How To Invest In Treasury Bills (2024)

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

If you’re seeking low-risk investments, your first choice should always be U.S. Treasury securities. Backed by the full faith and credit of the U.S. government, Treasurys are the safest investment asset on earth.

Treasury bills have the shortest maturities of any U.S. government debt securities, making them a great option for short-term investing. Treasury bill yields have risen steadily over the last year, with most maturities now yielding over 5%.

FEATURED PARTNER OFFER

Zoe Financial

How To Invest In Treasury Bills (1)

Find, hire, and work with truly vetted fiduciary financial advisors.

We are committed to protecting your experience & information. No spam calls, Zoe will only contact you to assist with your engagement.

Get personalized matches based on your unique situation in just a few minutes.

Connect with experts who offer a wide range of wealth management services.

Book as many free consultations as you need.

Advisor matches shared by Zoe are meticulously curated.

How To Invest In Treasury Bills (2)

Find An Advisor How To Invest In Treasury Bills (3)

On Zoe Financial's Website

We are committed to protecting your experience & information. No spam calls, Zoe will only contact you to assist with your engagement.

Connect with experts who offer a wide range of wealth management services.

Advisor matches shared by Zoe are meticulously curated.

What Are Treasury Bills?

Government debt securities come in a range of different maturities. Treasury bills, commonly referred to as T-bills, offer the briefest maturities of any government debt. U.S. Treasury bills come in terms of four, eight, 13, 26 and 52 weeks.

Unlike other fixed-income securities, like Treasury bonds, T-bills do not provide periodic interest payments. Instead, Treasury bills are sold in at a discount to their face value, or par value.

If you wanted to buy $1,000 in T-bills that were currently yielding 5%, the U.S. Treasury would sell them to you at a discounted price of $950. You would receive $1,000 at maturity, with the additional $50 representing your earned interest.

T-bills are highly liquid investments, meaning they can be easily bought or sold in the secondary market before their maturity. They are actively traded on the open market, making them a flexible investment option.

Treasury Bills vs Treasury Bonds and Treasury Notes

U.S. Treasury bonds and Treasury notes have longer maturities that T-bills. Here’s a look at the differences:

  • Treasury Bonds. These long-term Treasury securities carry maturities of 20 to 30 years. As with any bond, the longer the maturity, the greater the risk, the higher the coupon—that’s the interest rate paid by bonds. Bondholders receive interest payments every six months and are paid the face value of the bond at maturity.
  • Treasury Notes.These intermediate-term securities offer maturities of two to 10 years. They pay interest twice annually and return the par value at maturity. The 10-year Treasury note is a widely followed financial market benchmark. When people talk about “Treasury yields,” they usually mean the 10-year Treasury yield.
  • Treasury Bills.T-bills have short maturities of four, eight, 13, 26 and 52 weeks. Since they offer such short maturities, T-Bills don’t offer interest payment coupons. Instead, they’re called “zero-coupon bonds,” meaning that they’re sold at a discount and the difference between the purchase price and the par value at redemption represents the accrued interest.

T-Bills Are a Safe Investment

Treasury securities are backed by the full faith and credit of the U.S. government. Investment professionals use Treasury yields as the risk-free rate or the rate of return offered by an investment that carries no risk.

The federal government has never defaulted on an obligation, and it’s universally believed it never will. Investors who hold T-bills can rest assured that they will not lose their investment.

T-Bills are considered a zero-risk investment thanks also to Treasury market liquidity. According to the Securities Industry and Financial Markets Association (SIFMA), there is more than $11.2 trillion in U.S. government debt outstanding, with an average daily trading volume of over $633 billion.

With a market of this size and trading volume, investors who want to sell will always be able to find a buyer.

T-Bill Still Have Risks

Investing in T-bills isn’t free of risk. Here are a few risk factors to consider.

  • Opportunity Cost. T-bills are considered risk-free because you can be certain you’ll get your money back. But risk and return are directly proportional, and T-bills offer very low returns on investment. Consequently, if you invest in T-bills, there’s a risk you’re foregoing the opportunity to earn a higher return elsewhere.
  • Inflation. This is the rate at which the price of goods and services in the economy rises and is perhaps the greatest risk to T-bill investors. Rising inflation erodes the value of interest payments. Inflation can exceed the investment return and eat into the principal’s value. T-bills become less attractive to investors in highly inflationary environments.
  • Interest rates. T-bills become less attractive to investors when interest rates rise since they can receive higher interest income elsewhere.
  • Market risk. When the economy expands, equity performance benefits and stocks appear less risky. With low returns, T-Bills become less attractive and demand wanes, pushing bond prices down. Conversely, in a more challenging economic environment, T-Bills become more attractive as investors seek a haven.

How to Buy T-Bills

Investors have options when it comes to buying Treasurys. One way to buy T-Bills is to go straight to Uncle Sam and open a TreasuryDirect.gov account. This online platform is the federal government’s main portal through which it can sell bonds. To open an account, you only need a U.S. address, a social security number, and a bank account.

Buy T-Bills at TreasuryDirect

By using TreasuryDirect, investors save money on fees and commissions. It only takes $100 to start investing, and the buyer has two choices.

T-bills are sold via auction, so investors need to place a bid. A competitive bidder specifies the desired rate or yield, while a noncompetitive bidder accepts the going rate established in the auction.

When the auction closes, noncompetitive bidders have their orders filled first. Once all noncompetitive bidders have been satisfied, the competitive bidders are issued securities starting with the lowest bids and moving up.

The U.S. Treasury publishes auction schedules, which list announcement dates, auction dates and settlement dates. Buyers must place their order between the afternoon and the night before the auction date. T-bills with maturities of less than 52 weeks are auctioned weekly, while 52-week issues are auctioned monthly.

