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). Treasury money market accounts also offer more convenience and liquidity than TreasuryDirect.
Can I buy T-bills myself? ›
You can buy them from the government directly, and many buy them through a brokerage, retirement or bank account. Treasury owners pay federal taxes on the investment interest earned but no state or local taxes.
Can I purchase T-bills through my bank? ›
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.
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 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.
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.
Why buy a CD over a treasury bill? ›
CD and Treasury bill rates offer similar rates for terms of one to six months. CDs are paying higher rates than Treasury bills and Treasury notes for terms of one to five years. Treasuries are exempt from state income taxes, which is an important advantage when rates are nearly the same.
How to buy Treasury bills for dummies? ›
You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov). The most common maturity dates are four weeks, eight weeks, 13 weeks, 26 weeks and 52 weeks.
Where is the best place to buy T-bills? ›
One way to buy T-Bills is to go straight to Uncle Sam and open a TreasuryDirect.gov account. This online platform is the federal government's main portal through which it can sell bonds. To open an account, you only need a U.S. address, a social security number, and a bank account.
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.
How do I cash out my T-bill? ›
You can hold Treasury bills until they mature or sell them before they mature. To sell a bill you hold in TreasuryDirect or Legacy TreasuryDirect, first transfer the bill to a bank, broker, or dealer, then ask the bank, broker, or dealer to sell the bill for you.
Why people don t invest in Treasury bill? ›
Taxes: Treasury bills are exempt from state and local taxes but still subject to federal income taxes. That makes them less attractive holdings for taxable accounts. Investors in higher tax brackets might want to consider short-term municipal securities instead.
Can Treasury bills lose money? ›
Treasury bonds, notes, and bills have no default risk since the U.S. government guarantees them. Investors will receive the bond's face value if they hold it to maturity. However, if sold before maturity, your gain or loss depends on the difference between the initial price and what you sold the Treasury for.
What is the #1 benefit in purchasing a T-bill? ›
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.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
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).
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.
