With the large number of investment options around us, it might get confusing and overwhelming to choose and decide which one can be the best for you. To come to a conclusion, it is important to know the significant differences between the choices you are comparing.
Today, in this article, we maintain our primary focus on two of the safest investment instruments- treasury bills and fixed deposits. Although an FD and a T-bill might appear to be the same, they contain several distinctions between them. We begin by quickly going through the two investment vehicles.
What are treasury bills?
Government bonds or debt securities with a maturity of less than a year are known as treasury bills. When the government requires money for a brief period, they are issued. Only the central government may issue these bills, and the market determines their interest rate. T-bills, also known as treasury bills, can mature after a maximum of 364 days.
Due to the fact that money market deals with investments with a maturity of less than a year, they are classified as money market instruments. Treasury notes are currently available in three different maturities: 91-day, 182-day, and 364-day.
Treasury notes are sold at a discount from their original value, and when they reach maturity, the buyer receives the full amount. For instance, a treasury bill worth ₹100 can be obtained for ₹95, but the buyer receives ₹100 when the note matures. Treasury bill returns are influenced by the economy's liquidity conditions with rewards being higher during liquidity crises and vice versa.
What are fixed deposits?
Fixed deposits are a type of investment product offered by banks and other financial organizations including non-banking financial institutions (NBFCs) and housing finance companies (HFCs). Investors would make a lump sum deposit over time and in exchange, customers would get a set interest rate for the duration of the investment. Investors may withdraw their money at the conclusion of the deposit's term.
In comparison to a typical savings account, fixed deposits (FDs) offer one of the safest investment alternatives and comparatively higher interest rates. Over a certain length of time, interest is accrued on the money deposited.
The type of lenders has an impact on the interest rate (public sector, private sector, or small finance banks). Typically, senior persons receive higher interest rates. You can quickly and simply receive the money you need by liquidating your FD in an emergency.
Treasury bills vs fixed deposits
Liquidity
The FD offers a withdrawal option before to maturity so that you can access and retrieve your money. However, it has a penalty cost and can have a bad effect on your interest gain. On the other hand, T-bills are a short-term investment, so you may have access to your money at any moment. At regularly scheduled auctions that are held at a discount price, you may promptly redeem your funds. As a result, T bills provide more liquidity than FDs.
Tax benefits
Treasury bills are not taxed. However, a bank fee will be charged for the provided services. On the other hand, when interest earned on fixed deposits reaches Rs. 10.000 (for individuals) or Rs. 50,000 (for senior citizens), it is subject to yearly taxation.
Investment duration
A Treasury bill is an excellent alternative for a quick short-term investment to make some extra money. However, if you're searching for a long-term investment with high returns, they might not be the best option. An FD would be a preferable alternative for inexperienced or low-risk investors, even if it would not yield you substantial profits.
Credit risk
FD and Treasury Bills are both secure, low-risk investment options. By making the FD as safe as a savings account, banks or businesses effectively eliminate any risk. Additionally, the government provides guaranteed returns on the T-bills. The government always has money, therefore you always have the assurance that you'll get your money back, unlike when investing in ordinary stock of firms.
FDs and treasury bills are both secure and low-risk investment choices for your portfolio. Decide on the option that best meets your financial goals by taking into account variables like interest, security, and tax advantages when choosing between a fixed deposit and treasury bills.
