With some Treasury bills now offering 5%, the assets have become more attractive to investors. But there are a few things to know about the buying process, experts say.
Treasury bills, or T-bills, backed by the US government are virtually risk-free, with maturities ranging from four weeks to 52 weeks. Receive T-Bill interest at maturity that is exempt from state and local taxes.
After a series of rate hikes by the Federal Reserve, T-bills have become a competitive option for cash, with some T-bills paying more than 5% as of Feb. 24.
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However, there is no direct price comparison to other products because T-bills are typically sold at a discount, receiving full value at maturity, said Jeremy Keil, certified financial planner at Keil Financial Partners in Milwaukee.
For example, let’s say you buy $1,000 in annual T-bills at a 4% discount for a purchase price of $960. To calculate your coupon rate (4.16%), take your $1,000 term and subtract the purchase price from $960 before dividing the difference by $960.
Fortunately, when you buy T-Bills through TreasuryDirect, a US Treasury Department-managed website, or your brokerage account, you see the “true rate of return” or “bank-equivalent rate of return,” Keil said.
How to buy T-Bills through TreasuryDirect
If you already have a TreasuryDirect account — say, because you bought Series I bonds — buying T-Bills is relatively easy, according to Keil, who details the process on his website.
After logging into your account, you can select T-Invoices based on term and auction date, which determines the discount rate for each issue.
“You don’t really know what the price is going to be until the auction happens,” Keil said. The process involves institutions bidding against each other with no action required from ordinary investors.
How to buy T-Bills through TreasuryDirect
1. Sign in to your TreasuryDirect account.
2. Click BuyDirect on the top navigation bar.
3. Select “Bill of exchange” under “Securities”.
4. Choose term, auction date, purchase amount and reinvestment (optional).
After the auction, “you get exactly the same rate as the world’s Goldman Sachs,” with TreasuryDirect issuing T-bills a few days later, he said.
However, there is a downside. If you wish to sell T-Bills before maturity, you must hold the asset in TreasuryDirect for at least 45 days before transferring it to your brokerage account. There are more details about the process here.
There is more liquidity through brokerage accounts
One way to avoid liquidity problems is to buy T-Bills through your brokerage account instead of using TreasuryDirect.
Keil said the “biggest benefit” of using a brokerage account is instant access to T-bills and instant knowledge of your yield to maturity. The tradeoff is you’re likely to give up a yield of about 0.1% or less, he said.
George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts, also suggests buying T-Bills outside of TreasuryDirect to avoid liquidity problems.
For example, there are exchange-traded funds with low fees — available through brokerage accounts — that allow investors to buy and sell T-Bills before they expire, he said.
“The fees weigh a bit on interest rates,” Gagliardi said, but the ease of buying and the ability to sell before maturity “can offset the small penalty in interest rates for many investors.”
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