What Are Treasury Bills (T-Bills), and Should You Invest? - SmartAsset (2024)

When you’re looking for a safe way to invest your money, things don’t typically get anymore solidthan government-backed securities. The U.S. Department of the Treasury offers several different low-risk options, including notes, bonds and bills. Treasury bills, or T-bills, can be appealing because you’re not required to tie up your money for a long period. However, they’re not necessarily right for every kind of investor. You may want to consult with afinancial advisor,who can advise you about T-bills, stocks and other types of investments.

How Treasury Bills Work

Treasury bills are short-term securities, which means they come with shorter maturity dates than bonds and notes.Certain types of T-bills have a maturity period of just a few days, but they’re typically issued in terms of four, eight, 13, 26 or 52 weeks.

T-bills are assigned a specific face value, such as $1,000, $5,000 or $10,000, but you can usually purchase them for less than that. The amount you pay is called the discount rate. Once the securities mature, the government hands over the full amount of the bill.

Here’s an example of how the process works. Let’s say you purchase a $10,000 T-bill with a discount rate of 3% that matures after 52 weeks. That means you pay $9,700 for the T-bill upfront. Once the year is up, you get back your initial investment plus another $300.

If you’re interested in investing in T-bills, make sure you aren’t looking at treasury bonds or treasury notes. While T-bills mature at four, 8, 13, 26 or 52 weeks, T-bonds and T-notes have longer maturity times. Notes mature between two and 10 years while bonds mature at 30 years.

T-Bill Tax Considerations

The interest income that you may receive from investing in a treasury bill is exempt from any state or local income taxes, regardless of the state where you file your taxes. However, you will need to report interest income from these investments on your federal tax return. This makes treasury bills partially but not fully tax-exempt.

Every year the investor will receive a Form 1099-INT from the Department of the Treasury, detailing how much interest was earned from all government securities that you’ve invested in throughout the year. You will be taxed at your own marginal rate on your tax return.

Treasury Bonds vs. Treasury Notes vs. Treasury Bills

Treasury bills are not the same thing as treasury bonds or treasury notes, even though they are all government-issued securities. As we covered earlier, both of those investments have longer maturity rates while T-bills mature in less than a year. Other than maturity dates, though, let’s take a closer look at what each type of treasury investment looks like.

  • Treasury Bonds:T-bonds are often referred to as long bonds due to their maturity date of 20 to 30 years. These have the longest maturity date of any government-issued security and because of that they typically carry the highest interest that you can earn. If you purchase a T-bond, you’ll receive a fixed interest payment every six months.
  • Treasury Notes:T-notes are similar to T-bonds but have a maturity of two to 10 years. This security generally comes with a bi-annual interest payment but offers lower yields than a T-bond. The 10-year T-note is a sought-after investment because it is often used as a safe haven to reduce risk in an investment portfolio. Because of its popularity, that same note is looked at as a benchmark to help set mortgage rates.
  • Treasury Bills:T-bills are issued with maturity dates offour, eight, 13, 26, or 52 weeks. Unlike the other two investments, T-bills do not pay interest payments to the investor since the maturity dates are so short. Also unlike the other two facilities that are auctioned off at $100 increments, treasury bills are auctioned off at a discount to their face value.

All three treasury investments have very low default risk because they’re backed by the federal government.

Benefits of Investing in Treasury Bills

What Are Treasury Bills (T-Bills), and Should You Invest? - SmartAsset (2)

The No. 1 advantage that T-bills offer relativeto other investments is the fact that there’s virtually zero risk that you’ll lose your initial investment. The government backs these securities so there’s much less need to worry that you couldlose money in the deal compared to other investments.

Another benefit is that T-bills can be purchased in smaller amounts than many other investments. This means they’re more accessible to someone who doesn’t have a lot of cash to invest. If you only have $1,000 to invest, you can use it to purchase a T-bill and earn a better return on your money than you would if you put it in a regular savings account.

The fact that youcan pick a short maturity termis another plus if you prefer to have some flexibility with your investments. A longer maturity term couldyield a bigger return, but you can still earn some interestif you opt for a shorter term and you can get your money back to reinvest fairly quickly.

Drawbacks of Investing in Treasury Bills

The biggest downside of investing in T-bills is that you’re going to get a lower rate of return compared to other investments, such as certificates of deposit,money market funds, corporate bonds or stocks. If you’re looking to make some serious gains in your portfolio, T-bills aren’t going to cut it.

