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
While interest rates and inflation can affect Treasury bill rates, they're generally considered a lower-risk (but lower-reward) investment than other debt securities. Treasury bills are backed by the full faith and credit of the U.S. government. If held to maturity, T-bills are considered virtually risk-free.
What is a Treasury bill for dummies? ›
A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a one-year maturity or less. Treasury bills are usually sold in denominations of $1,000, while some can reach a maximum denomination of $5 million.
What are the benefits of Treasury bonds? ›
Pros of Investing in Treasury Bonds
- Safety and security: Treasury bonds, backed by the “full faith and credit” of the U.S. government, offer a high level of safety. ...
- Dependable income: Treasury bonds provide fixed interest payments, known as coupon payments, twice a year.
Yields on Treasurys, which rise when bond prices fall, largely reflect what investors think the Fed's benchmark short-term rate will average over the life of a bond. They in turn set a floor on mortgage rates and other types of fixed-rate debt.
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 Department of the Treasury operates and maintains systems that are critical to the nation's financial infrastructure, such as the production of coin and currency, the disbursem*nt of payments to the American public, revenue collection, and the borrowing of funds necessary to run the federal government.
What is a Treasury bill in simple terms? ›
Treasury bills are issued when the government needs money for a short period. These bills are issued only by the central government, and the interest on them is determined by market forces.
How much does a $1000 T-bill cost? ›
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 when my T-bill matures? ›
When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.
Is it better to buy CDs or Treasury bills? ›
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.
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 20-Year Value (Purchased May 2000) |
|---|
| $50 Bond | $100 | $109.52 |
| $100 Bond | $200 | $219.04 |
| $500 Bond | $400 | $547.60 |
| $1,000 Bond | $800 | $1,095.20 |
1 Year Treasury Rate is at 5.12%, compared to 5.16% the previous market day and 4.59% last year. This is higher than the long term average of 2.95%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.
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.
Why would anyone buy Treasury bills? ›
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.
Why is Fed buying Treasury bills? ›
The other major tool available to the Fed is open market operations (OMO), which involves the Fed buying or selling Treasury bonds in the open market. This practice is akin to directly manipulating interest rates in that OMO can increase or decrease the total supply of money and also affect interest rates.
Are Treasury bills better than savings accounts? ›
If you want to take advantage of high interest rates to boost your savings, you may be looking for alternatives to a savings account. Certificates of deposit and Treasury bills offer annual percentage yields (APYs) of 5.00% or better and can be excellent options to maximize your savings.
How much will I make on a 4 week Treasury bill? ›
4 Week Treasury Bill Rate is at 5.28%, compared to 5.28% the previous market day and 4.32% last year. This is higher than the long term average of 1.41%. The 4 Week Treasury Bill Rate is the yield received for investing in a US government issued treasury bill that has a maturity of 4 weeks.
