How to Buy Treasury Bills (2024)

The Federal Reserve’s ongoing effort to bring inflation down to its 2% target has resulted in a series of aggressive interest rate hikes. While this hasn’t been welcome news for interest-rate sensitive sectors, investors who have been searching for a safe haven that provides a steady return on their investments with minimal risk have found just the place.

Treasury bills (T-bills) have emerged as an attractive option for investors looking to hedge against inflation and safely grow their savings with the help of annual yields that are higher than they have been at any point since the 2000s.

Table of Contents

• What is a Treasury bill?
• How do Treasury bills work?
• Pros and cons of investing in Treasury bills
• Step-by-step guide on how to buy Treasury bills
• Ways to buy Treasury bills
• Tips for investing in Treasury bills
• How to buy Treasury bills FAQs

What is a Treasury bill?

Treasury bills are short-term government debt securities issued and backed by the U.S. government. T-bills have maturities ranging from four to 52 weeks. When you buy a bond or T-bill, you essentially lend your money to the U.S. government in exchange for a fixed interest rate that is repaid over a fixed term (the maturity date). 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 do Treasury bills work?

T-bills are auctioned on a regular basis, and investors can bid for them at any time. They are sold at a discount to face value, and the difference between the discounted price and face value is your return on investment. For example, if you buy a 12-week T-bill with a face value of $10,000 for $9,800, the difference of $200 is your return for holding the security for 12 weeks. Owners of Treasury bills can hold them until maturity or sell them on the secondary market at any time. Federal tax is due on the interest earned from T-bills, but investors don't have to pay any state or local income taxes.

Pros and cons of investing in Treasury bills

PROS

• Low risk: Many investors consider Treasury bills one of the safest investments available, as they’re backed by the full faith and credit of the U.S. government.

• High liquidity: T-bills are highly liquid as you can sell them on the secondary market at any time prior to maturity with little or no cost.

• Low cost: T-bills are inexpensive compared to many other investments, and you won't pay any commission or fees when buying directly from the government through TreasuryDirect.

• Tax benefits: Investors don't have to pay any state or local taxes on the interest earned from T-bills.

• Inflation hedge: If the interest rate on T-bills stays even slightly higher than the inflation rate, you can prevent your money from losing value.

• Low minimums: With a minimum investment of $100, T-bills are accessible to many investors.

CONS

• Low returns: Investors typically expect lower returns from Treasury bills than other traditional investments, like stocks, exchange-traded funds (ETFs), mutual funds, certificates of deposit (CDs) or real estate.

• Short-term investments: T-bills are short-term investments with maturities of no more than one year. While this is appealing in some cases, investors looking for long-term growth may find T-bills to be an inadequate investment option.

• Auction process: You can buy Treasury bills through a competitive or non-competitive auctions, which may seem complicated and intimidating to novice investors. It may also mean that investors may not get the bills they want.

Step-by-step guide on how to buy Treasury bills

The following step-by-step guide will walk you through the process of buying Treasury bills.

1. Determine your investment goals

Before you decide to invest in T-bills, it is important to evaluate your investment goals. Do you want to invest for the short term or long term? Are you looking to earn income from interest payments, or would you prefer having access to your funds in the near term so they can be redeployed into other investments? These questions will help you determine if T-bills match your investment goals.

2. Open a Treasury direct account

If you've decided that Treasury bills are right for you, the next step is to open an account with TreasuryDirect.gov. This online platform created by the U.S. Department of the Treasury allows you to purchase, manage and redeem T-bills directly from the federal government. The benefit of purchasing T-bills through TreasuryDirect is that the platform does not charge fees or commissions. Once your account is set up and you’ve connected a bank account, you are ready for the next step.

3. Research Treasury bill auctions

The government holds regular auctions for Treasury bills through its TreasuryDirect platform. This allows investors to purchase these securities from the government. Before participating in an auction, it is important to research the auction process, including the different types of auctions, how they work and their terms and conditions.

Competitive auctions occur through a bank, brokerage or dealer. Competitive bidders submit sealed bids to the auction and have the chance to purchase securities at a better yield than the non-competitive bidders. Competitive bidders can bid up to 35% of the initial offering amount and set the minimum yield they are willing to accept.

Non-competitive auctions occur through TreasuryDirect. Since this guide instructs you on how to open a TreasuryDirect account, the following steps discuss how to purchase T-bills through the federal government’s non-competitive auction process.

Non-competitive bidders place orders to purchase T-bills similarly to how market orders are executed when buying or selling stocks. The bidder commits to buying a certain amount of securities at whatever price the market offers at that time. Non-competitive bidders can bid up to $10 million in each auction and are guaranteed to have their full order filled.

