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What Are T-Bills and Should You Invest in Them?

When you’re looking for a safe way to invest your money, things don’t get any more solid than government-backed securities. The U.S. Department of Treasury offers several different low-risk options, including notes, bonds and bills. Treasury bills, or T-bills, can be appealing because you’re not required to tie up your money for a long period of time. However, they’re not necessarily right for every kind of investor. A financial advisor could advise you about T-bills, stocks or any other type of investment.

How T-Bills Work

Treasury bills are short-term securities, which means they come with shorter maturity dates than bonds and notes. Certain types of T-bills have a maturity period of just a few days, but they’re typically issued in terms of four, 13, 26 or 52 weeks.

T-bills are assigned a specific face value, such as $1,000, $5,000 or $10,000, but you can usually purchase them for less than that. The amount you pay is called the discount rate. Once the securities mature, the government hands over the full amount of the bill.

Here’s an example of how the process works. Let’s say you purchase a $10,000 T-bill with a discount rate of 3% that matures after 52 weeks. That means you pay $9,700 for the T-bill up front. Once the year is up, you get back your initial investment plus another $300.

If you’re interested in investing in T-bills, make sure you aren’t looking at treasury bonds or treasury notes. While T-bills mature at four, eight, 13, 26 or 52 weeks, t-bonds and t-notes have longer maturity times. Notes mature at between two and 10 years while bonds mature at 30 years.

What Are the Benefits of Investing in T-Bills?

What Are T-Bills and Should You Invest in Them?

The number-one advantage that T-bills offer relative to other investments is the fact that there’s virtually zero risk that you’ll lose your initial investment. The government backs these securities so there’s no need worry that you could lose money in the deal.

Another benefit is that T-bills can be purchased in smaller amounts that many other investments. This means they’re more accessible to someone who doesn’t have a lot of cash to invest. If you only have $1,000 to invest, you can use it to purchase a T-bill and earn a better return on your money than you would if you put it in a regular savings account.

The fact that you can pick a short maturity term is another plus if you prefer to have some flexibility with your investments.  A longer maturity term could yield a bigger return, but you can still earn some interest if you opt for a shorter term.

What Are the Drawbacks?

The biggest downside of investing in T-bills is that you’re going to get a lower rate of return compared to other investments, such as certificates of deposit, money market mutual funds or stocks. If you’re looking to make some serious gains in your portfolio, T-bills aren’t going to cut it.

Another potential issue for investors has to do with how T-bills are purchased. You have to bid on them through an auction process. Bidding can be competitive or non-competitive. With the former, you have to choose your discount rate and you might not be able to purchase the bills you want.

Bottom Line

What Are T-Bills and Should You Invest in Them?

Treasury bills won’t necessarily make you rich. However, they can be a good way to add some conservative investments to your portfolio. If a lot of your cash is tied up in riskier bets like stocks or mutual funds, T-bills can balance things out. In addition, they don’t require any sort of long-term commitment.

Tips for Investing Your Money

  • A financial advisor can help you with a wide variety of financial situations. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • T-bills probably shouldn’t be the only thing you invest in. You should diversify your portfolio with things like stocks, bonds and exchange-traded funds (ETFs). To get a sense of how your investments should be divided up, use SmartAsset’s asset allocation calculator.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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