How to Invest in Treasury Bills

Growing savings and a portfolio can be a tricky endeavor. It requires patience and a diversified collection of assets with various levels of risk and investment terms. Treasury bills are one option investors can look into if they want a safe, short-term investment. Treasury bills are sold by the U.S. Treasury and can help grow savings and wealth if properly allocated to your portfolio. Keep reading to see how to invest in Treasury bills.

What Are Treasury Bills?

A Treasury bill is a short-term security that is backed by the U.S. government. For this reason, they have an almost 0% chance of default, which makes them a safe investment. However, they also produce fairly low returns.

Treasury bills can be purchased for a term between four weeks and one year. Treasury Direct has set auction days, where itl sells Treasury bills for a discount price that is less than face value. When that bill matures, the investor will be paid face value. So if an investor purchases a $5,000 Treasury bill for a 52-week term at a discount price of $4,750, the investor will make $250 in profit.

What’s the Difference Between Treasury Bills vs. Treasury Bonds vs. Treasury Notes?

The U.S. Treasury offers a few different types of securities — bonds, notes and bills. They come from the Treasury and therefore have a low default risk since they are backed by the U.S. government. The main difference between these investments are their investment term and how they pay interest.

Treasury bonds are long-term investments that pay interest every six months. Typically, Treasury bonds have a term of 20-30 years. Like notes and bills, bonds are sold at auctions where their price and yield are decided. But since they have a longer-term investment, they offer the highest returns. Investors can either hold the bond until its maturity or sell it on the secondary market.

A Treasury note has an investment term between a bill and a bond, typically ranging between 2-10 years. Notes act very similar to bonds — they pay interest every six months and can be held to maturity or sold on the secondary market. Since they have a shorter investment term, their interest may not be as high as a bond’s, but their price and yield are determined at auction.

Treasury bills are one of the U.S. Treasury’s shortest-term investments, with no interest payment. Investors must hold them until maturity to receive their payout. Their return on investment will be lower than a note or bill, given their short investment term. 

2 Ways to Invest in Treasury Bills

Treasury bills are a safe, short-term investment that can be used to grow your portfolio. Here’s how to invest in Treasury bills.

1. Invest Treasury Bills at TreasuryDirect

Individuals can purchase bills, notes and bonds online at TreasuryDirect with these step-by-step instructions.

1. Make a TreasuryDirect account. Individuals will need to make individual accounts.
2. Submit a bid. To submit your non-competitive bid, log into your TreasuryDirect account and select the tab “Buy Direct.” Then select the security you want and the amount you want to purchase. The minimum investment is $100 and increases in increments of $100.
3. Provide payment. After the auction has ended at 5 p.m. EST., you can go to “Current Holdings” and then “Pending Purchases and Reinvestments.” From there you can see more about the price and accrued interest. Either provide payment through a bank account or use a reinvestment to purchase your securities. 

2. Invest Treasury Bills in a Brokerage Account

Instead of opening a TreasuryDirect account, investors can buy Treasury bills through brokerage accounts with many major investment firms. Typically, brokerage accounts will give you an option in the “Trades” tab to select bonds. Then you’ll be able to select what type of U.S. Treasury security you want to buy. For a Treasury bill, select the short-term investments with terms of up to a year.

Advantages of Investing in Treasury Bills

Given its short investment period, you may be wondering if bills are a worthwhile investment. Here are a few reasons they can be a good addition to your portfolio.

Safety

Treasury bills are backed by the U.S. government, meaning they have no risk of defaulting. Their returns may not be extremely high, but they are guaranteed. You’ll know upon purchase how much you're getting in returns, and you can feel confident that your full principal will be returned. 

Liquidity

Treasury bills are a very short-term investment, meaning they are very liquid. Depending on the bill, you could get returns in as soon as four weeks. You won’t go too long with that money being tied up in investment. Having liquid investments in your portfolio may be important in case of a financial emergency.

Competitive Returns

Some investors may choose to put their savings in savings accounts or CDs, but a Treasury bill can be a better way to grow your wealth. Treasury bills have a higher rate of return than CDs and savings accounts. By investing in bills, it could be easier to grow your savings. 

Tax Advantages

The returns you make on Treasury bills will be subject to federal tax, but not state or local tax. This can save investors a little bit of money come tax time since they’ll only need to pay federal tax on their returns. 

Limitations and Risks of Investing in Treasury Bills

Treasury bills may not be the best investment for every investor and portfolio. Here are some of the risks and disadvantages that investors should keep in mind. 

Inflation Risk

During times of high inflation, Treasury bills typically don’t keep pace. This means their price and returns don’t adjust for the level of inflation, making them an unattractive security for investors trying to offset inflation in their portfolio. Before investing, ensure it’s worthwhile given the current prices and economic landscape.

Higher Minimum Investment

The least expensive Treasury bill is $100, which could be too high of a minimum investment for some investors. And since they only increase in increments of $100, it can be difficult for some investors to find a bill with a price that works for them. Investors should only purchase these bills if they are certain they have the capital to put away for the bill’s term. 

Lack of Long-Term Growth Potential

With Treasury bills, what you see is what you get. Because of their short, fixed investment term, there is no chance for long-term appreciation. Investors will see the price and their returns upon purchase but there is no opportunity for it to grow past that amount.

Grow Your Savings with a Risk-Free Investment

Treasury bills may not offer soaring returns to investors, but they can provide steady profit that can be used to grow your portfolio, savings and overall wealth. While they shouldn’t be your only investment, they can help balance out risk and liquidity within a larger investment portfolio. If you’re curious about how Treasury bills fit into your overall investment plan, meet with a financial adviser for professional advice. 

Frequently Asked Questions