FGN Bonds vs Treasury Bills: What’s the Difference?

EXCERPT: One pays you upfront, the other pays you twice a year, and only one is tax-free. Here is how to choose between them.

INTRODUCTION 

“They’re both government securities, so it doesn’t matter which one I pick” is the thought that quietly costs people money. 

Since October 2025, one of them pays you after a 10% tax deduction and the other pays you in full.

That’s only one of the differences between FGN bonds and Treasury bills, and not even the biggest one. 

The bigger gaps are how long your money is tied up, how you get paid, and what happens if you need to leave early.

This post lays out the real differences in plain terms, runs the after-tax numbers, and shows which instrument suits which goal. By the end, you’ll know what to ask your bank or broker before you buy.

Quick answer: Treasury bills are short-term (91, 182, or 364 days), pay interest upfront, and are taxed at 10%. FGN bonds run for years, pay regular coupons, and are tax-exempt. Pick by when you need the money, then compare after-tax returns.

FGN Bonds vs Treasury Bills: What’s the Difference

Both are loans to the federal government. You hand over money, the government pays you interest, and you get your principal back at the end. The differences sit in the details.

Treasury Bills

Issuer: The CBN, on behalf of the Federal Government

Tenor: 91, 182, or 364 days

How you’re paid: Your return comes upfront as a discount, and you receive the full face value at maturity

Tax on interest: 10% withholding tax

FGN Bonds

Issuer: The Debt Management Office (DMO)

Tenor: 2 years for savings bonds, and up to 10, 20, or 30 years for standard bonds

How you’re paid: Periodic coupon interest, with your principal returned at maturity

Tax on interest: Exempt

The short version: T-bills are short-term parking spots. Bonds are long-term income streams.

How Treasury Bills Work in Nigeria and How You Get Paid

A treasury bill is sold below its face value. You pay less today and receive the full face value at maturity, and the gap is your interest. Nothing arrives in between.

Say you buy a 364-day bill with a ₦1,000,000 face value at a yield near 15.89%. You’d pay roughly ₦863,000 now and collect ₦1,000,000 in a year. That example is illustrative, so check the exact price with your bank or broker.

The bills are issued by the CBN on behalf of the government and sold at regular auctions. Most individuals buy through a bank, stockbroker, discount house or a fund that pools orders. Minimums depend on the channel, so ask before you commit.

How FGN Bonds Work: Coupons, Tenor and Price Risk

An FGN bond pays a fixed interest rate, called a coupon, on a schedule until it matures. The DMO sets a minimum tenor of two years, and longer bonds run up to 30. Interest on standard FGN bonds is paid every six months.

A ₦1,000,000 bond with a 16.79% coupon pays ₦167,900 a year. That arrives as ₦83,950 every six months, and your principal comes back at maturity.

Bonds carry a risk bills mostly avoid: price movement. When interest rates rise, the market price of an existing bond falls, and when rates fall, it rises. If you hold to maturity, none of that touches you. If you sell early, it can.

Access has a few layers. Buying directly at the DMO auction has a high minimum, and brokers can sometimes lower it. FGN Savings Bonds are the retail option, starting at ₦5,000 with two- or three-year tenors and quarterly interest.

Are FGN Bonds and Treasury Bills Taxed in Nigeria

This is where the two diverge most. 

In October 2025, the FIRS directed banks and other institutions to deduct 10% withholding tax on interest from short-term securities, including treasury bills. 

Interest on FGN bonds stays exempt, and the Nigeria Tax Act 2025 keeps that exemption in place and extends it to state government bonds.

The after-tax gap is bigger than the headline gap. At the 23 September auction, one-year bills cleared at 15.89%. Take 10% off that and you keep about 14.3%.

At the 14 September auction, the new 10-year FGN bond cleared at 16.79%, and you keep all of it. 

On those numbers, the bond leaves about 2.5 percentage points more in your pocket. Different tenors carry different risks, so this isn’t a like-for-like verdict, but it shows how much tax can shift the picture.

Now compare against inflation. August’s rate was 15.39%. The after-tax T-bill return sits about one percentage point below that, while the bond sits about 1.4 points above it.

Tax rules and the agencies that apply them keep changing, so confirm the current treatment with your broker or a tax adviser before you invest.

Which Is Better for Your Money: FGN Bonds or Treasury Bills

Neither wins outright. The better choice depends on when you need the money. This is general information, not financial advice.

If you will need the money within a year. Treasury bills fit, because the money comes back on a known date and you don’t take price risk. You accept the 10% tax and a thinner return in exchange for access.

If you can leave it for two years or more. FGN bonds usually make more sense. The coupon is steady, the interest is tax-free, and you’re not forced to reinvest every few months.

If you are starting small.  FGN Savings Bonds from ₦5,000, or funds that hold government securities, give you exposure without large minimums. Check each fund’s fees before you compare returns.

If Rates are falling. This is where bonds earn extra attention. A longer bond holds today’s yield for years, while a string of short bills gets rolled over at whatever rate exists on the day. The CBN’s cut to 23% has already pulled bill yields down.

Selling early is possible for both instruments through brokers, but bond prices can swing. If a date matters to you, match the tenor to that date.

Common Mistakes When Choosing Between FGN Bonds and Treasury Bills

Comparing gross rates. A 15.89% bill and a 16.79% bond are not as close as they look once tax is out. Compare what you keep.

Buying a long bond with money you’ll need soon.  If you have to sell early and rates have risen, you may take a loss. Short money belongs in short instruments.

Rolling over bills on autopilot. Each renewal prices at the new rate, and rates are drifting lower. Check the yield each time instead of assuming the last rate will repeat.

Ignoring channel costs and minimums. Banks, brokers and platforms differ in fees, minimum amounts and how quickly they settle. Ask before you commit.

Treating “risk-free” as “no risk.” Default risk on federal government paper is very low. Inflation, price swings and reinvestment still apply.

Wrapping Up

Treasury bills are for money with a short deadline. FGN bonds are for money that can wait, and they currently keep more of the interest because of the tax exemption.

Work out when you need the cash, compare after-tax returns, and ask your broker about minimums and fees. That sequence settles most of the decision.