Fixed Deposit vs Treasury Bills: Which is better?

Some investment schemes can force you to choose between the devil and the deep blue sea. However, it is necessary that you assess both before deciding. In this post, we’re going to look at fixed deposits and treasury bills to ascertain which is better.

Both investment schemes are short-term. They are also low-risk investments with little returns. The debate about fixed deposits vs Treasury Bills has been on for so long that many people have become confused.

What is a Fixed deposit and how does it work?

A fixed deposit is a sort of short-term financial investment that banks offer to their customers. When a depositor deposits money with a bank in exchange for interest for a certain period of time, he is investing in a fixed deposit.

What are Treasury bills?

Treasury bills are investment plans in which you, as an investor, lend money to the Central Bank of Nigeria (CBN) for a set length of time in exchange for interest. They are short-term investments in government securities that are typically held for 91, 182, or 364 days.

Who is in charge of the Investment?

One topic of debate in understanding the fixed deposit and treasury bill investment scheme is the person who controls the investment.

When you buy Treasury Bills from the Central Bank of Nigeria, you are essentially lending money to the government (CBN). Depending on your investment, you can get your money back after a 91-day, 182-day, or 364-day moratorium.

A fixed deposit, on the other hand, is a loan to a bank or investment firm with the assurance of repayment at the end of the term (usually between one to twelve months).

As a result, one lends your money to the government, while the other lends it to a bank or other huge financial entity.

What is the difference between treasury bills and fixed deposits?

We’ll examine the differences between fixed deposits and Treasury Bills by examining the elements to consider before investing in them.

Risks associated with treasury bills and fixed deposits

Even while fixed deposits and treasury bills are both low-risk investment portfolios, there is still some risk involved.

Treasury Bills are backed by the government’s full faith and credit, making them nearly risk-free because it is extremely unlikely that a government will go broke and be unable to pay back its debts.

Furthermore, after the due date based on the moratorium is reached, the government employs a tax revenue stream to service its debts.

Fixed deposits, on the other hand, are supported by the bank’s or financial institution’s credit rating. The financial institution or bank owes you a fiduciary duty to repay your capital as soon as your moratorium expires.

On the other hand, the bank could face any number of challenges. When you are no longer comfortable you have every right to walk away from your investment. With the fixed deposit vs. treasury bills debate in mind, it’s clear to the deaf that treasury bills are less risky and are regarded to be superior in terms of risk management.

Fixed deposit interest rates vs. Treasury bill interest rates

Low risk, low return and high risk, high return is the risk-reward model in the capital/financial market. The fixed deposit should have an increased earning rate under this financial market investment scheme.

However, there are times when the pendulum swings the other way and the opposite is true. Using Nigeria as an example, the interest rate on treasury bills is presently in the single digits, ranging from 1% to 5%, an all-time low. Prior to this time, the rate was between 10% and 14%.

Most Nigerian banks’ fixed deposit interest rates are currently in the single digits, with some being in the decimal. Before now, it used to be between 7% and 12%. It is, however, dependent on your principal. Your return on investment will be higher if your principal is higher (ROI).

It’s also worth noting that the interest rate on a fixed deposit investment portfolio differs from one bank to the next.

Which has the best interest rate?

The way financial markets work is that the more the risk, the larger the return, so treasury bill rates will be lower than fixed deposit rates. Other elements, though, come into play and cause it to fluctuate. In Nigeria, treasury bills rates are now higher than average fixed deposit rates, despite the latter being the riskier of the two.

How to get paid interest

Some banks may give you interest in addition to the principal at the conclusion of the time. Depending on the terms of the agreement, some companies will also pay interest upfront. The dividend on Treasury Bills is usually paid upfront,  the principle is however paid at the end of the tenor.

Getting your money whenever you want

Fixed Deposits allow you to access your money at any moment by liquidating your account before it matures. All you have to do is inform your bank or investment firm that you want to withdraw your funds.

However, instead of paying you the whole tenor if you waited until maturity, they will pay you interest for the time the money remained with them. It’s also possible that you’ll be charged an early withdrawal fee.

Fixed deposits, on the other hand, are more flexible than Treasury Bills. You must sell the rights to the treasury bills to the bank or to a willing buyer if you want to cash in on your treasury bills before the tenor expires.

The remaining interest for the period between when you canceled the investment and when it matures will be deducted from your principal by the buyer.

So, in essence, you can get your cash in any situation, albeit banks may be faster and easier.

Service fees and tax benefits

Treasury bills have the advantage of being tax-free; however, you will be obliged to pay a bank fee for the services given.

Fixed deposit interest is taxable on an annual basis, so the interest paid to the depositor is subject to a 10% withholding tax.

The interest on a Treasury bill is paid upfront, but the interest on a fixed deposit is paid at the maturity of the investment. If you walk into a bank and inquire about investing choices, they will tell you about fixed deposits but never about treasury bills, I’ve discovered.

What is the reason for this? Banks rely on your deposits to make money, especially if they’re fixed (which ensures they’ll get paid). Furthermore, unlike treasury bills, fixed deposit investments display on banks’ balance sheets.

Which of the schemes pays the most in taxes?

Taxes are not withheld from your interest payments because Treasury bills are tax-free. You will, however, most likely be charged a fee by the bank for providing the service on your behalf.

In my perspective, the fees are quite little and almost insignificant. Fixed deposit interest is subject to a 10% withholding tax, which is deducted at source by banks and submitted to the appropriate tax body.

If you don’t want to be taxed then you should go for treasury bills.


In conclusion, I’m sure you’ve figured out what treasury bills and fixed deposits mean by now and can ascertain which is better or suitable for you.

You also know the differences between them and can make well-informed investing decisions as a result.

What kind of investments have you been making? Have you ever tried to invest in treasury bills or fixed deposits? Please share your thoughts.

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Iniobong Umoh

Iniobong Umoh

Iniobong Leroi Umoh is a storyteller, techie, and content writer with He is enthusiastic about Tech, Finance, and Research. His works have been featured on different online and offline platforms.

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