Treasury Bills vs Fixed Deposits: Yield, Tax and Risk

Treasury bills (T-bills) recently beat bank fixed deposits for short periods: at the 7 October 2026 auction, the 91-day bill yielded about 5.57%, against SBI's 4.90% for deposits of 46–179 days. Over one year the gap was small: the 364-day bill yielded about 6.29%, close to a 1-year FD at around 6.25%. T-bills carry the Government of India's guarantee and no TDS, while FDs are simpler to buy, can be broken easily and are insured by DICGC only up to ₹5 lakh per bank.

What treasury bills are

T-bills are short-term borrowing instruments of the Government of India, issued by the RBI on the government's behalf. They come in three tenures: 91 days, 182 days and 364 days. Auctions are held every week, usually on Wednesday.

T-bills pay no interest coupon. Instead, they are issued at a discount and repaid at face value (par). Your return is the difference. For example, if you buy a 364-day bill at ₹94.10 per ₹100 of face value, you receive ₹100 at maturity and earn ₹5.90. The way yield and price move in opposite directions is explained in bond coupon vs yield to maturity.

Latest yields vs FD rates (October 2026)

The RBI raised the repo rate by 0.25 percentage points to 5.50% on 7 October 2026. Short-term yields respond quickly to such moves, while banks revise deposit rates with a lag.

T-bill figures are the cut-off yields reported from RBI's auction results; FD rates are as published for SBI and can change at any time. Other banks, especially small finance banks, may pay more on FDs. Always check the latest RBI auction result and your bank's current rate card.

Two technical points before comparing:

• T-bill yields are simple annualised yields. The 91-day yield is calculated as (100 − price) ÷ price × 365 ÷ 91.
• FD rates for terms of a year or more usually compound quarterly, so the effective annual yield is higher than the headline rate. A 6.25% FD compounded quarterly yields about 6.40% a year.

Worked example: ₹1 lakh for 3 months and for 1 year

Three months

• 91-day T-bill at a cut-off price of ₹98.6292: ₹1,00,000 invested buys a face value of about ₹1,01,390. Return ≈ ₹1,390 in 91 days.
• SBI FD for 91 days at 4.90% simple interest: ₹1,00,000 × 4.90% × 91 ÷ 365 ≈ ₹1,222.

T-bill advantage: about ₹168 on ₹1 lakh, or around 0.67 percentage points annualised.

One year

• 364-day T-bill at ₹94.1002: you pay ₹94,100 for ₹1,00,000 face value and gain ₹5,900, a yield of about 6.29% on a simple basis. Scaled to ₹1 lakh invested, the return is about ₹6,270.
• SBI 1-year FD at 6.25%, compounded quarterly: ₹1,00,000 grows to about ₹1,06,398, a return of ₹6,398.

Here the FD edges ahead slightly because of quarterly compounding.

After tax. Both returns are taxed at your slab rate, so the ranking does not change for the same person. The difference is in timing and paperwork: banks deduct TDS above ₹50,000 of yearly interest (₹1 lakh for seniors), while T-bills have no TDS. These examples are illustrative and depend on the auction and deposit rates at the time you invest. Use the FD calculator to model your bank's exact rate.

T-bills vs FDs: full comparison

Taxation of T-bills

The gain on a T-bill (face value received minus price paid) is treated as income and taxed at your slab rate. For most retail investors holding to maturity, this is how it works in practice, though the exact head of income can depend on your circumstances. No TDS is deducted, so the income will not reduce through TDS and you must report it in your return; it does appear in your AIS. Because T-bills are discount instruments, there is no deduction under Section 123 (old Section 80C) and no indexation. For how this compares with other products, see tax on FD, mutual funds and stocks.

How to buy T-bills as an individual

1. Open an RBI Retail Direct account at rbiretaildirect.org.in. You need PAN, Aadhaar-based KYC, a savings bank account and a mobile number. The account is free.
2. Choose the tenure and place a non-competitive bid before the auction cut-off time, usually on the day before or morning of the weekly auction.
3. Pay through net banking or UPI as the platform directs. You are allotted at the weighted average price of the auction.
4. Hold to maturity; the face value is credited to your linked bank account on the maturity date.

Many banks and online bond platforms also let you buy T-bills. The minimum investment and multiples are set by the platform, so check them before bidding.

Which one should you choose?

T-bills tend to suit you if:

• You are parking money for 3–6 months, for example a tax payment, a property down payment or a bonus you plan to deploy later.
• You hold more than ₹5 lakh in a single bank and want sovereign safety. See what happens if a bank fails.
• You want to avoid TDS and do not mind handling weekly auctions.

FDs tend to suit you if:

• You need terms longer than one year, regular payouts or the option to break early easily.
• You value one-click convenience and auto-renewal.
• You are a senior citizen getting an extra rate margin on FDs.

Many people use both: an FD ladder for predictable longer-term money, and rolling T-bills for short-term surplus. Neither is suitable for an emergency fund you might need tomorrow; for that, a savings account, sweep-in FD or liquid fund works better.

Key takeaways

• T-bills are issued at a discount and repaid at face value in 91, 182 or 364 days, backed by the Government of India.
• At the 7 October 2026 auction, yields were about 5.57% (91-day), 6.10% (182-day) and 6.29% (364-day).
• T-bills beat SBI's short-term FD rates at 3 and 6 months; at 1 year a quarterly-compounded FD was slightly ahead.
• Both are taxed at slab rate; T-bills have no TDS, FDs do above the threshold.
• Buy T-bills through RBI Retail Direct as a non-competitive bidder; FDs remain simpler and easier to break.
• Recheck auction yields and bank rates before investing, since both move with RBI policy.