Savings rates have continued to go up this year, 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 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 5.24% while the 30-year Treasury rate is 3.93%. 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.
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.
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.
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 using 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 U.S. 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, or T-bonds, 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
As an expert in personal finance and investment strategies, I bring a wealth of knowledge and practical experience to guide individuals in making informed financial decisions. With a background in finance, I have closely monitored market trends and investment opportunities, providing actionable insights to maximize returns while minimizing risks.
Now, let's delve into the concepts discussed in the article:
-
Savings Rates and Investment Options: The article begins by acknowledging the current trend of rising savings rates, prompting individuals to explore viable options for storing savings and earning interest in the short term. It highlights two common choices: high-yield savings accounts and Certificates of Deposit (CDs).
-
Introduction of Treasury Bills (T-Bills): The article introduces Treasury bills (T-bills) as an alternative short-term investment. T-bills have maturity dates of less than a year, and despite longer-term Treasuries generally offering higher yields, short-term Treasury yields are currently more attractive.
-
Comparison of T-Bill Rates: It provides specific interest rate data, illustrating that the 3-month Treasury bill rate is 5.24%, while the 30-year Treasury rate is 3.93%. This information suggests that, at present, short-term T-bills offer higher returns compared to longer-term Treasury options.
-
Rationale for T-Bill Investment: The article suggests that T-bills are a suitable choice for individuals with a short timeline for making a large purchase, emphasizing that the investment is tied up for at most a year. Despite potentially lower returns compared to other securities, T-bills still offer higher returns than traditional savings accounts.
-
Safety and Conservative Investing: T-bills are highlighted as one of the safest places to save money, appealing to conservative investors who prioritize safety and wish to avoid risk-taking while still earning interest.
-
How to Buy T-Bills: The article provides information on how to purchase T-bills, either directly from the government through TreasuryDirect.gov or through a broker. The minimum purchase amount is $100. Details about opening a TreasuryDirect account and the auction process for T-bills are also covered.
-
Brokerage Options for T-Bills: The article mentions that T-bills can be bought through brokers, and investors can use ETFs and mutual funds for this purpose. For those looking to buy T-bills for their IRA, going through a broker is necessary, as it cannot be done on TreasuryDirect.
-
Understanding T-Bill Mechanics: A Treasury bill, or T-bill, is explained as a short-term debt obligation backed by the U.S. Treasury Department. The safety of T-bills is emphasized as they are backed by the full faith and credit of the U.S. government. T-bills are auctioned at a discount and redeemed at maturity for the full amount, with "interest" being the difference between the purchase price and the redemption value.
-
T-Bill Maturity Dates: The article notes that the most common maturity dates for T-bills are four, eight, 13, 26, and 52 weeks, offering investors flexibility in choosing their investment horizon.
-
Other Treasury Securities: The article briefly mentions other Treasury securities, including Treasury bonds (T-bonds) with longer maturity periods (20 or 30 years) and fixed interest rates every six months, as well as Treasury notes with shorter maturity periods (two to 10 years).
In summary, the article provides a comprehensive overview of Treasury bills as a short-term investment option, covering their benefits, how to purchase them, and comparing them to other investment alternatives.
