Gilts vs UK Treasury bills: which investment is right for you?

Both gilts and UK Treasury bills are:

• Used by investors to generate income for their portfolios
• Issued by the UK government, so they’re considered low-risk (though no investment is ever totally risk-free!)
• Government bonds, meaning investors lend money to the government in exchange for future repayment plus interest
• Available on Freetrade commission-free in your GIA, ISA, or pension 

When deciding on your portfolio allocation, you might wonder which combination of these low-risk investments is right for you.

This is where it’s important to know the differences.

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Key differences between gilts and Treasury bills

1. Maturity

Gilts are long-term securities with maturities that can range from a few years to several decades. For example, the longest-dated gilt on Freetrade, 1/2% Treasury Gilt 2061 (£TG61) has a maturity date of 22 Oct 2061.

Treasury bills, on the other hand, are short-term instruments with maturities of one year or less. Freetrade offers UK Treasury bills with one-month maturities.

2. Dividend payments

Gilts pay regular dividends, or coupons, every six months until maturity. The amount is a fixed percentage of the nominal value. For instance, if you held £1,000 of nominal value in the 6% Treasury Stock 2028 (£TR28), you would receive a £30 coupon every six months until maturity, alongside repayment of the £1,000 nominal value.

Unless, of course, you decided to sell before maturity. But more on that later. 

UK Treasuries? They’re zero-coupon bonds. So you won’t get any dividends. Just a repayment, with interest, at maturity. 

3. Price behaviour

Gilts are sold at market prices that can fluctuate based on interest rates and other factors. You can hold a gilt to maturity or sell it at any time. While dividends and repayment are known, market prices fluctuate, and your return can vary depending on the timing of your trades, as well as market interest rates. Check out the current market price of gilts available on Freetrade: 

• 3 1/2% Treasury Gilt 2025
• 4 1/4% Treasury Stock 2032
• 1/2% Treasury Gilt 2061
• 7/8% Green Gilt 2033
• 7/8% Treasury Gilt 2046
• 6% Treasury Stock 2028
• 1/8% Treasury Gilt 2028
• 1/8% Treasury Gilt 2026
• 3 3/4% Treasury Gilt 2053

Treasury bills offer a fixed return after a known short-term period. The return comes from the repayment of your original investment plus a premium.

4. Tax treatment

In a general investment account (GIA):

• Gilts: Dividends are subject to income tax, but gains from selling or maturity are exempt from capital gains tax.
  
• Treasury bills: Gains are treated as income and are subject to income tax. No capital gains tax applies.

Hold either in an ISA or pension to benefit from tax exemptions. 

5. Investment purpose

Gilts are popular among investors seeking long-term, stable income, and diversification for long-term portfolios.

Treasury bills are often used for short-term investment strategies or cash management.

6. Ways to buy

Gilts have a well-established secondary market and are actively traded on the London Stock Exchange.

Treasury bills are issued through weekly competitive tenders by the UK Debt Management Office (DMO).

Despite these differences, both instruments are available on Freetrade.

Summary table: gilts vs Treasury bills

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Choosing between gilts and Treasury bills on Freetrade

Choosing between gilts and Treasury bills depends on your investment horizon and income needs:

• If you need long-term stable income, gilts might be the better option.
  
• If you’re looking for short-term cash management, Treasury bills could fit your portfolio.

Both types of government bonds offer predictable returns, making them solid options for a balanced portfolio. But do, of course, keep in mind the impact that changes in interest rates, inflation, and other economic factors can have on their returns.

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Take your pick of UK government bonds on Freetrade today:

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Important information