growth periods to attract more investors. 

• Certain special tenures may also offer higher FD interest rates based on the bank or NBFC. 

Treasury Bills

• T-bill prices are determined by investor bids at auctions.

• The government may offer higher discounts on face values of T-bills to attract more capital. 

• An increase in inflation could lead to a hiked discount yield rate for T-bills.

• Demand for T-bills may rise when low-risk investments are scarce. This may offer higher capital appreciation.

• The yield of treasury bills usually approaches the RBI’s repo rate 

1. First, assess your income needs. If you prefer regular income, FDs may be the better option as they provide fixed payouts. 

2. On the other hand, T-bills are a short-term investment and ensure your returns are derived from the difference between the purchase price and the face value at maturity. You can calculate your gains beforehand and have access to liquidity even via the secondary market. 

3. Next, keep an eye on current market conditions and interest rates, as they can significantly influence the attractiveness of both investments. Finally, evaluate your investment amount and timeframe to select an option that best fits your financial objectives. 

4. Diversifying your investments across various asset classes can also help mitigate risk while enhancing overall returns.

Treasury bills and fixed deposits have different investment purposes. Treasury Bills are short-term government securities. They offer attractive returns, high liquidity, and low risk. This makes them ideal for investors needing flexibility and quick access to funds.

 

Fixed deposits are short- to long-term savings products from banks and NBFCs. They provide stable and predictable returns over a set period. However, they come with penalties for early withdrawal.

 

Your choice between the two should depend on your investment timeline, income needs, and risk tolerance. Each option plays a specific role in a balanced investment portfolio.