Drawbacks of Investing in Treasury Bills
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.
CDs offer a fixed interest rate over a specified term, and are typically insured up to $250,000, making them low-risk. Treasury bills are short-term government securities backed by the U.S. government, making them one of the safest investments available.
What is a better investment than Treasury bills? If you're looking for alternatives to T-bills with potentially higher returns, one option is a certificate of deposit (CD). These accounts offer fixed rates that can be competitive with or even higher than T-bills.
Basic Info. 1 Year Treasury Rate is at 4.25%, compared to 4.16% the previous market day and 4.75% last year. This is higher than the long term average of 2.98%. 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.
Interest you earn on T-Bills (as well as all Treasury marketable securities) are exempt from state and local taxes, but are still subject to federal income taxes. This state tax exemption makes T-Bills very appealing to investors in high income tax states such as California and New York.
The only interest paid will be when the bill matures. At that time, you get the full face value. T-bills are zero-coupon bonds usually sold at a discount, and the difference between the purchase price and the par amount is your accrued interest.
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111).
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.
Currently, Treasuries maturing in less than a year yield more than CDs. However, at maturities of one year and beyond, CDs yield a little more before taxes. Therefore, all things considered, it likely makes more sense to choose Treasuries over CDs for shorter-term investments, but it depends on your situation.
Treasury Bills
4-week and 8-week bills are offered each week. Except for holidays or special circumstances, the offering is announced on Tuesday, the bills are auctioned on Thursday, and they are issued on the following Tuesday. 13-week and 26-week bills are offered each week.
CDs are one option that can help protect your investment from times of turmoil by providing stable income. The returns gained from these investments usually won't be as high as those provided by stocks but they can serve as a cushion to balance your portfolio and keep it afloat when the market is down in the dumps.
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.
Treasury bills are good investments for individuals looking to make a large purchase in a short timeline, as the money will only be tied-up for at most a year. Although T-bills don't typically earn as much as other securities, or in some cases CDs, they still offer higher returns than traditional savings accounts.
4 Week Treasury Bill Rate is at 4.25%, compared to 4.24% the previous market day and 5.27% last year. This is higher than the long term average of 1.52%. 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.
For example, you can purchase: $10 million each in 4-, 8-, 13-, 26-, and 52-week Treasury bills, $10 million each in 2-, 3-, 5-, 7-, and 10-year Treasury notes, $10 million in 30-year Treasury bonds, $10 million in 2-year Floating Rate Notes, and $10 million each in 5-, 10-, and 30-year Treasury TIPS.
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.
To buy new issue T-Bills, you can do so through TreasuryDirect.gov, the primary market, which charges no fees, or through a bank, broker or dealer, which likely bills you a fee or commission or both.
3 Month Treasury Rate is at 4.37%, compared to 4.36% the previous market day and 5.45% last year. This is higher than the long term average of 2.75%.
Both CDs and Treasury bills are safe options that can help you grow your money faster. Which tool is better for you depends on your goals, how liquid you need your money to be, and time horizon.
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.
Scheduling and Editing Reinvestments
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.
Go to your TreasuryDirect account. Choose the Buy Direct tab. Follow the prompts to choose the security you want, specify the amount you want to buy, and fill in the information required.