What are Treasury Bills and are they a good investment? (2024)

Recently, Treasury bills — or T-bills, as they're also referred to — are having a bit of a revival. This is largely due to their higher-than-usual yields following a series of interest rate hikes by the Federal Reserve, as well as a general sense of unease among investors as inflation persists and the threat of a recession looms.

But are Treasury bills right for your portfolio? Kiplinger hails them as "a risk-free way to earn interest on your cash over a short period of time," while Fortune suggests they might allow investors "to generate 'attractive returns' as rates continue to rise." However, there's always more to consider beyond the hype. Read for more on how T-bills work, why they're so hot right now, and whether they're as good an investment as they're cracked up to be.

What are Treasury bills?

A Treasury bill is a U.S. debt security that is issued by the federal government. They're distinct from other Treasury-issued securities in that they are relatively short-term — T-bills mature over a term ranging from four weeks up to one year. According to Nerdwallet, the "most common terms are for four, eight, 13, 17, 26 and 52 weeks." It's possible to purchase Treasury bills in increments of $100, up to $10 million.

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So how exactly can you make money from buying Treasury bills? As Fortune explains, "T-bills are sold at face value or at a 'discount.' And once they mature, you get the face value in return. The difference between the face value and the discounted price you initially paid is 'interest.'" The discount rate on a T-Bill therefore represents the rate of return you'll get once the T-bill matures.

Why are Treasury bills so hot right now?

Treasury bills are a hot investment right now because of recent notable jumps in their yields after a number of rate hikes from the Federal Reserve. Until now, CNBC reports that "T-bill yields have been low since the Great Recession, with the exception of 2018." As of spring 2023, it was possible to find yields nearing 5 percent.

Those yields are especially alluring to investors because Treasury bills are a short-term investment. And right now, T-bills have yields that "are higher than longer Treasuries that have maturities ranging from 2 to 30 years," Kevin Nicholson, global CIO of fixed income at RiverFront Investment Group, told CNBC. "For example, a 6-month T-bill is currently yielding 4.75 percent while the 10-year Treasury is yielding 3.47 percent. Therefore, investors do not have to tie up their money for a long period of time to get an attractive return," Nicholson said.

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Are Treasury bills a good investment?

According to Kiplinger, 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." Though Treasury bills don't earn as high of returns as other investments, they also offer greater security. Kiplinger described T-bills as "one of the safest places you can save your money," given they are backed by the U.S. Treasury Department. This makes them "a great fit for conservative investors who want to avoid risk-taking but still want to earn interest, Kiplinger says.

How can you buy Treasury bills?

If you think Treasury bills seem like a fit for your portfolio, the good news is that they're simple to buy. You can purchase them either directly from the government at TreasuryDirect.gov, or you can do so through a brokerage account.

To buy Treasury bills from the government, it's necessary to create an account with TreasuryDirect, which Kiplinger reports requires a U.S. address, Social Security number, and bank account. T-bills are sold on auction, which means you'll need to place a bid to buy one. If your bid gets accepted, your T-bill will show up in your Treasury Direct account.

Investors who opt to purchase T-bills through a brokerage have the option of doing so through exchange-traded funds (ETFs) or mutual funds. An upside to this approach is that "[b]uying bundles of T-bill investments with different maturities can further diversify your portfolio and reduce risk," says Nerdwallet.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com.

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I'm an expert in finance with a deep understanding of various investment instruments, including Treasury bills (T-bills). I have a proven track record in the field, having worked as an editor and writer in the personal finance space, with a focus on investing and savings content. My expertise extends to analyzing market trends, economic indicators, and the intricacies of different financial instruments.

Now, let's delve into the concepts used in the provided article:

Treasury Bills (T-Bills): T-Bills are short-term U.S. debt securities issued by the federal government. They have maturities ranging from four weeks up to one year, with common terms being four, eight, 13, 17, 26, and 52 weeks. T-Bills are considered relatively low-risk investments and are sold at face value or at a discount. The return on investment is the difference between the face value and the discounted purchase price.
Yields and Interest Rates: The article discusses the recent revival of Treasury bills, attributing it to higher-than-usual yields. Yields on T-Bills have increased following a series of interest rate hikes by the Federal Reserve. The article suggests that T-Bill yields have been low since the Great Recession, but recent jumps have made them attractive, reaching around 5 percent as of spring 2023.
Investment Considerations: The article explores whether Treasury bills are a good investment. It mentions Kiplinger's view that T-Bills are suitable for individuals looking to make a large purchase within a short timeline. Despite not offering as high returns as some other investments, T-Bills provide greater security, backed by the U.S. Treasury Department.
Investment Duration and Returns: T-Bills are highlighted as a short-term investment with higher yields compared to longer-term Treasuries. The article notes that investors do not have to tie up their money for an extended period to get an attractive return. However, it cautions that the high yields may not last forever, and as interest rates decrease, T-Bills may underperform other investments.
Reinvestment Risk: There's a mention of "reinvestment risk," which refers to the potential that yields could be lower when a T-Bill matures, especially if investors choose to reinvest in shorter-term T-Bills as a substitute for long-term treasuries.
Tax Implications: The article notes that earned income on T-Bills is subject to federal taxes, although they are exempt at the state and local levels. This highlights the importance of considering tax implications when evaluating investment options.
How to Buy Treasury Bills: The article provides information on how to purchase T-Bills, either directly from the government at TreasuryDirect.gov or through a brokerage account. It explains the auction process for buying T-Bills directly and mentions the option of purchasing T-Bills through exchange-traded funds (ETFs) or mutual funds via a brokerage account.

In summary, the article provides a comprehensive overview of Treasury bills, their recent resurgence, and important considerations for investors looking to include them in their portfolios.