Difference Between Fixed Deposit and Treasury Bills

Fixed Deposit

A Fixed Deposit is a type of short-term financial investments sold by banks to its depositors. A depositor invests in a fixed deposit when he deposits his money with a bank in exchange for interest for a predetermined period. Fixed deposits can often be for One Month, Three Months, 6 Months and 1 year. In return for fixing your money with the bank for a fixed period, the interest paid on fixed deposits is always higher than the interest that the bank pays on a regular deposit. Fixed deposits have the following characteristics;

  • They are for a fixed period of time
  • They are mostly sold by banks
  • The interest rate is higher than other regular deposit rates
  • The interest paid to the depositor is subject to 10% withholding tax
  • The depositor can decide to call back his cash ahead of the maturity date for the fixed deposit
  • However, this can come at a cost to the depositor
  • Interest rates on fixed deposits vary from bank to bank, from customer to customer and from amount to amount
  • The bank makes money by lending out the money you placed in the fixed deposit at a higher rate to borrowers. The difference between the interest it pays you on the fixed deposit and the interest its lenders pay is the banks profit.
  • Fixed deposits are sold daily by the bank to its willing customers
  • The banks pays the depositor both the principal and interest upon maturity. However, a customer can request for a roll-over
  • Fixed deposits are secured as long as the bank remains solvent.
  • If the bank goes bust, you loose your money too.
  • Fixed deposit can be used as a collateral  but not accepted by all banks

Treasury Bills

Treasury Bills on the other hand is also a short term financial investment but sold by the Central Bank of Nigeria. An investor in treasury bills lends money to the CBN for a stipulated period in exchange for interest. Treasury bills are usually for a period of 91days, 182 days and 364 days. Treasury Bills have the following Characteristics

  • Treasury Bills are sold bi-weekly or as determined by the CBN
  • The CBN puts a limit to the amount of treasury bills it wishes to sell
  • The CBN uses the funds from Treasury Bills to control money supply in the economy
  • Interest rates for treasury bills are determined by an auction and can vary from investor to investor, amount to amount and tenor to tenor
  • Interest on treasury bills are paid upfront
  • The CBN pays an investor in treasury bills upon maturity and does not roll-over
  • Treasury Bills can only be bought or resold at the Over The Counter Market (OTC)
  • An investor who can’t wait till maturity to cash out on the treasury bill can sell his investment at the OTC market
  • Treasury Bills are tax free
  • Treasury Bills  is not secured by any asset but are backed by the full faith and credit of the Nigerian Government
  • Treasury bills can be used as a collateral and is accepted by all banks

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