Many Nigerians find it hard to differentiate between fixed deposit and treasury bill in Nigeria If you are one of them, then worry no more because in this post I discuss the main difference between fixed deposit and treasury bills in Nigeria.
First, What is a Fixed Deposit (FD)?
A fixed deposit usually abbreviated “FD” is a type of investment account that pays a fixed rate of interest to investors over and until a given date. While the fixed deposit runs, the investor would not be allowed to withdraw his or her funds.
Because of the higher rate of interest when compared with savings account, many people tend to put their monies in fixed deposits. Besides this, fixed deposits provide other advantages like tax benefits, safe investment, flexibility, and liquidity. All these intrigue many investors to prefer using a fixed deposit to an ordinary or augmented savings accounts.
But as we all know, whatever have advantages must have disadvantages and fixed deposit account is no exception. The most known risks that fixed deposit faces are inflation risk, default risk, reinvestment risk, liquidity risk, and interest risk.
What is a Treasury Bill?
Treasury bills in Nigeria are debt instruments issued by The Central Bank of Nigeria (CBN) and are guaranteed by the government. The central bank of Nigeria (CBN) uses treasury bills as a way to control the money supply in the country’s economy.
These bills are sold bi-weekly by auctions conducted by the Central Bank of Nigeria, and you can buy these bills from any official dealer or through banks’ Treasury bill applications. The Treasury bill is a safe form of investment that is fully backed by the Federal government of Nigeria.
Treasury bills have a lot of investment advantages and upper-hand. Few among them are:
- Treasury bills serve as good investment outlets,
- are non-taxable,
- they can be used as collateral, and
- can be converted to cash quickly.
Don’t get too engrossed, we’re talking about the difference between fixed deposit and treasury bill.
The Remarkable Differences Between Fixed Deposit And Treasury Bill In Nigeria
Below are some of the key differences.
- Fixed deposits are fixed for an allotted period and are sold daily by banks to their customers while treasury bills are sold bi-weekly.
- Fixed deposits are primarily sold and managed by small banks while treasury bills are managed only by the Central Bank of Nigeria although you can buy them through commercial banks in the country.
- In a fixed deposit, depositors invest their money with a bank and will be given interest at a given time. In Treasury Bills, an investor borrows money to the Central Bank of Nigeria (CBN) for an allotted period in exchange for interest.
- While fixed deposits are done for one month, six months, or a year, treasury bills are usually for a period of 91 days, 182 days, or a year.
- Fixed deposits are fully taxable while treasury bills are non-taxable; you only pay a bank fee for the rendered service.
- The interest gained in treasury bills is far higher than the one offered by banks in fixed deposits.
- Treasury bills allow more liquidity than fixed deposits because they are done for the short, semi-long and long term.
- Treasury bills are regarded as the safest and risk-free investments because the government can never run out of funds while fixed deposits are only secured as long as the bank is functioning.
- The Central Bank of Nigeria (CBN) always puts a limit to the number of treasury bills it will sell while there is no limit to the fixed deposits that are sold by banks.
- Treasury bills money are used by the Central Bank of Nigeria to control the supply of income in the economy while fixed deposits are used by banks for investments.
- Fixed deposits can be rolled over by banks as it is a way of saving and investing at the same time while treasury bills cannot be rolled over.
- The flexibility in fixed deposits is far more than the one in treasury bills. Because in fixed deposits, you can easily get your cash anytime you want it and you will get the interest you earned for that time, while in treasury bills if you have wanted to withdraw your money before the allotted time, you have to sell the rights of the treasury bills to another person or a bank.
- Treasury bills are accepted by all banks in Nigeria as collateral because they are considered risk-free while some banks do not accept fixed deposits as collateral because they do not consider the other banks as strong ones.
Both fixed deposit and treasury bill are good forms of investing. While fixed deposits allow you to withdraw your money at any time, treasure bills do not allow that, but they are considered safer because the government cannot go out of funds. While there is a high possibility of a bank going out of funds thereby dissolving your money in fixed deposits that is not the case with Treasury bills! So, if you are cautious of risks, then you should opt for treasury bills over fixed deposits.