Treasury Bills yields are above 5% as of November 14, 2023, amidst high interest rates, which are currently at a two-decade high. Consequently, they are a lucrative option for cash. Treasury bills, also called T-bills, have terms ranging from as little as a month to one year. They are paying more compared to the long-term Treasury amidst uncertainty regarding the Fed’s policy.
Since the Federal Reserve began a series of interest rate hikes, T-bill yields have been on the rise, creating an attractive alternative to other investment tools like high-yield savings, certificates of deposit, Series I bonds, and money market funds. If you are considering purchasing T-bills, below is an in-depth explanation of how to do it.
Buying Through TreasuryDirect
TreasuryDirect is the US government’s official application for the purchasing and storing of savings bonds and Treasury marketable securities, which are Bonds, Notes, Bills, and FRNs. To purchase T-bills via TreasuryDirect, you must open a TreasuryDirect account.
You can use your TreasuryDirect account to purchase T-bills for yourself as an individual. With an individual account, you can also link the account to an account for a child who is below 18 years old.
Besides the individual account, corporations, partnerships, estates, trusts, and others can open an entity account on TreasuryDirect.
When you purchase T-bills via TreasuryDirect, you must hold the T-bills for 45 calendar days before you can transfer or sell them. The holding period does not apply when you buy new T-bills using proceeds from a maturing security.
Requirements
To purchase T-bills on TreasuryDirect, you must have a valid Social Security number or a tax ID and a US address. Additionally, you will need an email address, a web browser with 128-bit encryption, and a savings or checking account. You can submit non-competitive bids starting from $100 up to $10 million in $100 increments.
T-bills are sold at TreasuryDirect via auctions, which are scheduled throughout the year. For instance, there were 384 public auctions for $15 trillion worth of Treasury debt securities.
Steps for Purchasing Treasury Bills
The auction begins with an announcement of an upcoming auction, which is often around five business days before. In the announcement, you will find the date, the amount to be auctioned, and the issue and maturity dates.
The announcement also includes the eligibility requirements, terms and conditions, and deadlines for competitive and non-competitive bids.
No-competitive bids guarantee bidders will get their desired amount at a price set by competitive bidders participating in the auction. The upper limit for non-competitive bids is $10 million.
With a competitive bid, the expected discount rate, yield, or spread is specified, and it may only be filled in part or not at all. For individual investors, the go-to option is non-competitive bids. Institutional investors often take up competitive bids.
The second step is the actual auction. On the date of the auction, the Treasury will review all bids for compliance. Non-competitive bids must be submitted before the time stated in the auction announcement.
The final step is the issuance of the T-bills. These T-bills are deposited to the investors’ accounts, and payment is delivered to the Treasury. Money is taken directly from the source of funds specified. It can be a bank account or Certificate of Indebtedness (C of I).
Buying Via Banks, Dealers, or Brokers
Individuals, fiduciaries, organizations, or corporations can purchase T-bills via a bank, dealer, or broker. With banks or brokers, you can make either competitive or non-competitive bids, but not both.
Transferring T-bills
You can hold T-bills until maturity or sell them before. To sell T-bills in your TreasuryDirect account, you must transfer them to an account you opened with a bank, dealer, or broker and then place a sell order.
Buying Treasury Bills as ETFs
You can opt to buy T-bills via ETFs on most brokerages. ETFs are traded like stocks and sometimes qualify for commission-free trades. Investors can pick government bond ETFs that focus on short-term and long-term T-bills. Treasury ETFs can be held in tax-advantaged retirement accounts such as IRAs.
Buying T-bills Via Money-Market Funds
T-bills can be purchased by investing in money market mutual funds. These funds come with low fees and low yields limited by the rate of short-term T-bills.
Why Invest in Treasury Bills
Treasury bills are a secure option for diversifying your investment portfolio. They have low risk since the US government backs them. Most people invest in them as part of a retirement portfolio due to their low risk and high liquidity. Consequently, they have a stable income stream.
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