Treasury Bills: A Safer Option for Investing Your Money

Time: 5–7 min.

Summary:

• Treasury Bills, also known as “T-Bills”, are short-term debt securities issued by the U.S. government, maturing in 4 to 52 weeks.
• Of all the U.S. treasuries, T-Bills have the shortest maturity periods and are a great option for those new to investing.
• They provide a safer way to earn interest and preserve capital with minimal risk. T-Bills help maintain liquidity during times of financial volatility and can be an effective tool for helping to reach short-term savings goals.

Treasury Bills, or T-Bills, are short-term debt securities issued by the U.S. government to fund its operations. T-Bills carry virtually “no default risk” as they’re backed by the U.S. Treasury Department. They mature over short periods, ranging from 4 to 52 weeks.

Sold in increments of $100, they can be bought online from the Treasury Department, banks, or brokerage platforms. Any interest income earned is subject to federal tax, but usually exempt from state and local taxes. Treasury Bills rates fluctuate based on the current interest rate environment.

The Role of T-Bills in Your Short-Term Savings Goals

If you’re a high earner looking to save up for a major expense within the next year – be it a wedding, home down payment, or a new car – T-Bills could be a smart choice. They offer a reliable way to preserve capital, maintain liquidity,  and minimize risk, over a one-month to one-year period.

Warren Buffett considers T-Bills ideal for maintaining liquidity and preserving capital during times of market uncertainty. As of August 8, 2024, Buffett’s Berkshire Hathaway held $234.6 billion  in short-term U.S. Treasury Bills, surpassing the Federal Reserve’s T-bill holdings of $195.3 billion.

How Treasury Bills Work

T-Bills are commonly available with terms of 4, 8, 13, 17, 26, or 52 weeks. They’re sold at a discount, meaning you buy them for less than their face value. When they mature, the U.S. government pays you the full face value. The difference between the discounted purchase price and the actual face value of the bill is your interest earnings.

Buying and Selling

Buying T-Bills is straightforward: you can purchase them directly from the U.S. Treasury or indirectly through a bank or broker (for a small fee). What’s required:

• A taxpayer identification number (TIN) or Social Security number (SSN)
• A U.S. address
• A checking or savings account to use for payments

You can hold the T-Bills until maturity to receive the full face value or T-Bills can be sold early in the secondary market. Early selling might result in a slightly lower return, but it provides immediate liquidity when needed.

U.S. Treasury Business Volume

The U.S. Treasury auctions billions of dollars in Treasury securities every week. In 2023 alone, the Treasury issued approximately $22 trillion in total marketable securities, which include Treasury Bills, notes, and bonds, through 428 auctions. This marked an increase from prior years, reflecting the ongoing high demand from both individual and institutional investors.

T-Bills, in particular, are popular due to their short maturity terms and relative safety (compared to other short-term investment options). TreasuryDirect.gov is a platform dedicated to enabling direct purchases by individual investors, facilitating increased public participation in Treasury  .

Why Treasury Bills Are a Safe Haven for Cash

For high earners and affluent professionals, the process of building wealth doesn’t just involve making big investments. It’s also about who has the right liquidity when opportunities arise. That’s where short-term treasuries, like T-Bills, come into play.

1. Holding Cash for Investment Opportunities

Picture yourself at an exclusive auction, and every so often, an extraordinary item appears — perhaps a rare artwork or a pristine property in a rapidly-developing neighborhood. These are the kinds of items that don’t come around often, but when they do, they offer immense value for those ready to bid. If all your funds are tied up in long-term investments or commitments, you’re left watching from the sidelines, unable to act.

Treasury Bills can be your reserved auction tokens, keeping your cash secure and readily available for these special opportunities. With T-Bills, your funds aren’t locked away long-term or subject to the whims of the market; they’re right there, safely waiting for that once-in-a-blue-moon investment opportunity to appear.

Either the T-Bills mature, or you can sell them on the secondary market to get immediate liquidity. This approach lets you respond to sudden opportunities without disturbing your larger, long-term investment portfolio, so you’re always ready to seize opportunities for growth.

2. Upcoming Expenses

Do you have some big expenses on the horizon? Whether it’s a vacation, a new car, or home renovations, experts say it’s essential to start saving at least a year in advance. This helps you avoid high-interest debt, which could significantly hinder your wealth-building journey.

You might not want to risk these savings in the stock market when you’ll need the money soon. With T-Bills, your cash is secure and accessible. They mature in a year or less, making them a good option for these short-term savings goals.

Imagine placing cash into a secure lockbox labeled for an upcoming expense, like a home renovation. You know it’s there and safe, untouched by the potential chaos around it. Treasury Bills can act like lockboxes for your short-term savings.

While the stock market ebbs and flows, your T-Bill investment remains stable and secure, maturing just in time for you to unlock it and use it toward your goal. When the time comes to sign those renovation contracts, your cash is ready and waiting, untouched by market swings. Exactly the amount you were expecting, just when you need it.

3. Protecting Capital in Volatile Markets

During periods of volatility, there’s a heightened risk of losing money on stock market investments. Backed by the U.S. government, T-Bills are a great way to preserve your capital and avoid losses caused by market fluctuation, according to Investopedia.

Plus, volatile markets often present opportunities to buy quality assets at discounted prices. You can use the proceeds from matured T-Bills to seize these buying opportunities, potentially benefitting from future market rebounds.

T-Bills are the ultimate “safety harness” for market climbers. Think of investing like the slow, steady, and sometimes risky process of climbing a steep cliff. You’re focusing on climbing higher, but if a gust of wind throws you off balance, your safety harnesses will be there to catch you.

