It’s a good idea to have backup funds—cash that you can get to relatively quickly for emergencies. If you keep cash in checking or savings accounts, or even high-yield savings accounts, the interest you’re earning is rising at the moment, but it’s not equal to inflation. Even CDs with long terms are losing out against inflation. T-bills are, too, but not by as much right now.
Treasury bills, or T-bills, are a short-term government debt obligation backed by the U.S. Treasury. These bills can be purchased for a small investment—from a minimum of $100. You need no broker; you can buy T-bills from the government at TreasuryDirect.gov.
You purchase a T-bill at price that is discounted from its maturity value. For example, you might buy a $1,000 T-bill for $970. When the bill reaches maturity, you would receive the full face value of $1000, a gain of 3%. That’s treated as interest for tax purposes, but only at the federal level. T-bill interest is exempt from taxation at the state and local levels.
You can also buy T-bills from banks and other institutions, but you’ll likely pay a commission or transaction fee. That comes out of the maturity value, which means lower earnings for you.
T-bills have varying maturity dates: 4 weeks, 8 weeks, 13 weeks, 17 weeks, 26 weeks, and 52 weeks. (Not all of these options are available at a given “auction” date.) As you can see, these short spans mean a lot of flexibility compared to a CD, for example. The interest does not land in your account until you sell at the maturity date. It is not accruing or compounding.
You should not sell a T-bill until maturity; if you do, you could take a loss on the investment—not only losing interest, but possibly some principal as well.
At the moment, T-bills can be a good place to park some of your cash and earn a little bit more. The reason is that when inflation is rising, the price of T-bills rises too, and a little bit faster than the bank offerings do.
Here are some examples of recent interest rates:
TreasuryDirect.gov has a lot of information about not only T-bills, but also government notes and bonds. Notes are medium-term investments, and bonds are long-term investments. For cash that you might need sooner rather than later, T-bills are best.
People are flocking to bills, notes, and bonds at present, so the TreasuryDirect.gov website has been overloaded. It’s best to try during non-business hours.
For Further Exploration
“Erin Talks Money” is a YouTube channel with a focus on finance. This video deals specifically with T-bills. Erin is not a certified financial adviser, but her information is fairly well researched.