Difference Between a Fixed Deposit and a Treasury Bill

  • Deposit
  • 6 Days ago

Written by - Shriram

When deciding on investments, there is always a state of uncertainty amongst investors. Not fully understanding the features and ignoring the benefits are the two most common issues why investors find decision-making on investments very challenging.

While various investment plans assure good returns at maturity, a Fixed Deposit (FD) and Treasury Bills (T-Bills) are the most secure investments that help investors attain growth and make solid plans for the future. Although an FD and T-bill look similar, they have many differences.

Considering the current market conditions, a company fixed deposit from NBFCs (Non-Banking Financial Companies) like Shriram is the most beneficial investment choice. Shriram Fixed Deposit offers a lucrative interest rate of up to 8.75% per annum to help investors attain their long-term financial goals.

In this article, you will be able to understand the core differences between a fixed deposit and a treasury bill that will help you make an investment plan with assurance.

What is a Fixed Deposit?

A fixed deposit is a secure investment instrument offered by banks and NBFCs to risk-averse investors who do not want to expose their funds to market risks. In an FD, you deposit a considerable amount of money into a fixed deposit account for a predetermined tenure and interest rate by respective banks or NBFCs.

The investment tenure of a fixed deposit ranges from 7 days – 10 years. However, most banks and NBFCs have defined five years as the maximum tenure for FD investments. Besides, FD interest rates generally range between 5% and 8%. However, with NBFCs like Shriram, you can get a lucrative FD interest rate of up to 8.75% per annum.

However, it would be best if you understood that the longest tenure will always give a higher FD interest rate, and the shorter tenure will give a lower interest rate. Hence, opening a fixed deposit account with trusted NBFCs like Shriram can yield profitable returns. In addition, many banks and NBFCs offer special interest rates above the standard interest rates for senior citizens.

Types of Fixed Deposit

Banks and NBFCs offer different types of fixed deposit accounts to accommodate the diverse needs of an investor. The two major categories of a fixed deposit are cumulative fixed deposit and non-cumulative fixed deposit. Let’s take a look at the different types of FD plans;
  • Standard Fixed Deposit
  • Tax Saving Fixed Deposit
  • Special Fixed Deposit
  • Senior Citizen Fixed Deposit
  • Flexi Fixed Deposit
  • Company Fixed Deposit
  • NRI Fixed Deposit
  • NRO Fixed Deposit

Features of Fixed Deposit

To understand what a fixed deposit is, you must know the key features. Below are a few;

Rate of Interest – Shriram provides fixed deposits for investors at an attractive interest rate of up to 8.75% per annum. Rest assured, investors will get a stable and higher FD interest rate throughout the tenure.

Assured Returns – When you open a fixed deposit, you will be guaranteed a return at maturity. An FD is one of the best investment options that fulfils the promise and provides assured returns at maturity.

Most Flexible Tenures – You can book an FD at your convenience, i.e., choose your investment tenure and amount based on your financial needs and plans.

Loan Against Fixed Deposit – During financial emergencies, you can get a loan against an FD if you already hold a fixed deposit account. Banks and NBFCs release 90% of the FD amount as a loan to help you get through the crisis.

Capital Safety – A fixed deposit is usually safe as an FD from the bank is managed by RBI, and a corporate FD is rated for safety by CRISIL (Credit Rating Information Services of India Limited), ICRA (Investment Information and Credit Rating Agency) and India Ratings and Research. Shriram Fixed Deposit is rated “IND AA+/Stable” by India Ratings & Research and “[ICRA]AA+ (Stable)” by ICRA.

What is a Treasury Bill?

A treasury bill is a short-term debt instrument issued by the Indian Government with a maturity of one year or less. T-bills are commonly issued by the RBI (Reserve Bank of India) on behalf of the Central Government to meet the short-term financial requirements of the Government.

In addition, treasury bills are issued to regulate the inflation level in the economy and the borrowing/spending of individuals. As T-bills have a maximum tenure of 364 days, they are available at zero interest rates. Government treasury bills are commonly issued to the public at a discounted value. However, you can redeem treasury bills on their par value/nominal value or premium. The difference amount between the discounted value and the nominal value is the benefit or returns for the investors.

For example, a treasury bill with a face value of Rs. 100 can be bought at a discounted value of Rs. 95. At maturity, investors can redeem the bills at face value/nominal value of Rs. 100, which allows them to pocket a profit of Rs. 5 per T-bill.

Types of Treasury Bill

A treasury bill has many types differentiated based on the tenure of the treasury bill.
  • 364-day Treasury Bill
  • 182-day Treasury Bill
  • 91-day Treasury Bill
  • 14-day Treasury Bill

Features of Treasury Bills

Below are a few significant features of a treasury bill that will help you understand how a treasury bill works;

Low Investment Amount – You can buy treasury bills with a minimum investment amount of Rs. 25,000 and then raise it to multiples of Rs. 25,000.

Lower Investment Period – Treasury bills are famous for their investment period. The lowest investment period is 14 days, and the highest for a treasury bill is 365 days.

High Liquidity – Treasury bills are short-term financial instruments that offer high liquidity to investors. Also, it is a negotiable financial instrument available in both primary and secondary financial markets.

Zero-Interest – Treasury bills do not yield or have any fixed interest rate like a fixed deposit. They primarily offer capital gains that benefit a large group of investors.

Yield Rate of T-Bill – Treasury bills do not offer any interest rate, and your returns are calculated based on the difference between the discount and nominal prices. The yield rate of a treasury bill is calculated as follows;
Y = (100-P)/P x 365/D x 100
Where Y = Percentage of return, P = Price at which the security is purchased and D = Tenure of a bill

A Fixed Deposit is a Better Investment - Open an FD with Shriram

By now, understanding the critical differences between a fixed deposit and a treasury bill would have helped you finalise the best investment choice. It is best for you to know that treasury bills are a short-term investment choice that offers good capital gains. But, a fixed deposit offers security, growth, higher interest rates and assured returns.

Hence a fixed deposit is a better choice considering the growth you could achieve in a few years. So open an FD with Shriram and build a safe and profitable investment portfolio because Shriram is a renowned NBFC that offers one of the best FD plans in India with attractive interest rates up to 8.75% per annum.

FAQs

What are the risks of treasury bills and fixed deposits?

As treasury bills are based on capital gains, you might be prone to receive less return at maturity if the par value is less. Even now, some banks offer lower interest rates for a fixed deposit. Hence, you should be careful when you buy a treasury or book an FD.

Who offers the best interest rate an FD or a T-Bill?

A fixed deposit offers a higher interest rate compared to a treasury bill. As treasury bills work based on capital returns, you can opt for an FD if you want a profitable return at maturity.

Who regulates the prices of treasury bills?

RBI, on behalf of the Central Government, regulates the treasury bills' prices.

Key Highlights

  • A Fixed Deposit (FD) and Treasury Bill (T-Bill) are the most secure investments that help investors attain growth and make solid plans.
  • Although an FD and T-bill look similar, they have many differences. A fixed deposit offers an attractive interest rate of up to 8.75% per annum, and you can also get a loan against an FD.
  • Treasury bills do not yield or have any fixed interest rate like a fixed deposit. They primarily offer capital gains that benefit a large group of investors.
  • A fixed deposit is a better choice for investment as it offers security, growth, higher interest rates and assured returns.