Term Deposit Vs Treasury Bills. Bank Customer Battles For Investment Wisdom

Which investment is better? Treasury Bills or Term Deposit? Those are some of the most asked questions by bank customers that are investment conscious. They want to know about all the benefits and disadvantages of these two money market instruments.

Although there are several other money market instruments such as Commercial papers, Bankers acceptance, mutual funds and more. This article will focus on providing explanations for the 2 most used instrument in retail and consumer banking.

The Financial Dictionary defines Term Deposit as “A deposit at a bank or other financial institution that has a fixed return (usually via an interest rate) and a set maturity. That is, the depositor does not have access to the funds until maturity; in exchange, he/she is usually entitled to a higher interest rate. One of the most common examples of a term deposit is a certificate of deposit. It is also called a time deposit.”

Treasury Bills are Monetary Policy instrument issued by the government through the CBN to finance the national debt and/or control the amount of money in circulation. Tbills are often referred to simply as T-bills or NTB in Nigeria are short term debt obligations of the Government that have maturities of one year or less.

Here are the differences and similarities between Term Deposit and Tbills

Instrument Ownership:

  • Term Deposit is a bank instrument meant to mobilize fund from customers who wish to invest in short tenured money market instrument
  • Treasury bill is a federal government instrument used to borrow from the public or as a monetary policy instrument to control money in circulation. Tbills is issued by the CBN and it is considered the safest money market instrument because it has zero risk.


  • Fixed Deposit has more tenure options than Tbills, with 30; 60; 90; 120: 180 and 360 days options or more depending on your bank’s flexibility.
  • Treasury Bills usually has 91; 184 and 364 days options.

Interest yield:

  • Interest on Term Deposit is flexible and negotiable and varies from one bank to another. It is often dependent on your bank “desperation” for funds at the time of you investment. Interest yield on Term deposit are paid at the expiration of the investment tenure
  • Interest rates on TBills are slightly higher than that of Fixed Deposit. Tbills interest are dependent on monetary policy direction of the government, inflation rate also plays a major role in determining interest rate on treasury bills. Tbills interest are paid upfront and you also have the option of adding the interest earned to the principal for a higher interest yield.


  • Term Deposit are lots more flexible, you can walk into the bank and request that the investment be terminated when you are in need of funds. The bank will only charge you a percentage of the interest accruable to you as agreed and your principal and interest due will be credited into your account.
  • Treasury bill investment can also be terminated at anytime during the life of the investment but because you have been paid interest upfront, your principal will be discounted and the balance is paid back to you. The rate of discount is often higher that the treasury bill rate because you will be selling the investment at the secondary market if you request for your fund before maturity date.

Government tax

  • Ten percent withholding tax is charged on the interest yield on fixed deposit while no tax is charged on interest on treasury bill.

Both investment can be used as collateral for short term borrowing from banks and other financial institutions.

treasury bills

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