What makes fixed deposits different from treasury bills?
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What makes fixed deposits different from treasury bills?

  • Highlights

  • FDs offer higher interest than treasury bills

  • FDs and treasury bills are both low-risk investments

  • FDs offer more flexibility in withdrawals

  • Interest gained on FDs is taxable unlike treasury bills

Both fixed deposits and treasury bills are popular forms of investment that are considered to be profitable. Understanding the differences between the two can help you decide which one to choose to grow your wealth. To help you do this, here are five factors that distinguish the two from each other.

Profitability in terms of interest

Both fixed deposits and treasury bills can be rewarding investments. The interest gained by investing in a treasury bill is definitely higher than the interest offered by bank fixed deposits. The interest rates of most banks are around 6% while the treasury bill rate for 2018 is 6.40% for 91 days, 6.52% for 182 days and 6.65% for 364 days. While this is high, a company fixed deposit offers an even higher rate of returns. The Bajaj Finance Fixed Deposit offers an interest rate of 7.85% which goes up to 8.20% for senior citizens.

Flexibility in withdrawing funds

Fixed deposits allow premature withdrawal of the funds that you have invested, but at a penalty charge. This also hampers your gains as you stand to lose interest when you withdraw your investment before maturity. When it comes to liquidating your investment in treasury bills, you can redeem them during government auctions held very frequently. They are issued to you at a discount and sold at face value; the difference is the interest you get. Treasury bills are issued for a short-term, as less as 91 days, and may be redeemed easily, thus allowing you more liquidity than FD, the shortest tenor for which is 12 months.

Risk-factor and credibility

As a government can never run out of funds, treasury bills are perceived as risk- free investments. A fixed deposit scheme does not depend upon the influence of market forces and bank FDs are regarded as the safest. The Bajaj Finance Fixed Deposit has high stability ratings such as ICRA’s MAAA (stable) and CRISIL’s FAAA, making it more reliable.

Tax benefits and service fees

Treasury bills are tax-exempt; however, you will be required to pay a bank fee for the services rendered. The interest gained by fixed deposits is taxable annually when it exceeds Rs.10,000 (for individuals) and Rs.50,000 for senior citizens.
So, when you need to make a choice between a fixed deposit and treasury bills, consider factors like interest, security and tax benefits and go with the option that best suits your financial needs.

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