A TreasuryDirect account functions just like a brokerage account. When your bid is accepted, your bank account is debited in the amount of the selling price and the T-Bills arrive in your TreasuryDirect account. When the T-bill matures, the par value is automatically credited to your bank account.

Buy T-Bills in a Brokerage Account

For clients of large firms like Fidelity, Vanguard, and Charles Schwab, placing an order through your broker may be easier than opening a separate TreasuryDirect account. These firms charge no fees for T-bills.

Investors who wish to purchase T-bills for individual retirement accounts must go through their broker, as it is not possible to fund an IRA via TreasuryDirect.

Investors can also buy T-bills in the secondary market, although purchasing new issues is generally a wiser option. If you buy bonds in the secondary market, you’ll have to pay the bid/ask spread, an unnecessary cost since auctions are held frequently.

How to Build a Bond Ladder

Bond laddering with Treasury securities can be an interesting strategy for investors who want to manage interest rate risk and create a reliable income stream.

Building a bond ladder involves purchasing bonds of varying maturities and holding them until they mature, with the interest payment offering a predictable income stream during the holding period. At maturity, the bond’s face value is reinvested.

You can build a bond ladder for any period of time, and the staggered reinvestment means that you’ll have flexibility in how you respond to varying interest rate environments.

Since laddering is intended to produce a predictable income stream, it only makes sense to invest in high-quality bonds. While Treasurys may not pay high interest, their rock-solid security ensures predictability.

The Takeaway

While no one gets rich from investing in T-Bills, they’re free from default risk and highly liquid. They can play an important role in a diversified investment portfolio, but it’s important to ensure they fit into your overall investment strategy. It’s always wise to work with a financial advisor to choose the investments most suitable for achieving your long-term financial goals.

Looking For A Financial Advisor?

Get In Touch With A Pre-screened Financial Advisor In 3 Minutes

Looking For A Financial Advisor?

Get In Touch With A Pre-screened Financial Advisor In 3 Minutes

Find A Financial Advisor

Via Datalign Advisory

How To Invest In Treasury Bills (2024)

FAQs

What is the best way to invest in Treasury bills? ›

One of the most common ways to purchase Treasury bills is through a bank. Banks usually offer an array of T-bill products with varying maturities and yields, allowing you to choose the one that best suits your investment needs.

How to buy Treasury bills for dummies? ›

For newly issued T-bills, the minimum purchase is $100 and the securities are sold in increments of $100. New issues are sold at auction, and to participate, you must sign up with your broker or at TreasuryDirect.gov. Auctions happen every four weeks for 52-week T-bills and weekly for shorter-term T-bills.

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.

Why people don t invest in treasury bill? ›

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.

What is the disadvantage of investing in Treasury bills? ›

Since T-bills have fixed interest rates, inflation can erode the purchasing power of the returns earned from these investments. This means that investors may need help to keep up with inflation, resulting in a decline in real returns. T-bills are issued with maturities of only a few weeks to a few months.

What happens when 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 banks charge to buy T-bills? ›

When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment.

How much do 1 year Treasury bills pay? ›

Basic Info. 1 Year Treasury Rate is at 5.16%, compared to 5.18% the previous market day and 4.81% last year. This is higher than the long term average of 2.94%. 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.

How much do I need to invest in Treasury bills? ›

It only takes $100 to start investing, and the buyer has two choices. T-bills are sold via auction, so investors need to place a bid. A competitive bidder specifies the desired rate or yield, while a noncompetitive bidder accepts the going rate established in the auction.

Do you pay taxes on Treasury bills? ›

Key Takeaways

Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.

How do I buy 6 month Treasury bills? ›

In TreasuryDirect:
  1. Go to your TreasuryDirect account.
  2. Choose Current Holdings.
  3. Choose Pending Purchases and Reinvestments.
  4. See the auction results and the price you must pay for your bid. ...
  5. Make sure enough money is in your bank account to pay for the security before the issue date for that security.

How much is a 6 month T bill? ›

6 Month Treasury Rate is at 5.38%, compared to 5.39% the previous market day and 5.09% last year. This is higher than the long term average of 2.83%. The 6 Month Treasury Bill Rate is the yield received for investing in a US government issued treasury security that has a maturity of 6 months.

Can you lose principal on Treasury bills? ›

Risk-Free. Treasury bonds are considered risk-free assets, meaning there is no risk that the investor will lose their principal.

Which is better Treasury bills or CDs? ›

If you live in a state with income taxes, and rates are similar for CDs and T-bills, then it makes sense to go with a T-bill. The amount you save on taxes will likely result in a higher payout from a T-bill than a CD. Another benefit of T-bills is their liquidity. You can buy and sell them on a secondary market.

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.

Is it a good idea to buy Treasury bills? ›

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.

Does Warren Buffett buy Treasury bills? ›

Buffett takes an entirely different approach. Berkshire held more than $360 billion of stocks, $167 billion of cash (mostly Treasury bills), and just $24 billion of bonds at the end of 2023. Nearly all those investments were held at its insurance unit.

Is it better to buy Treasury bills at auction or on secondary market? ›

There are several ways to buy Treasuries. For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs).

Top Articles
Latest Posts
Article information

Author: Allyn Kozey

Last Updated:

Views: 5775

Rating: 4.2 / 5 (43 voted)

Reviews: 82% of readers found this page helpful

Author information

Name: Allyn Kozey

Birthday: 1993-12-21

Address: Suite 454 40343 Larson Union, Port Melia, TX 16164

Phone: +2456904400762

Job: Investor Administrator

Hobby: Sketching, Puzzles, Pet, Mountaineering, Skydiving, Dowsing, Sports

Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.