Savings rates have continued to go up this year, so if you’ve been looking for a place to store your savings and earn interest in the short-term, you’ve probably considered a high-yield savings account or CD. And while these are both good options, there’s another short-term investment alternative you should also consider: Treasury bills.
Treasury bills (T-bills) have maturity dates of less than a year, and while generally, longer-term Treasuries pay higher yields, short-term Treasury yields are currently higher. Right now, the 3-month Treasury bill rate is 5.24% while the 30-year Treasury rate is 3.93%. So, if you're looking for a risk-free way to earn interest on your cash over a short period of time, investing in a T-bill could be a good choice.
When are Treasury bills a good investment?
Treasury bills are good investments for individuals looking to make a large purchase in a short timeline, as the money will only be tied-up for at most a year. Although T-bills don’t typically earn as much as other securities, or in some cases CDs, they still offer higher returns than traditional savings accounts.
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Plus, they’re one of the safest places you can save your money, making them a great fit for conservative investors who want to avoid risk-taking but still want to earn interest.
How to buy a Treasury bill
You can either buy a Treasury directly from the government through TreasuryDirect.gov or through a broker, and the minimum purchase is $100.
To start an account with TreasuryDirect, you'll need to provide a U.S. address, Social Security number and a bank account. Afterwards, since T-bills are sold on auction, those looking to invest will need to place a bid. Once it’s accepted, it will arrive in your TreasuryDirect account.
If using a brokerage account, T-bills can also be bought through ETFs and mutual funds. If you’re looking to buy a T-bill for your IRA, you’ll need to go through a broker as you can not do so on TreasuryDirect.
How a Treasury bill works
A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the U.S. government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount. "Interest" on T-bills is the difference between how much you pay and how much value you get when the bill matures. The most common maturity dates for T-Bills are four, eight, 13, 26 and 52 weeks.
In addition to Treasury bills, there are other Treasury securities to invest in as well. Treasury bonds, or T-bonds, pay a fixed interest rate every six months and have the longest maturity periods, either 20 or 30 years. Treasury notes also pay a fixed rate of interest every six months but have shorter maturity periods than T-bonds, ranging from two to 10 years.
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FAQs
T-bills are known to be low-risk short-term investments when held to maturity since the U.S. government guarantees them. Investors owe federal taxes on any income earned but no state or local tax.
Are Treasuries a good investment now? ›
Are Treasury bonds a good investment? Generally, yes, but that depends on your investing goals, your risk tolerance and your portfolio's makeup. With investing, in many cases, the higher the risk, the higher the potential return.
How do treasury bills work for dummies? ›
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.
Why are T-bills a Favourable money market instrument for the US government? ›
Default Risk Treasury bills are generally considered to be free of default risk because they are obligations of the federal government. In contrast, even the highest grade of other money market instruments, such as commercial paper or certificates of deposit (CDs), is perceived to have some degree of default risk.
Why are Treasuries so important? ›
Treasuries are viewed as the lowest-risk investments because they are backed by the full faith and credit of the U.S. government. Investors who purchase Treasuries are lending the government money.
What are the advantages and disadvantages of investing in Treasury bills? ›
Advantages and Disadvantages of Treasury Bills
| Pros | Cons |
|---|
| Zero default risk | Have an interest rate risk |
| State and local income taxes is not imposed on the interest income | Offer lower returns |
| Can be bought or sold easily in the secondary market | Leading up to maturity, it does not pay any coupon interest payments |
1 more rowThe No. 1 advantage that T-bills offer relative to other investments is the fact that there's virtually zero risk that you'll lose your initial investment. The government backs these securities so there's much less need to worry that you could lose money in the deal compared to other investments.
What is the downside of Treasuries? ›
But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.
Are treasury bills good for retirement? ›
Investors Near or in Retirement
A portfolio that includes Treasury bonds, bills, or notes, provides safety and helps to preserve their savings since Treasuries are considered risk-free investments.
Are Treasury bills better than CDs? ›
Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.
To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.
What happens after a T-bill matures? ›
Upon maturity of the T-bills, when will I receive the principal amount? On maturity, the principal amount will be credited to your respective account by the end of the day, typically after 6pm. For cash applications: The principal amount will be credited to your designated Direct Crediting Service bank account.
Why people don t invest in treasury bill? ›
Taxes: Treasury bills are exempt from state and local taxes but still subject to federal income taxes. That makes them less attractive holdings for taxable accounts. Investors in higher tax brackets might want to consider short-term municipal securities instead.
What happens when a treasury bill matures on TreasuryDirect? ›
We sell Treasury Bills (Bills) for terms ranging from four weeks to 52 weeks. Bills are sold at a discount or at par (face value). When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.
How to sell T-bills before maturity? ›
You can hold Treasury bills until they mature or sell them before they mature. To sell a bill you hold in TreasuryDirect or Legacy TreasuryDirect, first transfer the bill to a bank, broker, or dealer, then ask the bank, broker, or dealer to sell the bill for you.
How much do you make on a 3 month T-bill? ›
3 Month Treasury Bill Rate is at 5.26%, compared to 5.25% the previous market day and 5.21% last year. This is higher than the long term average of 4.19%. The 3 Month Treasury Bill Rate is the yield received for investing in a government issued treasury security that has a maturity of 3 months.
Are Treasury bills better than savings accounts? ›
Treasury securities, including Treasury bills, also known as T-bills, offer higher APYs than many other savings options right now. And Treasury securities are among the safest places to put your money because they are backed by the full faith and credit of the U.S. government.