In financial terms, Treasury Bills act as that safety harness. They provide you with a secure, low-risk place for your cash, ready to safeguard against market shifts. If your stock portfolio drops suddenly — perhaps due to rising interest rates, a market correction, or geopolitical tensions — T-Bills can keep a portion of your capital intact, enabling you to stay in the climb toward financial growth without falling.

How to Buy Treasury Bills

You can buy T-Bills directly from the U.S. Treasury or through a financial institution, in increments of $100.

• U.S. Treasury

TreasuryDirect.gov is a government website where you can set up an account. Once registered, you can buy T-Bills in increments of $100 directly from the government.

• Brokerage Firms:

  If you already have a brokerage account, buying T-Bills can be simpler and more flexible. Brokerages often offer a secondary market where you can buy and sell T-Bills before they mature. This is useful in case you need liquidity before the bill’s maturity date. But be sure to check with your brokerage firm for up-to-date information about their fees and terms.

• Cash Management Accounts:

  If you’re looking for the most straightforward, effortless T-Bill investment option, you may want to consider Marygold & Co.’s newly launched Marygold Cash Management Account.

  • Marygold & Co. automatically sweeps cash through a nationally registered bank to its FINRA-registered broker-dealer. Here, it is invested automatically in T-Bills of your designated maturity.
  • This offers clients a “risk-free” rate as T-Bills are programmatically purchased and rolled at maturity, ensuring your money is invested at all times. “Rolled” means that the existing market position in the expiring front month T- Bill is replaced with a new position in the deferred month T-Bill.
  • When you need to access your funds, Marygold & Co. will automatically sell the closest-to-maturity T-Bill(s) to cover your desired withdrawal amount, with settlement occurring on T+1 (“T” stands for transaction date, “+1” indicates that the settlement takes place one day after the transaction date) if not on the same day.

• Purchasing through Banks:

  One of the most common methods of buying Treasury Bills is through a bank. Be sure to check whether your bank provides this service, but remember that fees could be relatively higher compared to the other options.

  Banks typically offer a variety of T-Bill products, each with different maturities and yields, so you can select the option that aligns best with your investment goals. In this scenario, the bank manages the purchase transaction, acting as an intermediary between you and the Treasury Department.

Treasury Bills vs. Treasury Bonds: What’s the Difference?

Treasury Bills, notes, and bonds are all debt securities issued by the government. The key difference lies in their maturity period:

• T-Bills have the shortest maturity (less than a year),
• T-notes have medium-term maturities (2-10 years), and
• T-bonds have the longest maturity (20-30 years).

T-Bills come with lower returns, shorter terms, and minimal risk, making them a quick, safe, and accessible entry point for new investors. Treasury bonds, on the other hand, lock in your money for 20-30 years. They provide higher yields but also carry greater risk because of the extended period before you can access your returns.

Historically, T-bonds tend to have higher ROI than T-Bills, due to their longer duration and associated risks. However, the difference in yield (or yield spread) can vary from time to time, depending on economic conditions and investor sentiment.

For example, as of December 9, 2024, here are the differences in rates between a 26 week Treasury Bill, a 10 year Treasury Note and a 30 year Treasury Bond:

If you have high liquidity needs and are new to the world of investment and wealth-building, T-Bills may be the better starting point. T-bonds are a good fit for seasoned investors with a longer time horizon. For a high earner balancing lifestyle costs and early investment steps, T-Bills can offer a solid foundation before moving on to T-bonds and other long-term investment options.

Current Rates and How They Compare to Other Savings Options

The treasury bills rate (as of 12-9-24) ranges from 4.02% to 4.37%. For the exact figures, you can refer to the chart above.

In comparison, as of December 2, 2024, the average savings account interest rate stands at 0.60%, while so-called high-yield savings accounts average 4.43% APY, according to Bankrate.

Meanwhile, a one-year certificate of deposit (CD) currently averages a rate of 1.70% APY, according to the latest data from Bankrate (as of 12-9-24).

Of these, T-Bills are generally considered the safest option, because they are backed by the U.S. government, making them “virtually risk-free“, according to BankRate.

High-yield savings accounts and certificates of deposit also come with relatively lower risk, but a lot may depend on the stability of the issuing bank. While most banks provide FDIC insurance up to $250,000, government backing gives T-Bills an edge in terms of safety.

Conclusion: Why Treasury Bills Matter for Your Financial Strategy

Treasury Bills are a safer, low-risk option for growing your cash reserves. They offer reliable returns, preserve capital, and provide liquidity when you need it the most.

For high earners and affluent professionals just starting their investment journey, T-Bills can serve as a strategic allocation within a broader investment strategy, balancing out more volatile assets and enhancing overall portfolio resilience. They also act as a safe haven for cash, ensuring liquidity and peace of mind during periods of market volatility.

T-Bills offer a straightforward way to earn interest without the complexities of stocks or real estate. This makes T-Bills a good option for those who are still figuring out the intricacies of financial markets. They offer high earners a stable investment foundation, from which they can gradually expand into more complex assets as their financial knowledge and confidence grows.

Footnotes/Sources:

1. U.S. Department of the Treasury (Daily Treasury Bill Rates)
2. Investopedia: Treasury Bills (T-Bills) — What They Are and How To Invest
3. Bankrate: What are Treasury Bills?
4. Forbes: How To Buy Treasury Bills — A Guide On T-Bills For Beginners