Are Treasury Bills a Good Investment?

An image of a Treasury bill with the Statue of Liberty.

(Image credit: Getty)

If you've been looking for a place to store your savings and earn interest in the short term, you've probably considered a high-yield savings account or a 1-year CD.

These are both good options. But there's another short-term investment class you should consider: Treasury bills.

Among bills auctioned on a regular schedule, there are six maturity terms: four weeks, eight weeks, 13 weeks, 17 weeks, 26 weeks and 52 weeks, according to Treasury Direct.

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You'll receive an interest payment once your bill matures. Lately, Treasury bill yields have been hovering around 4%.

If you're looking for a risk-free way to earn interest on your cash over a short period of time, a T-bill is a good choice.

When are Treasury bills a good investment?

Treasury bills are good investments for individuals looking to make a large purchase in a short timeline, as the money will only be tied up for at most a year.

Although T-bills don't typically earn as much as other securities, or in some cases CDs, they still offer higher returns than traditional savings accounts.

Plus, they're one of the safest places you can save your money.

The support of the full faith and credit of the U.S. government makes them a great fit for conservative investors who want to avoid risk while still putting their money to work earning interest.

How to buy a Treasury bill

You can either buy a Treasury directly from the government through TreasuryDirect.gov or through a broker. The minimum purchase is $100.

To start an account with TreasuryDirect, you'll need to provide a U.S. address, a Social Security number and a bank account.

Afterwards, since T-bills are sold on auction, those looking to invest will need to place a bid. Once it's accepted, it will arrive in your TreasuryDirect account.

If you use a brokerage account, T-bills can also be bought through ETFs and mutual funds.

If you're looking to buy a T-bill for your IRA, you'll need to go through a broker as you can not do so on TreasuryDirect.

How a Treasury bill works

A Treasury bill, or T-bill, is a short-term debt obligation issued by the Department of the Treasury.

Backed by the full faith and credit of the U.S. government, T-bills top the list of the safest places you can save your cash.

T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.

Interest on T-bills is the difference between how much you pay and how much value you get when the bill matures. The most common maturities for T-Bills are four, eight, 13, 26 and 52 weeks.

In addition to Treasury bills, there are other Treasury securities to invest in as well.

Compare Treasury bills vs Treasury bonds, which pay a fixed interest rate every six months and have the longest maturity periods, either 20 or 30 years.

Treasury notes also pay a fixed rate of interest every six months but have shorter maturity periods than T-bonds, ranging from two to 10 years.

Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.