Treasury bills, commonly known as T-bills, are among the safest short-term investment options available. Backed by the full faith and credit of the U.S. government, they offer a secure way to grow your savings with minimal risk. Whether you’re searching for a place to park extra cash or seeking a predictable return on your investment, T-bills can be an attractive option.
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Why do people invest in treasury bills?
T-bills are popular among conservative investors because they provide a virtually risk-free way to earn interest. They are considered one of the safest places to store money since they are guaranteed by the U.S. government.
For those exploring short-term investment options, T-bills can be an alternative to high-yield savings accounts or certificates of deposit (CDs). Unlike savings accounts, which may have fluctuating interest rates, and CDs, which can require long-term commitments, T-bills offer predictable returns with fixed maturity dates.
T-bills are issued in six standard maturity terms:
- 4 weeks
- 8 weeks
- 13 weeks
- 17 weeks
- 26 weeks
- 52 weeks
When a T-bill reaches maturity, investors receive an interest payment based on the difference between the purchase price and its face value. Recently, T-bill yields have been exceeding 4%, making them a competitive option for those looking for stable returns.
When are treasury bills a good investment?
T-bills are ideal for investors who need a safe place to store money for a short period. They are especially beneficial for those planning a large purchase in the near future, as the money is only tied up for a maximum of one year.
While T-bills may not generate the highest returns compared to stocks or corporate bonds, they often outperform traditional savings accounts and are generally competitive with short-term CDs. Additionally, because they are backed by the government, they offer a level of security that few other investments can match.
For conservative investors who prioritize safety over high returns, T-bills are an excellent choice. They allow investors to earn a modest yield without exposing their capital to significant risk.
How to buy a treasury bill
Investors can purchase T-bills in two ways:
- Directly from the U.S. government through TreasuryDirect.gov
- Through a brokerage account
Buying T-bills through TreasuryDirect
To buy T-bills through TreasuryDirect, investors must:
- Create an account on TreasuryDirect.gov
- Provide a U.S. address, Social Security number, and bank account information
- Place a bid for the desired T-bill during an auction
- Wait for confirmation of the purchase
T-bills are sold at auction, meaning investors place bids based on the price they are willing to pay. Once the bid is accepted, the T-bill is added to the investor’s TreasuryDirect account.
Buying T-bills through a broker
T-bills can also be purchased through brokerage accounts, often as part of exchange-traded funds (ETFs) or mutual funds that include Treasury securities. This method is useful for investors who want exposure to T-bills but prefer to manage them through a traditional investment portfolio.
For those looking to add T-bills to their Individual Retirement Account (IRA), a broker is required since TreasuryDirect does not support IRA transactions.
How do treasury bills work?
T-bills function as short-term loans to the government. They are sold at a discount and redeemed at full face value when they mature. The difference between the purchase price and the face value is the investor’s earned interest.
For example, an investor might buy a $1,000 T-bill for $950. Upon maturity, they receive the full $1,000, earning $50 in interest.
Because T-bills have short maturity periods (ranging from 4 weeks to 52 weeks), they offer flexibility for those who may need access to their funds in the near future.
Other treasury securities to consider
While T-bills are a great short-term investment, there are other Treasury securities that may better suit investors with different time horizons.
Treasury notes (T-notes)
- Pay a fixed interest rate every six months
- Have maturities ranging from 2 years to 10 years
- Offer higher yields than T-bills due to their longer duration
Treasury bonds (T-bonds)
- Pay a fixed interest rate every six months
- Have the longest maturity periods, typically 20 or 30 years
- Provide higher returns compared to T-bills and T-notes but require a long-term commitment
For investors seeking short-term security, T-bills remain a strong choice. However, those looking for steady income over a longer period may find Treasury notes or bonds more appealing.
Final thoughts
T-bills are one of the safest and most reliable ways to invest money for short-term gains. They offer predictable returns, are backed by the U.S. government, and provide a simple, low-risk way to earn interest on cash.
Whether purchased directly through TreasuryDirect or via a brokerage account, T-bills can be a smart addition to any conservative investor’s portfolio. If you’re looking for a way to earn a secure return on your savings while avoiding market volatility, Treasury bills are worth considering.
