When your hard-earned money is on the line, you would want to make the best of it. You can invest
in tried and tested financial instruments. Or, you may find it prudent to try new options. Investors
often wonder whether to invest in FD or in treasury bills. They are quite similar and yet different.
You could benefit from investing in either. So, what then is the difference between the two? Let’s
1. Who you’re lending to:
With Treasury bills, you are lending your money to the government. They promise to pay back
over 91 days, 182 days or 364 days.
With fixed deposits, you are lending money to a bank or a non-banking finance company (NBFC).
They repay the deposit after a fixed tenor, which is usually between 7 days and 10 years.
2. What the risks are:
Treasury bills are seen as risk-free investments. The Government is highly unlikely to default on
its loans and backs treasury bills as a safe and credible option.
Fixed deposits are not viewed to be as safe as treasury bills. If the bank goes bust, you may lose
your money. But the more reputed the lender, the less is the likelihood. With a reputed lender,
your fixed deposits are usually safe. Same with corporate deposits.
Their deposit facility is carefully examined by credit rating agencies. They are rated depending
on the company’s financial health. This is why Bajaj Finance fixed deposit facility is highly rated
by CRISIL. This means the company is less likely to default on paying your principal amount and
3. What the interest rates are:
The interest rates for Treasury bills are presently around 8%.
The interest rates for FD varies from lender to lender. It starts at around 6.75%. NBFCs like Bajaj
Finance have interest rates on FD that start at 8.40% for new customers. For senior citizens,
Bajaj Finance offers up to 8.75% interest.
4. What are the interest payments like?
In case of treasury bills, investors get the interest upfront. However, you get the principal at the
end of the tenor.
With FDs, you can opt for periodic interest payouts or at the end of the tenor. In the latter case,
you can reap the benefit of compounding.
5. Which option has more tax benefits?
There is a tax exemption on treasury bills. So, you are not taxed on the interest payments. But
you may have to cough up charges to the lender for its services as the intermediary.
As for FDs, you can claim tax deductions under Section 80C of the Income Tax Act, but only up to
Rs.1.5 lakh. However, only some FDs may be eligible for tax benefits. So, check with your lender
before you invest.
6. What if I want the money before the tenure ends?
Premature withdrawal with a treasury bill is not as easy as an FD withdrawal. It takes more time.
With an FD, you can withdraw the money before the tenor ends. You may, however, have to pay
a penalty to withdraw the amount prematurely.
7. What about loans on these options?
You can avail a loan against both these options. You have to use them as the collateral.
8. What about rollovers of my investments?
With Treasury bills, you do not have a roll-over facility. You receive the amount in your account
on the maturity date.
FDs can be rolled over either by auto-renewal or by renewal within 14 days after the maturity date.
This way, you can take advantage of compounding interest and get more returns.
To sum up, treasury bills are viable financial instruments. But you don’t get the benefits of
compounding. Fixed deposits have attractive interest rates, flexi tenor and yield good returns. They
can be a long-term financial investment. Look at your investment goals. See why you need to create
a corpus. Look at the time you have in hand. Accordingly, choose the right investment option.