You don't need a bank to invest in T-bills.
Treasury bills, or T-bills, are a popular investment option for both individuals and corporations. They are low-risk, highly liquid investments that can offer investors a steady stream of income. Banks often also sell T-bills to their customers, but there are several advantages to buying them directly from the U.S. Treasury yourself. Let's learn more about T-bills and how they work.
What are Treasury bills?
The U.S. Government offers investors five types of Treasury securities: Treasury Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs). These are considered to be very safe investments since they are backed by the full faith and credit of the U.S. government, making them a popular choice among investors who want to maximize their return while minimizing risk. Let's look at the details of each.
- Treasury bills are short-term securities with maturities ranging from four weeks to 52 weeks. They are issued at a discount and redeemed for the face value at maturity. In other words, when you buy a T-bill, you pay less than its face value. When it matures, you receive the full face amount.
- Treasury bonds (T-bonds) are long-term securities with maturities of 20 or 30 years. They pay interest semiannually, and the principal is repaid at maturity.
- Treasury notes (T-notes) are intermediate term securities that have maturities of two to 10 years. They also pay interest semiannually, and the principal is repaid at maturity.
- Treasury Inflation Protected Securities (TIPS) help protect against inflation, and the principal of a TIPS can go up with inflation or go down with deflation.
- Floating Rate Notes (FRNs) are short-term investments that pay interest every quarter and mature in two years.
Each type of security can be bought and sold in the secondary market from a stock broker, making them highly liquid investments. They also offer investors a variety of different maturities, so it is possible to find one that meets your investment goals and timeline. Here are some of the benefits you get when you buy T-bills directly from the U.S. Treasury.
1. Lower fees and expenses
When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment. Buying directly from the U.S. Treasury eliminates these extra charges so you get more of your money back in interest payments each month or quarter.
2. Get the amount you want
There are two ways to buy T-bills: bidding non-competitively and bidding competitively. When bidding non-competitively through TreasuryDirect.gov, you accept the interest rate determined at auction and are guaranteed to get the security you want in the amount you want. To bid competitively, you must work through a bank, brokerage firm, or dealer. When you bid competitively, you choose the interest rate that you want. However, based on the results of the auction, you may not get the T-bill. If you do get it, it may be less than the amount you want. For example, if the rate set at auction is 1.5% but you bid 1.75%, your bid will be rejected.
3. Lower minimums
Some banks may have a higher minimum amount to purchase T-bills. For example, Fidelity, like many other banks and brokerage firms, has a minimum of $1,000. The minimum purchase for purchasing T-bills yourself is $100.
Investing in treasury bills is an attractive way for investors to earn a steady stream of income without taking on too much risk in their portfolios, but it's important to make sure that you're getting the best deal possible when investing in these government securities. For those looking for maximum returns with minimal effort, buying treasury bills directly from the U.S. Treasury has some advantages over going through a bank or other intermediary.
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FAQs
For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs).
Can I buy Treasury bills through my bank? ›
T-bills sell in increments of $100 up to a maximum of $10 million, and you can buy them directly from the government through its TreasuryDirect website, or through a brokerage, bank or self-directed retirement account, like a Roth IRA.
Why do people buy T-bills? ›
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.
Do banks charge a fee to buy Treasury bills? ›
When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment.
Do brokers charge a fee to buy T-Bills? ›
Buy T-Bills in a Brokerage Account
For clients of large firms like Fidelity, Vanguard, and Charles Schwab, placing an order through your broker may be easier than opening a separate TreasuryDirect account. These firms charge no fees for T-bills.
Is there a downside to T-Bills? ›
T-bills pay a fixed rate of interest, which can provide a stable income. However, if interest rates rise, existing T-bills fall out of favor since their return is less than the market. T-bills have interest rate risk, which means there is a risk that existing bondholders might lose out on higher rates in the future.
Can I buy Treasury bills myself? ›
To buy, you must have a TreasuryDirect account. In TreasuryDirect, you may open an account and buy Treasury marketable securities for yourself (an individual registration). With an individual registration, you may also link your account to an account for a child under the age of 18.
How much does a $1000 T bill cost? ›
To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.
How to buy Treasury bills for dummies? ›
You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov). The most common maturity dates are four weeks, eight weeks, 13 weeks, 26 weeks and 52 weeks.
What is the #1 benefit in purchasing a T-bill? ›
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.
Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.
What happens when a T-bill matures? ›
When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.
Why buy a CD over a Treasury bill? ›
CD and Treasury bill rates offer similar rates for terms of one to six months. CDs are paying higher rates than Treasury bills and Treasury notes for terms of one to five years. Treasuries are exempt from state income taxes, which is an important advantage when rates are nearly the same.
Where is the best place to buy T-bills? ›
Where to buy Treasury bonds, notes or bills. While you can buy Treasurys like T-bonds directly from the source — the U.S. government — one of the most common ways people add them to their portfolio is by investing in Treasury exchange-traded funds or mutual funds through bank, brokerage or retirement accounts.
What does C of I mean in TreasuryDirect? ›
The Zero-Percent Certificate of Indebtedness (Zero-Percent C of I or simply, C of I) is a Treasury security that does not earn any interest. It is intended to be used as a source of funds for purchasing traditional Treasury securities.
Where is the best place to buy T-Bills? ›
Where to buy Treasury bonds, notes or bills. While you can buy Treasurys like T-bonds directly from the source — the U.S. government — one of the most common ways people add them to their portfolio is by investing in Treasury exchange-traded funds or mutual funds through bank, brokerage or retirement accounts.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
What is the brokerage charge for T-Bills? ›
Effective March 1, 2024, Zerodha will waive the 0.06% brokerage fee on these investment options. Indian brokerage firm Zerodha is implementing a bold initiative aimed at fostering greater participation in government bonds (G-Secs), treasury bills (T-Bills), and state development loans (SDLs).
Can I buy T-Bills through my brokerage account? ›
Buying through a bank, broker, or dealer
Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer.
