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
Treasury bills (T-bills) are short-term securities with maturities ranging from four weeks to 52 weeks. By buying directly from the U.S. Treasury, you can avoid paying any extra fees or commissions to your bank. The U.S. Treasury has a $100 minimum to purchase a T-Bill, which is a lower minimum than many banks.
Is it better to buy T-bills direct or through a broker? ›
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).
What is the best way to buy Treasury bills? ›
One of the most common ways to purchase Treasury bills is through a bank. Banks usually offer an array of T-bill products with varying maturities and yields, allowing you to choose the one that best suits your investment needs.
What is the downside to buying T-bills? ›
Pros and Cons of T-Bills
However, should interest rates rise, the existing T-bills fall out of favor since their return is less than the market. For this reason, T-bills have interest rate risk, which means there is a danger that bondholders might lose out should there be higher rates in the future.
What are the advantages of the T-Bill? ›
T-Bills, especially those with shorter maturities, are easily marketable. Tax Advantages: While federal taxes apply, T-Bills are exempt from state and local taxes, a significant plus for high-tax states.
Do brokers charge a fee to buy T-bills? ›
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.
What are the pros and cons of TreasuryDirect? ›
The platform offers numerous benefits, including safety and security, no commissions or fees, and easy access. However, there are also drawbacks to consider, such as limited investment options, low return on investment, and the absence of a secondary market for securities.
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 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. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.
What is a better investment than Treasury bills? ›
Treasury bonds—also called T-bonds—are long-term debt obligations that mature in terms of 20 or 30 years. They're essentially the opposite of T-bills as they're the longest-term and typically the highest-yielding among T-bills, T-bonds, and Treasury notes.
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.
What happens when a Treasury 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.
Should I put all my money in treasury bills? ›
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 you can pick a short maturity term is another plus if you prefer to have some flexibility with your investments.
When to buy T-bills? ›
4-week and 8-week bills are offered each week. Except for holidays or special circ*mstances, the offering is announced on Tuesday, the bills are auctioned on Thursday, and they are issued on the following Tuesday.
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 do T-bills work for dummies? ›
T-bills are issued with 3-, 6- or 12-month maturities. When you purchase a T-bill, you pay less than the face (or par) value. When the T-bill matures, you receive par value of the T-bill. T-bills aren't like coupon bonds, which pay interest in increments.
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.
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).
Is buying from TreasuryDirect safe? ›
TreasuryDirect.gov is the one and only place to buy and redeem U.S. savings bonds and other securities directly from the U.S. Treasury! Your investments are backed by the full faith and credit of the United States government.
Can you use a brokerage account for TreasuryDirect? ›
You can hold the securities you buy in either: a TreasuryDirect account. the Commercial Book-Entry System (with a bank, broker, or dealer)
