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.
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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 someone deeply entrenched in the world of finance and investments, I understand the nuances of various investment vehicles, and I can attest to the credibility of the information provided in the article. My expertise in financial markets, investment strategies, and economic trends allows me to shed light on the intricacies of short-term investments, particularly Treasury bills (T-bills).
Now, let's delve into the concepts highlighted in the article:
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Savings Rates and Short-Term Investments: The article mentions that savings rates have been on the rise. This is a clear indication of the changing economic landscape, where investors are actively seeking avenues to preserve and grow their wealth amid evolving market conditions.
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High-Yield Savings Accounts and CDs: High-yield savings accounts and Certificates of Deposit (CDs) are popular choices for short-term savings. These options are characterized by their relatively low risk and offer higher interest rates compared to traditional savings accounts.
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Introduction to Treasury Bills (T-Bills): Treasury bills are short-term debt obligations issued by the U.S. Treasury Department. They have maturity dates of less than a year, making them suitable for individuals looking for short-term investment opportunities.
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Yield Discrepancy Between Short-Term and Long-Term Treasuries: The article highlights the current yield disparity between short-term and long-term Treasuries. It explains that, contrary to the general trend where longer-term Treasuries offer higher yields, short-term Treasury yields are currently higher. This information underscores the unique economic conditions that influence yield curves.
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Risk-Free Nature of T-Bills: T-Bills are deemed as one of the safest investment options. This safety is attributed to the fact that they are backed by the full faith and credit of the U.S. government. This characteristic makes them an attractive choice for conservative investors seeking low-risk alternatives.
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Ideal Investment Scenario for T-Bills: T-Bills are presented as suitable investments for individuals with the intention of making a large purchase within a short time frame. The article suggests that T-Bills are beneficial for those who want their funds to be tied up for a maximum of one year.
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How to Purchase T-Bills: The article outlines two methods for purchasing T-Bills—directly from the government through TreasuryDirect.gov or through a broker. The minimum purchase requirement is $100. It provides details on starting an account with TreasuryDirect and explains the auction process for those using this platform.
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T-Bill Purchase through Brokerage Accounts: The flexibility of purchasing T-Bills through brokerage accounts is highlighted. The article mentions that T-Bills can also be acquired through Exchange-Traded Funds (ETFs) and mutual funds. Additionally, it notes the necessity of using a broker for T-Bill purchases within an Individual Retirement Account (IRA).
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T-Bill Mechanics: The mechanics of a T-Bill are explained. They are auctioned at a discount and redeemed at maturity for the full face value. The interest earned on T-Bills is the difference between the purchase price and the maturity value. Common maturity periods for T-Bills are four, eight, 13, 26, and 52 weeks.
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Other Treasury Securities: The article briefly mentions other Treasury securities—Treasury bonds (T-bonds) and Treasury notes. T-bonds have the longest maturity periods, ranging from 20 to 30 years, and pay fixed interest every six months. Treasury notes have shorter maturity periods, ranging from two to 10 years.
In summary, Treasury bills are positioned as a compelling short-term investment option for risk-averse individuals, providing safety, liquidity, and a competitive yield in the current economic landscape.
