How to buy Treasury bills (2024)

Key points

• It’s a low minimum investment to buy Treasury bills.
• T-bills are a short-term U.S. government debt obligation.
• Treasury bills have different maturity rates, ranging from just a few days up to 52 weeks.

U.S. Treasury bills, known as T-bills, are a popular way for investors to generate low-risk income without locking up their cash for the long term.

Because T-bills are backed by the U.S. government, you can buy and hold them to maturation without losing sleep at night.

Treasury bills can provide guaranteed interest income and be an excellent addition to your investment portfolio. But before buying any T-bills, you should first understand what they are, how they work and their shortcomings.

What are Treasury bills?

Treasury bills are essentially loans investors make to the U.S. government so the government can fund its debt and pay expenses, such as employee salaries and military equipment. In return for those loans, the government pays T-bill buyers a specified interest rate determined by auction at the time of purchase.

T-bills typically pay relatively low interest rates compared to other types of bonds with similar maturities, such as municipal bonds or corporate bonds. The low interest rates on Treasury bills reflect the U.S. government’s extremely low default risk.

Treasury bills are just one of several types of Treasury securities investors can buy, including Treasury bonds and Treasury notes. They are the shortest duration Treasury securities, with maturity periods ranging from four weeks to 52 weeks.

A T-bill is typically sold at a discount to its par value or the face value of the bill. The par value of the Treasury bill represents the actual value of the bill if it is held to maturity.

Example: You might buy a T-bill with a par value of $1,000 that matures in 52 weeks and pay just $950. When the bill matures, you will receive the full par value of $1,000 for a profit of $50.

The percentage difference between the amount you paid for a T-bill and the face value of the bill is called the discount rate. In the example, the discount rate would be calculated as $50 divided by $1,000, which equates to 5%.

You can also choose to sell their Treasury bills on the secondary market before they mature.

But much like stock prices, the prices of Treasury bonds and bills fluctuate daily on the secondary market.

Treasury bill and bond prices on the secondary market can be impacted by several economic and market factors, such as inflation, interest rates, investor sentiment and changes in monetary policy.

T-bills are only risk-free if they are held to maturity. In fact, if you choose to sell a T-bill before its maturity you may lose money on your investment under certain circ*mstances.

Treasury bills vs. Treasury bonds

Treasury bills are Treasury securities with the shortest maturities. Treasury bonds are the securities with the longest maturities. But there are several other subtle differences between Treasury bills and bonds.

Treasury bills

Investors who buy Treasury bills buy them at a discount to par value and only receive their interest at maturity. If you sell a T-bill before maturity, you may not recover its full face value.

Treasury bills appeal to certain investors because of their short-term duration and high liquidity. Treasury bills have maturity terms of four, eight, 13, 17, 26 and 52 weeks.

Treasury bonds

Treasury bonds are typically the highest-yielding Treasury securities unless the Treasury yield curve is inverted — when yields on Treasurys with shorter maturities are higher than those with longer maturities. A Treasury bond’s interest rate is fixed throughout the entire term of the bond, which can range from 20 to 30 years.

The Treasury initially sells Treasury bonds at par value, but the bonds can trade below par value on the secondary market if interest rates rise or other market conditions change. Typically, bond prices have an inverse relationship with interest rates.

Those who hold Treasury bonds to maturity receive set interest rate payments every six months until the bonds mature, at which point they receive the full par value of the bond.

Investors considering adding Treasury bonds or bills to their portfolios should first consider whether their financial goals are short term, long term, or somewhere in between, says Rubin Miller, a chartered financial analyst, founder, and chief investment officer of Peltoma Capital Partners.

If you’re investing for the long term, you should consider bonds. If your goals are shorter term, then you might consider bills.

“Bills also retain optionality because they’ll mature quicker and the money will need to get again put to work,” he adds.

Treasury bonds give long-term investors the peace of mind of having a set interest rate locked since it can be difficult to forecast the future.

