Treasury bills vs bank deposits: where does your money earn more?
In an environment of higher interest rates and growing uncertainty, savers are once again paying close attention to where they place their money. Two of the most popular low-risk options are Treasury bills and bank deposits. Both are considered safe instruments, but which one is actually more profitable?
The answer depends on several factors, including returns, flexibility, taxation and the investor’s time horizon.
What are Treasury bills and how do they work?
Treasury bills (T-bills) are short-term debt instruments issued by governments, typically with maturities of 3, 6, 9 or 12 months. Investors purchase them at a discount to their face value and receive the full nominal amount at maturity. The difference between the purchase price and the amount received represents the return.
For example, if an investor buys a Treasury bill for $9,700 and receives $10,000 at maturity, the $300 difference is the yield.
Treasury bills are widely regarded as one of the safest investments available because they are backed by the government. Their yields tend to closely reflect official interest rates and broader market conditions.
What is a bank deposit?
A bank deposit, also known as a fixed-term deposit, is a savings product offered by banks in which customers lock in a sum of money for a specified period in exchange for a fixed interest rate.
Key characteristics of bank deposits include:
- A guaranteed return known in advance
- Capital protection through deposit guarantee schemes (up to a legal limit)
- Limited liquidity, with penalties often applied for early withdrawal
Deposits are particularly attractive to conservative savers who value predictability and simplicity.
Returns: which option pays more?
In general, Treasury bills tend to offer higher returns than traditional bank deposits, especially over short-term horizons. This is because T-bill yields are directly linked to market interest rates, while bank deposits often include a margin retained by the bank.
Although some banks offer promotional or high-yield deposits, these are usually limited in amount or duration. Treasury bills, by contrast, often provide more competitive returns across a broader range of maturities.
That said, the difference in yield is not always large, so comparing current rates is essential before making a decision.
Taxation: an equal footing
From a tax perspective, both Treasury bills and bank deposits are treated similarly. The returns generated by both products are taxed as investment income, according to the applicable savings tax rates.
The main difference lies in the process:
- Bank deposits typically apply tax withholding automatically.
- Treasury bills require the investor to declare the return when filing their tax return.
In practice, taxation is not usually a decisive factor between the two.
Liquidity and flexibility
Liquidity is one of the key differences between these instruments.
Treasury bills can be sold on the secondary market before maturity. However, their market price may fluctuate depending on interest rate movements, meaning investors could receive more or less than initially expected.
Bank deposits usually impose penalties for early withdrawal, often reducing or eliminating interest earned. In some cases, early access may not be allowed at all.
For investors who value flexibility, Treasury bills generally offer greater options, albeit with some price risk if sold early.
Risk: very low in both cases
Both Treasury bills and bank deposits are considered very low-risk investments. Treasury bills rely on the creditworthiness of the issuing government, while bank deposits are protected up to a certain limit by deposit guarantee schemes.
For conservative investors, the risk profile of both instruments is minimal when used appropriately.
Conclusion: it depends on your priorities
There is no universal answer to whether Treasury bills or bank deposits are more profitable. Treasury bills often provide higher returns, particularly in high interest rate environments, but bank deposits offer convenience, simplicity and certainty.
- Investors seeking higher yields with low risk often favor Treasury bills.
- Those prioritizing ease of use and guaranteed outcomes may prefer bank deposits.
- Many savers choose to combine both options to balance return, flexibility and security.
In times of economic uncertainty, even small differences in yield can matter. Understanding how these instruments work is key to making informed decisions about where to park your savings.
Acerca del autor
