T-Bills Explained: Do THIS To Invest With Treasury Bills

When the economy is volatile, it can be hard to know what to do with your money, especially if you're trying to optimize for a high rate of return and don't want too much risk. If you're wondering where you can put your money where it'll earn some guaranteed interest on a low-risk investment, you may want to consider buying a treasury bill. Today, we're going to look at what treasury bills are, how they compare to other financial products, and when you should consider buying one. So what are treasury bills and how do they work? T-bills are short-term U.S. debt securities that mature between four weeks to one year. Treasury bills are essentially a loan that you're giving the government. They're sold at a discount, and at the end of the term of the T-bill, you receive the face value of that T-bill, allowing you to pocket the difference between the discount when you purchased it and the full value when it matures. You can kind of think of it like a certificate of deposit. You lock up your money for a set period of time, and then you get a guaranteed return on your money. The mechanisms are different from CVs, but you get a similar outcome. In most cases for T-bills, you can sell before maturity. The amount you get back may just be different. It'll be below par if interest rates have gone up and above if they have gone down. T-bills are also considered risk-free since they're backed by the government. You can buy T-bills online from the treasury department, a bank, or a brokerage, and they usually can be purchased in $100 increments. Let's look at an example of how a T-bill works. On May 15, 2024, the treasury put a 17-week treasury bill up for sale with an issue date of May 21st and a maturity date of September 17th. The face value of that T-bill was $100, but the price became $98.27, meaning it wound up with an annualized discount rate of 5.225%. Say you bought 10 of these T-bills. Their face value would be $1,000, but you would have paid $982.73 instead. So once the T-bill matures, you'd receive that full $1,000, which means that you earn $17.27 on your investment. If you want to keep the ball rolling, you could reinvest that money, but you could also cash it out and spend it or put it in savings. Treasury bills are just one of a few U.S. debt securities that you can buy. If you're looking for something longer than a year, then you can consider a treasury note, which are issued in maturities from 2 to 10 years, or a treasury bond, which are issued in maturities from 20 to 30 years. Treasury bills, notes, and bonds all function the same way. Your selection will just depend on how long you want your money to be put away in one. If you're looking to earn a return on your money for a particular goal with a set timeline, a debt security can help you. U.S. debt securities like T-bills can also be very useful for folks who are in or nearing retirement because they aren't as volatile as investing in the stock market. Generally speaking, the closer you get to retirement age, the more of your portfolio you want to have in bonds and the less of your portfolio you want to have in stocks. T-bills, notes, and bonds can be part of a diversified portfolio that provides an income stream in retirement while taking on the appropriate amount of risk. I'm Chanel Bissette, and I'm a writer for NerdWallet. If you want to learn more about different investments or calculate your expected return on a T-bill, head over to nerdwallet.com for reviews, roundups, and calculators that will help you decide what to do with your money. And if you feel like you learned something today, hit like and subscribe.