Ways to buy Treasury bills

You can buy Treasury bills directly from the government via TreasuryDirect or indirectly through a broker.

1. Buying T-bills through a broker

The easiest way to buy newly issued Treasury bills is via your broker (if you already have one). Many online brokers, such as Fidelity Investments, Vanguard and Charles Schwab, don’t charge fees for buying T-bills online.

You can also purchase Treasury bills yourself on the secondary market.

But bills that trade on the secondary market are priced using a bid-ask spread, similar to how stocks are priced on an exchange. This spread means T-bills traded on the secondary market can be slightly more expensive than newly issued bills.

2. Buying T-bills through TreasuryDirect

Treasury bills can be bought directly from the government for as little as $100 by participating in one of its regular T-bill auctions.

To do so, you must first set up a TreasuryDirect account and select the BuyDirect tab to choose the specific bill and amount to purchase. The Treasury holds T-bill auctions for 52-week bills every four weeks and auctions for four, eight, 13, 17 and 26-week bills on a weekly basis.

Treasury bill bids placed through TreasuryDirect are noncompetitive bids, meaning the bidder agrees beforehand to accept the rate, yield or discount margin determined at the auction. TreasuryDirect bids are also limited to a maximum of $10 million.

How to sell your Treasury bills

Selling a Treasury bill before it matures requires a brokerage account. You can’t sell Treasury bills from a TreasuryDirect or Legacy TreasuryDirect account. You also can’t transfer a Treasury security from a TreasuryDirect account until 45 days after purchase.

To transfer a Treasury bill from a TreasuryDirect account to your broker, you’ll need the following information:

• Your financial institution’s name and routing number.
• Your agent’s or broker’s phone number.
• The name and number of the account you’re transferring the Treasury bill into.

With this information in hand, you can complete an external transfer from your TreasuryDirect account.

If you hold your Treasury bill in a Legacy TreasuryDirect account, you must complete Form 5179, downloadable from TreasuryDirect.gov, and mail it to the address on the form.

Once the Treasury bill is in your brokerage account, follow your broker’s process for placing a sell order.

Pros and cons of T-bills

T-bills can be a good fit for certain investors, but they aren’t right for all portfolios. Here are some pros and cons of T-bills.

Pros:

• Backed by the full faith and credit of the U.S. government.
• Guaranteed interest income.
• Low default risk.
• Short term, so you don’t have to lock your money up for a long period of time.

Cons:

• Lower interest rates than other types of bonds.
• Prices fluctuate on the secondary market, so you may not get the full value if you sell early.

Are Treasury bills a good investment?

Treasury bills are appealing investments for anyone looking for a safe way to generate interest income or avoid a turbulent stock market.

“Treasury bills are a relatively low-risk investment, so if you are concerned about market volatility, this may be a good time to invest in Treasury bills,” says Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute.

Because T-bills are backed by the full faith and credit of the U.S. government, they can be an excellent place for risk-averse investors to park their cash during periods of economic uncertainty.

Since Treasury bills have shorter maturities than Treasury bonds, there is less market price movement, and your principal is returned sooner.

The New York Fed’s recession probabilities model estimates a 57.7% chance of a U.S. recession in the next 12 months. Still, T-bill investors can lock in a more than 4.7% guaranteed yield for the next year while waiting for the economy to find its footing.

T-bills are also a secure place for high-net-worth investors to park funds that may otherwise exceed Federal Deposit Insurance Corporation insurance limits at their banks. The FDIC insures up to $250,000 in deposits per person per insured bank. Wealthy investors can take any excess cash beyond the FDIC insurance limit and buy Treasury bills, which the government guarantees.

“Smaller investors, on the other hand, may find high-yield savings accounts more suitable,” says R.J. Weiss, a certified financial planner and founder of The Ways to Wealth. “The interest rates on high-yield savings accounts are typically only slightly lower than those offered by T-bills, and they allow for more liquidity, preventing the need to tie up funds in a less accessible investment.”

Frequently asked questions (FAQs)