According to Finder’s most recent Consumer Confidence Index survey, 39% of Americans are investing more conservatively compared to the prior six months. This number is up from 33% in July, when we last asked this question, and is unsurprising given the lingering uncertainty in the markets. That, and the Federal Reserve’s push to tame inflation by raising interest rates has made some conservative investments a competitive place to park your money.
Treasury Bills, one of the Treasury’s five types of marketable securities, are considered some of the safest investments available, but that safety comes at a cost. Here’s what to know before adding them to your portfolio.
What are Treasury Bills?
A Treasury Bill (T-Bill) is a type of short-term US debt security with a maturity of one year or less. They’re one of five types of Treasury marketable securities, which are securities that can be transferred or sold before they reach the end of their term. The US government sells T-Bills to raise money to help fund its debt and its day-to-day operations. When you buy a T-Bill, you are giving the US government a short-term loan. In return, you receive an interest payment when the bill matures. The Treasury Department sells T-Bills in $100 increments with a maximum purchase of $10 million in noncompetitive bids.
T-Bills are widely regarded as a safe investment, as they’re backed by the full faith and credit of the US government.
4, 8, 13, 17, 26 and 52 weeks
Fixed at auction
$100 to $1,000
$10 million in noncompetitive bids
Federal tax due on interest earned
No state or local taxes
How to buy Treasury Bills
You can buy T-Bills one of two ways:
Through TreasuryDirect. Investors who purchase T-Bills through TreasuryDirect are required to hold the bill for at least 45 days before transferring or selling it.
Through a bank or broker.
How to buy Treasury Bills through TreasuryDirect
Create a TreasuryDirect account if you do not already have one.
From the main menu, click on the BuyDirect tab.
Select the type of Treasury securities you want to buy (in this case, Treasury Bills) and choose your desired term length.
Enter the dollar amount you want to invest and click Buy Now.
Confirm your Treasury Bill purchase.
Fund your TreasuryDirect account by transferring funds from your bank account or by payroll direct deposit.
Once you have purchased Treasury Bills through TreasuryDirect, you can access and manage them through your account. You can also choose to reinvest or redeem your holdings when they mature, or sell them before they mature.
How to buy Treasury Bills through a bank or broker
While the exact process will vary slightly, the following are general steps to buy T-Bills through a broker:
Navigate to the bonds section of your broker’s trading function.
Locate US Treasuries and select a term of one year or less to access available T-Bills.
Consider the maturity, price and yield of the available T-Bills, and select Buy for whichever T-Bill you want to trade.
Enter an order quantity, review your order and select Buy.
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Gain exposure to Treasury Bills through ETFs
In addition to purchasing T-Bills directly from the Treasury Department or via a bank or broker, it’s possible to gain exposure to the price and yield performance of T-Bills through exchange-traded funds (ETFs). Some T-Bill ETFs include:
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
SPDR Bloomberg 3-12 Month T-Bill ETF (BILS)
Treasury Bills vs. Treasury Notes vs. Treasury Bonds
Treasury Bills, Treasury Notes (T-Notes) and Treasury Bonds (T-Bonds) are all types of fixed-term debt products issued by the US Treasury Department. The main difference between these debt instruments is the time to maturity and when interest is paid.
Treasury Bills are short-term obligations that mature anywhere between a few weeks to one year.
Treasury Notes are medium-term securities issued with maturities of between two and 10 years.
Treasury Bonds have the longest time to maturity, with terms of 20 or 30 years. Both T-Notes and T-Bonds pay a fixed rate of interest every six months until they mature, while T-Bills pay interest only once at maturity.
Treasury Bills vs. bonds
Treasury Bills are a type of short-term debt security issued by the US government, while bonds are a long-term debt security issued by governments and corporations.
Pros and cons of Treasury Bills
Near zero-risk since T-Bills are backed by the US government
Low investment minimum of $100
Fixed interest rate means stable income
No state or local taxes on interest income
Purchase T-Bills through the Treasury Department or through a bank or broker
T-Bills pay no interest leading up to maturity, only at maturity
Fixed interest rate means interest rate risk, so their rate could fall out of favor during periods of rising interest rates
With a low risk of default, low investment minimum and short time horizon, T-Bills may be an appealing place to invest. In an environment where shorter-term yields are higher than longer-term yields, T-Bills may be even more attractive. But they don’t come without disadvantages. Periods of rising interest rates may make existing T-Bills less attractive, but this won’t matter if you plan to hold the bill until maturity.
Frequently asked questions about T-Bills
Yes, Treasury Bills are considered safe investments. They are backed by the full faith and credit of the US government.
Treasury Bill interest rates fluctuate and are fixed at auction. According to TreasuryDirect data as of March 6, 2023, the yield for a 52-week Treasury Bill issued on February 23, 2023 is 5.046%.
The interest income earned from T-Bills is subject to federal income tax but not state or local taxes. Interest earned on a T-Bill is paid at maturity and thus tax-reportable in the year in which it's received.
You can hold a T-Bill until maturity or sell it early without penalty. However, T-Bills pay interest only at maturity and only investors who hold a T-Bill to maturity are guaranteed to receive the face value of the bill. Because T-Bill prices fluctuate, investors who sell a T-Bill before it matures may get an amount different from what they paid. For example, if interest rates have risen since the bill was purchased, you may have to sell at a loss. The reason for the loss? Your existing T-Bill with the lower rate becomes less attractive compared to new T-Bills issued at higher rates. On the other hand, you may be able to sell at a premium if interest rates have fallen.
A Treasury Bill is a short-term debt security issued by the US Treasury Department. Investors who hold a T-Bill until maturity are paid the face value of the bill, which could be more than what they paid for it. This difference is the T-Bill’s interest rate.
A Treasury Bill can be a good investment if you seek safety and a stable return.
Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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