Savings rates have continued to stay high this year as the Federal Reserve has held back on cutting rates, 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 1-year 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 5.25% while the 30-year Treasury rate is 4.58%.
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.
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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.
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 you use 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 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, vs Treasury bills, 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
Treasury bills can be a good investment depending on your financial goals and risk tolerance. They are considered one of the safest investments available, backed by the full faith and credit of the U.S. government--meaning that you are not likely to experience losses on your initial investment.
How risky are US Treasury bills? ›
Because the U.S. government backs T-bills, they're considered virtually risk-free if held for the entire term.
Are T-bills a good investment right now? ›
Right now, the 3-month Treasury bill rate is 5.25% while the 30-year Treasury rate is 4.58%. 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.
Can you lose principal on treasury notes? ›
Key Takeaways. There is virtually zero risk that you will lose principal by investing in T-bonds. There is a risk that you could have earned better money elsewhere.
Which is better, a CD or a treasury bill? ›
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.
What is safer FDIC or Treasuries? ›
CDs and Treasuries Offer a High Degree of Safety
Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government. In fact, no depositor has lost a penny of FDIC-insured funds since the FDIC was founded in 1933.
What happens when a 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.
Do you pay taxes on Treasury bills? ›
Treasury bills are taxed at the federal level but not by state and local governments. Many investors use them as a means to preserve capital when there is market turmoil, but they can also be used in other investment strategies. U.S. Internal Revenue Service.
How much will I make on a 4 week treasury bill? ›
4 Week Treasury Bill Rate is at 5.18%, compared to 5.23% the previous market day and 5.29% last year. This is higher than the long term average of 1.47%. 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.
What is the downside to buying T-bills? ›
The biggest downside of investing in T-bills is that you're going to get a lower rate of return compared to other investments, such as certificates of deposit, money market funds, corporate bonds or stocks. If you're looking to make some serious gains in your portfolio, T-bills aren't going to cut it.
Treasury securities are issued on behalf of the U.S. Treasury Department. They are backed by the full faith and credit of the U.S. government, making them the safest of all bond types.
Why does Warren Buffett buy T-bills? ›
Buffett favors three-month and six-month T-bills. Bid/ask spreads are tight—usually just a penny, or equivalent to one basis point in yield, or a hundredth of a percentage point. Fees are low, at about a tenth of a percentage point annually. There is very little price volatility due to the short maturities of T-bills.
Why is my T-bill losing money? ›
T-bills have a history of underperforming long-dated bonds when interest rates move lower, and traders may lose out on other opportunities by sticking around in cash-equivalents like short-term Treasurys.
How much does a $1000 T-bill cost? ›
Maturity Period
For example, a $1,000 T-Bill may be sold for $970 for a three-month T-Bill, $950 for a six-month T-Bill, and $900 for a twelve-month T-Bill. Investors demand a higher rate of return to compensate them for tying up their money for a longer period of time.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
Is it safe to put money in Treasury? ›
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.
Can you withdraw money from Treasury bills? ›
You can sell a T-Bill before its maturity date without penalty, although you will be charged a commission. (With CDs, you pay a sizeable penalty for early withdrawals.)
Are US Treasury money funds safe? ›
U.S. Treasury money mutual funds are one of the industry's best low-risk investments. These mutual funds typically invest in U.S. Treasury bills and are highly stable and liquid. These funds are generally classified as either money market funds or found in low-risk fixed income categories.