4. Place your bid

Once you have done your research and are ready to purchase a Treasury bill, the next step is to choose the T-bill you want to purchase. Click on the BuyDirect tab in the taskbar along the top of the TreasuryDirect website. Then, under Marketable Securities, select “Bills - Short-term securities of 1 year or less.” Click Submit.

From there, a list of upcoming Treasury bills auctions will populate along with the auction date and issue date. For example, an eight-week T-bill with an auction date of Sept. 7 will have an issue date a few days later, on Sept. 12., when your account would be credited. Then:

1. Choose the option you’d like to purchase.
2. Enter the purchase amount below the auction table.
3. Select whether or not you’d like to schedule a reinvestment.
4. Pick the bank account you’d like to fund the purchase with.
5. Click Submit.

This will bring you to the Purchase Review page. Once you ensure the details are correct, click Submit to place your order.

5. Monitor your investment

When you buy Treasury bills, it’s important to monitor your investment as the value of the securities can fluctuate in the secondary market. For example, if interest rates change, the value of your investment can go up or down. In some cases, you may make more profit by selling the securities on the secondary market before maturity.

6. Decide what to do at maturity

When the Treasury bill matures, you have two options for what to do with your investment. You can redeem the securities and receive the full face value. This requires no action on your part. When the Treasury bill reaches maturity, the full amount is deposited into the bank account from which you funded the purchase.

Alternatively, you can roll over the securities and reinvest in a new T-bill at the current auction rate. You have up to four business days before the security's maturity date to decide which option you want. Within four business days of the maturity date, you lose the ability to roll over the T-bill into a new security and will only be able to redeem it.

Ways to buy Treasury bills

Aside from purchasing Treasury bills through TreasuryDirect, there are several other ways to buy T-bills, with each involving varying amounts of risk and complexity.

Buy Treasury bills through a bank

One of the most common ways to purchase Treasury bills is through a bank. Banks usually offer an array of T-bill products with varying maturities and yields, allowing you to choose the one that best suits your investment needs. The bank will act as an intermediary between you and the Treasury Department, handling the purchase transaction. However, the bank may charge you fees or commissions for the transaction.

Buy Treasury bills through a broker or financial advisor

Another way to purchase Treasury bills is through a broker or financial advisor. Similar to banks, brokers and advisors can help you buy T-bills, but they may also provide additional services like financial advice or portfolio management. The broker or advisor will typically charge a fee for their services, thereby making it more expensive than buying T-bills directly through TreasuryDirect.

Buy Treasury bills through a mutual fund

Another option is to purchase Treasury bills through a mutual fund. These funds pool money from a collection of investors and use it to purchase T-bills. Professional portfolio managers make decisions on behalf of the mutual fund. However, like other mutual funds, Treasury funds typically charge expense ratios, which include management and operating fees.

Buy Treasury bills on the secondary market

Lastly, you can purchase Treasury bills on the secondary market. The secondary market is a network of buyers and sellers who trade existing T-bills. You buy and sell the T-bills at market prices, which can fluctuate based on demand and current interest rates. It’s important to note that the secondary market may not always provide the most favorable prices for T-bills. Additionally, it can be difficult to find buyers or sellers (i.e., liquidity) in the secondary market depending on the size of the bill you’re looking to buy or sell.

Tips for investing in Treasury bills

The following section details some of the most important tips to be mindful of when investing in Treasury bills.

Understand the different types of Treasury bills

Various Treasurys have different maturities and yields, so it’s important to understand the differences before investing in Treasury bills. For example, T-bills with shorter maturities tend to have lower yields than those with longer terms. Maturities for T-bills are four, eight, 13, 17, 26 and 52 weeks.

Diversify your portfolio

It’s important to diversify your investments and not put all of your eggs in one basket. Beyond a mix of stocks, ETFs and mutual funds, you should consider diversifying your Treasury holdings. A mix of short- and long-term T-bills can help reduce risk, as can the inclusion of other Treasurys, like bonds.

Consider investing in Treasury bills with longer maturities

Long-term T-bills tend to have higher yields than their short-term counterparts. If you can keep your money in the T-Bill market for up to a year, it may be wise to allocate a majority of your T-bill investments into those with longer terms.

Monitor interest rates and reinvest your earnings

As long as the rate of return on your T-bills exceeds the rate of inflation and your personal financial situation remains the same, you could consider reinvesting your earnings into similarly timed T-bills. This will help you keep your money relatively safe while maintaining its purchasing power. TreasuryDirect offers its Growth Calculator to help you better understand what returns you can expect.

Understand the risks associated with investing in Treasury bills

Finally, it’s important to understand the potential risks associated with investing in Treasury bills. While T-bills tend to be considered among the safest investments available, they are still subject to interest rate fluctuations. Domestic or global political or socioeconomic events may affect them as well. As with any investment, carefully consider the risks before committing your money.