Treasury Bills vs Fixed Deposit: Which is the Better Investment Option?

For those seeking stable and secure investment options that yield consistent returns, treasury bills and fixed deposits are two top contenders. These financial products cater to risk-averse individuals who prioritise capital preservation.

As investments, treasury bills are considered one of the safest options due to their government backing, although they offer relatively lower returns. Fixed deposits, on the other hand, offer higher interest rates, but the level of risk involved depends on the financial stability of the bank. By understanding the distinctions between treasury bills and FDs, you can select the one that suits your risk tolerance and investment objectives the best.

In this article, you will explore what treasury bills and FDs are, understand the main difference between them, and choose which one is better for your investment and financial goals.

What is a Treasury Bill?

In India, a treasury bill is a short-term money market instrument issued by the Reserve Bank of India (RBI) on behalf of the Government of India to raise funds to meet its short-term financial requirements. These are considered to be one of the safest forms of investments as they are backed by the government’s credit.

Types of Treasury Bills

Treasury bills are of four types, based on the tenures of their maturity period. Below is the table that explains all four types of treasury bills based on their maturity period, auction frequency, and minimum investment amount:

Maturity Period Auction Frequency Minimum Investment Amount
14 Days Every Wednesday ₹1 Lakh
91 Days Every Week ₹25,000
182 Day Every Other Week ₹25,000
364 Days Every Other Week ₹25,000


What is a Fixed Deposit?

Fixed deposit, often abbreviated as FD, is an investment option offered by financial institutions and banks that allows you to save a sum of money for a fixed period at a predetermined interest rate. It is also known as a time deposit or term deposit.

Treasury Bills vs Fixed Deposit

Treasury bills and FDs are both some of the most secure investment options available in India. But how do you know which one to choose between the two? Here are some points of differences between fixed deposit and treasury bills to help you choose the best one for your needs and goals:

Characteristics Treasury Bills Fixed Deposit
Return The returns are guaranteed but lower than an FD The interest rate on returns on FDs is higher than treasury bills, but they are not fixed and can vary depending on the bank
Risk Since the government backs them, they are less risk Since the government does not back them and are rather backed by a financial institution or bank, they are of higher risk
Liquidity They have high liquidity and be converted into cash or sold in the secondary market You can liquidate them before maturity, but you have to pay a fine
Tenure Can range from 14 to 91 days to 182 to 364 days Can range from 7 days to 10 years
Minimum Investment Often have a higher limit for minimum investment Have a lower minimum investment requirement
Taxation They have a lower taxation obligation because they are not subjected to TDS The tax rate on your fixed deposit depends on your income tax slab
Interest Rate Fluctuation The interest rate on treasury bill returns remains stagnant during the entire tenure The interest rate on your fixed deposit returns changes depending on the bank’s policies and the current market’s state
Withdrawal You can withdraw your treasury bill investments at every government auction Premature withdrawal is allowed in fixed deposit, but you may have to face a penalty charge, hampering your gains


Treasury Bills or Fixed Deposits: Which One is Better?

The main difference between a fixed deposit and a treasury bill is that the former is a medium to long-term investment plan with high-interest rates, while a treasury bill is a low-risk, short-term investment option. Therefore, choosing between treasury bills and FDs is completely up to you, your financial goals, investment horizon, and risk tolerance levels.

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What are the main differences between treasury bills and FDs?
The government issues treasury bills as short-term debt securities, while banks offer Fixed Deposits at a fixed interest rate for varying periods. Treasury bills are tradable in the secondary market, ensuring liquidity, but fixed deposits usually come with a lock-in period and may incur penalties for early withdrawal.
Are treasury bills riskier than fixed deposits?
When it comes to low-risk investment choices, treasury bills and fixed deposits stand out as top contenders. The backing of the government makes treasury bills an extremely secure option. On the other hand, fixed deposits, particularly when held with reputable banks, also provide high safety. Although both options fall into the low-risk category, they have distinct risk profiles, with treasury bills edging out as the slightly safer option.
Treasury bills vs fixed deposits: Which option gives higher returns?
Fixed deposits typically provide higher returns compared to treasury bills because of their extended investment duration and higher interest rates. Nonetheless, the actual returns are contingent on the prevailing market conditions and interest rates.
Can you invest in both treasury bills and FDs at the same time?
Yes, you can invest in both treasury bills and FDs simultaneously. In fact, it’s recommended to combine multiple investment options for a better and diversified portfolio that can align with your risk tolerance and financial goals.