Treasury Bills (T Bills) vs. Fixed Deposit (FD): Key Differences

Posted on Thursday, October 10th, 2024 | By IndusInd Bank

Making smart investment choices is key to meeting your financial goals. Thus, it is essential to pick options that fit your budget, goals, and risk tolerance. Treasury Bills (T-Bills) and Fixed Deposits (FDs) are popular for their safe and steady returns. Yet, they serve unique needs.

In this article, we’ll compare T-Bills with FDs. We’ll discuss their benefits and key points helping you decide which investment suits your goals and risk tolerance.

What are Treasury Bills?

The government issues Treasury Bills (or T-Bills) as a short-term debt instrument to raise money. The maturities of these securities range from ninety-one days to a year.

Features of Treasury Bills

• Low Risk: T-bills are regarded as one of the safest investment options because they are backed by the government. They appeal to risk-averse investors for their low default risk.
• Liquidity: T-Bills have a high degree of liquidity, which makes it easy to buy and sell in the secondary market before maturity. Investors who need to access their funds quickly can benefit from such liquidity.
• Discounted Purchase: When T-Bills are issued at a discount to their face value, investors get returns equal to the difference between the purchase price and the face value.

Types of Treasury Bills 

Treasury Bills, or T-Bills, are short-term securities issued by the Reserve Bank of India (RBI) on behalf of the government. They’re considered one of the safest ways to invest your money, especially if you’re looking for short-term options with minimal risk. 

T-Bills don’t pay interest in the traditional sense. Instead, they’re issued at a discount and redeemed at face value. The difference between the purchase price and the maturity amount is your return. 

Here’s a quick look at the different types of T-Bills available: 

Each type serves a different purpose depending on how long you want to invest and how soon you might need the money. 

What are Fixed Deposits? 

Fixed Deposits (FDs) are one of the most trusted and widely used investment options in India. Offered by banks and NBFCs, an FD lets you deposit a lump sum for a fixed period at a predetermined interest rate. 

The best part? Your returns are guaranteed. Whether you’re saving for a short-term goal or just want to grow your money safely, FDs offer a simple and secure way to do it. You can choose to receive interest at regular intervals or let it accumulate and get paid at maturity. 

FDs are especially popular among conservative investors who value stability and predictable returns over high-risk, high-reward options.

Features of Fixed Deposits

Banks and other financial institutions offer fixed deposits, also known as term deposits. For a predefined period, investors deposit a lump sum amount, and the bank pays a fixed interest rate on the principal amount.

• Steady Returns: FDs offer steady returns. Hence, they are a great option for investors who look for stability and consistent income.
• Different Tenures: FDs are available in a range of tenures. They range from a few days to several years. So, investors can pick a term that suits their goals.
• Lock-In Period: FDs frequently have a lock-in period during which early withdrawals may result in penalties. This feature promotes thrifty spending.

Also read: Understanding the Basics of Fixed Deposits

Types of Fixed Deposits 

Not all FDs are the same. Depending on your financial goals, you can choose from several types: 

• Cumulative FD: Interest is compounded and paid out at the end of the term. Great if you don’t need regular income and want to build a lump sum. 

• Non-Cumulative FD: Interest is paid monthly, quarterly, or annually. Ideal for those who want a steady income stream. 

• Tax-Saving FD: Comes with a 5-year lock-in and offers tax benefits under Section 80C. A good option if you’re looking to save on taxes while earning fixed returns. 

• Senior Citizen FD: Offers higher interest rates for individuals aged 60 and above. It’s a popular choice for retirees looking for a safe and steady income. 

• Flexi FD: Combines the benefits of a savings account and an FD. It allows automatic transfers between your savings and FD account based on your balance. 

Each type of FD is designed to meet different needs—whether it’s regular income, tax savings, or long-term growth.

Treasury Bills vs. Fixed Deposits

When making a comparison of FD vs T-Bills, it’s important to understand the key differences and benefits of each investment option.

Risk Exposure

Investors want to preserve capital. T-Bills and FDs appeal to them because they’re almost risk-free, backed by government support and insurance.

Investment Horizon

T-bills are short-term instruments. They are good for investors who need to park excess funds briefly or who need immediate cash. Longer-term FDs are better for people with medium- to long-term financial goals.

Returns

T-Bills are very safe, so they offer smaller returns than FDs. They guarantee returns with no volatility risk. FD returns, on the other hand, vary based on the bank’s interest rate, FD tenure, and prevailing market conditions. With a Fixed Deposit Calculator from IndusInd Bank, you can estimate the returns and make informed investment decisions.

Liquidity

Both T-Bills and FDs provide liquidity. However, T-Bills can also be resold. This is why T-Bills offer greater flexibility. During the lock-in period, FDs may have restrictions on withdrawals, and early withdrawals are subject to penalties.

Things to Consider When Selecting Between Treasury Bills and FDs

• Income Needs: Evaluate your cash flow needs. Understand whether you can live comfortably on a steady income or with maturity returns.
• Market Conditions: Keep an eye on the current interest rates and market circumstances to make an informed decision.
• Discounted Purchase: T-Bills are sold at a discount. Investors earn the difference as returns. Diversify across asset classes to reduce risk and boost returns.

When deciding where to invest their money, individuals often compare treasury bills vs fixed deposits to determine which option offers better returns and security. Consider your investment needs and risk tolerance before choosing between FDs and Treasury Bills. Both have advantages, and a diversified portfolio can reduce risk and help you meet your financial goals. Secure your financial future today! Explore our competitive fixed deposit rates for guaranteed returns on your investment. Don’t miss out—invest in an IndusInd Bank Fixed Deposit now!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.