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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Related Content
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
FAQs
They are considered safe investments because they are backed by the full faith and credit of the U.S. government. T-bills are sold at a discount from their face value and mature at face value. The difference between the purchase price and the maturity value is the interest earned by the investor.
Can you lose money investing in T-bills? ›
The No. 1 advantage that T-bills offer relative to other investments is the fact that there's virtually zero risk that you'll lose your initial investment. The government backs these securities so there's much less need to worry that you could lose money in the deal compared to other investments.
Why are Treasuries considered safe? ›
That's because Treasury bonds are issued with the full faith and credit of the federal government. Since the U.S. government must find a way to repay the debt (and always has so far), the odds of Treasury bonds defaulting are extremely low.
What is a better investment than Treasury bills? ›
Treasury bonds—also called T-bonds—are long-term debt obligations that mature in terms of 20 or 30 years. They're essentially the opposite of T-bills as they're the longest-term and typically the highest-yielding among T-bills, T-bonds, and Treasury notes.
What is safer FDIC or Treasuries? ›
Both CDs and Treasuries are considered extremely safe investments. 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.
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.
What is the downside to buying T-bills? ›
The Potential Downside
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.
Are US Treasuries 100% safe? ›
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.
Are US Treasuries really risk-free? ›
Treasury bonds are widely considered a risk-free investment because the U.S. government has never defaulted on its debt. However, investors should understand that even U.S. government bonds have interest rate risk.
Why would anyone 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.
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 T-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.
How stable are Treasury bills? ›
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.
Is there default risk with Treasury bills? ›
Suppose you buy a Treasury bill with a $1,000 face value for $950. At maturity, you will be paid $1,000. The $50 difference between the $950 purchase price and the $1,000 face value is considered the interest. Like Treasury bonds and notes, T-bills have no default risk since they're backed by the U.S. government.
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.
Is a Treasury bill risk-free? ›
T-bills are considered nearly free of default risk because they are fully backed by the U.S. government.