Another potential issue for investors has to do with how T-bills are purchased. You have to bid on them through an auction process. Bidding can be competitive or non-competitive. With the former, you have to choose your discount rate and you might not be able to purchase the bills you want.

Bottom Line

What Are Treasury Bills (T-Bills), and Should You Invest? - SmartAsset (3)

Treasury bills won’t necessarily make you rich. However, they can be a good way to add some conservative investments to your portfolio to counteract other riskier ones. The time period you’re looking to invest into a government-backed investment could be the deciding factor in investing in T-bills over T-bonds or T-notes. The decision to invest should be determined by the investment strategy of your entire portfolio.

Tips for Investing Your Money

  • Investing in government-backed securities can be a strong conservative investment for your portfolio, but you may want to speak to a financial advisor to be sure which one is right for you.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • T-bills probably shouldn’t be the only thing you invest in. You’ll likely want to diversify your portfolio with things like stocks, bonds and exchange-traded funds (ETFs). To get a sense of how your investments should be divided up, use SmartAsset’s asset allocation calculator.

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What Are Treasury Bills (T-Bills), and Should You Invest? - SmartAsset (2024)

FAQs

What Are Treasury Bills (T-Bills), and Should You Invest? - SmartAsset? ›

Treasury bills, also known as T-bills, are unique among Treasury securities in that they don't make interest payments until maturity. They are instead sold at a discount to their face value. Investors then receive the full value at maturity.

Are Treasury bills a good investment now? ›

They are considered safe investments because they are backed by the full faith and credit of the U.S. government. T-bills are sold at a discount from their face value and mature at face value. The difference between the purchase price and the maturity value is the interest earned by the investor.

What is the disadvantage of a treasury bill? ›

Drawbacks of Investing in Treasury Bills

If you're looking to make some serious gains in your portfolio, T-bills aren't going to cut it. Another potential issue for investors has to do with how T-bills are purchased. You have to bid on them through an auction process. Bidding can be competitive or non-competitive.

What is a better investment than Treasury bills? ›

Key Takeaways

Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity. T-notes mature between two and 10 years, with bi-annual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.

Should I ladder Treasury bills? ›

With a ladder, you are always able to reinvest maturing principal at current yields. Capitalize on Rising Rates - In a rising rate environment, a ladder allows you to consistently roll into higher yielding T-bills. Your overall portfolio yield will increase with each new investment.

Are T-bills better than CDs? ›

If you're saving for a goal less than a year away: If you're saving money for a goal with a short-time horizon, T-bills can make more sense than CDs. They provide a higher APY than savings accounts, and they're more liquid than CDs.

Why would anyone buy Treasury bills? ›

While interest rates and inflation can affect Treasury bill rates, they're generally considered a lower-risk (but lower-reward) investment than other debt securities. 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.

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.

Do you pay taxes on Treasury bills? ›

Key Takeaways

Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT.

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.

Can Treasury bills lose value? ›

Treasury bonds, Treasury notes, or Treasury bills sold before their maturity date could mean a loss, depending on bond prices at the time of the sale. Simply put, the face value is only guaranteed if the Treasury is held until maturity.

What is the current 1 year T-bill rate? ›

1 Year Treasury Rate (I:1YTCMR)

1 Year Treasury Rate is at 5.07%, compared to 5.07% the previous market day and 5.21% last year. This is higher than the long term average of 2.96%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.

Are T-bills FDIC insured? ›

The FDIC does not insure safe deposit boxes or their contents. The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.

Are Treasury bills good during a recession? ›

During a recession, investing in cash and cash equivalents becomes a strategic choice for investors who are hoping to preserve their capital and maintain liquidity. Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit.

What happens when a Treasury bill is reinvested? ›

Bills can be scheduled for reinvestment for up to two years; other eligible Treasury marketable securities can be scheduled to reinvest one time. When your bill matures, the proceeds will be reinvested or used to purchase the next available security of the same type and term as the original purchase.

Are Treasury bills 100% safe? ›

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 government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.

What is the forecast for the Treasury bill? ›

Basic Info. Median Forecasts for 3-Month Treasury Bill Rate is at 4.16%, compared to 4.50% last quarter and 5.26% last year. This is higher than the long term average of 3.83%.

How much will I make on a 4 week treasury bill? ›

4 Week Treasury Bill Rate is at 5.28%, compared to 5.28% the previous market day and 4.32% last year. This is higher than the long term average of 1.41%. The 4 Week Treasury Bill Rate is the yield received for investing in a US government issued treasury bill that has a maturity of 4 weeks.

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