Treasury bills are one of the most popular places to park cash, with short-term Treasury bills paying over 5% yields. As one of the safest and most liquid investments in the world, Treasury bills are a superior alternative to leaving your cash in a bank account. You can buy Treasury bills from any brokerage, but the U.S. government directly sells T-Bills through its website TreasuryDirect.gov. In this article, we’ll walk you through how to buy Treasury bills on TreasuryDirect with our step-by-step tutorial.
Summary:
- Treasury bills are a liquid cash-equivalent and virtually risk-free investment.
- Savers and investors should consider buying T-Bills as an alternative to keeping cash in a checking or savings account.
- TreasuryDirect is the U.S. Treasury’s official website where investors can buy treasury securities, such as T-Bills and savings bonds, directly from the U.S. government.
- Treasury Bills on TreasuryDirect require a minimum investment of $100. In contrast, the minimum purchase limit for T-Bills on brokerages is typically $1,000.
How to Buy Treasury Bills on TreasuryDirect: A Step-by-Step Guide
TreasuryDirect is used most often to buy new-issue Treasuries. For secondary transactions, it’s generally easier to use a brokerage.
1. Log into your TreasuryDirect account.
2. Click the BuyDirect menu item and click Bills (for T-Bills).
Click Submit to continue.
3. Review which Treasury Bill you wish to buy.
Here, you will see a full list of all the new-issue Treasury bills and the corresponding auction dates. You won’t see any interest rates on this page since those have not been set yet (they are set after the auction).
However, to get a sense of what the rates might be, you can look at the most recent T-Bill auctions. The rates you’ll purchase for the new-issue T-Bills won’t be too far off from those in the most recent auctions. You can click the “View recent auction results.” at the bottom of the T-Bill list above to see the most recent rates on TreasuryDirect.
You want to pay attention to the Investment Rate, which expresses the annualized return on a T-Bill if it is held until it matures. This will be the rate that will be the best reference point for what a new-issue T-Bill might roughly pay,
4. Decide in dollar terms how much of this T-Bill you wish to buy.
Remember that T-Bills are bought at a discount. So if you set a purchase amount of $100, which is the minimum amount for a T-Bill purchase, TreasuryDirect will charge you slightly less than that. The difference between your purchase price and the face value of the bond you receive upon maturity is your interest income.
To see some examples of how this works, go to TreasuryDirect’s Auction Query page, where you’ll see the cost to purchase a certain T-Bill in the right hand “Price per $100” column.
Unlike some brokerages, which ask you to enter the number of T-Bills you wish to buy (such as entering 1 for one $1,000 T-Bill), TreasuryDirect directly asks for your dollar purchase amount.
TreasuryDirect also allows you to schedule reinvestment for your T-Bills for up to two years. This means upon maturity of your T-Bill, TreasuryDirect will automatically purchase a new T-Bill of the same type. This could be a good idea if you don’t need the money and think the rates will remain relatively stable.
Finally, remember to select the destination for your final maturity payment. This can be any bank account you desire, including the one you used to fund the purchase of the T-Bills.
5. Preview your T-Bill order before purchasing!
Congrats! You know now how to buy Treasury bills on TreasuryDirect! With a few steps, you now own Treasury bills directly backed by the U.S. government.
Why We’re Buying Treasury Bills on TreasuryDirect
Investing in Treasury bills through TreasuryDirect offers a safe and convenient way to earn higher yields on your money. Treasury bills are considered one of the safest investments in the world, as they are backed by the full faith and credit of the U.S. government.
Additionally, TreasuryDirect allows you to purchase bills for as little as $100, making it accessible for a wide range of investors. Most brokerages require a minimum investment of $1,000. By taking advantage of the higher yields offered by Treasuries, you can increase your savings and make your money work harder.
With TreasuryDirect, you can easily buy a Treasury bill in just a few steps and earn yields much higher than what your savings or checking accounts offer.
What’s the Cost to Buy a T-Bill on TreasuryDirect?
The minimum order for a new-issue Treasury on TreasuryDirect is $100 in face value.
When you buy a T-Bill, you buy the T-Bill at a discount to face value, meaning you’ll be paying less than $100 for each $100 bill. The interest you earn is the difference between what you pay for the T-bill versus the $100 you automatically receive at maturity.
What Happens When My T-Bills Mature on TreasuryDirect?
TreasuryDirect will automatically credit your designated bank account with the principal amount.
In addition to receiving the face value of the T-Bill, you will also receive any interest that has accrued throughout its maturity. The interest is calculated based on the discount price you paid for the T-Bill and the time it was held. This means the more time you hold the T-Bill, the more interest you will earn upon maturity.
What Kind of Taxes Do I Pay on TreasuryDirect?
The interest income from Treasury bills is taxed as ordinary income, so it’s subject to the individual’s federal income tax rate. But all income from Treasury bills is exempt from state and local tax. Compared to other investments like brokered CDs, with income taxed at all levels, this is a huge plus for T-Bills. The tax liability is typically calculated based on the difference between the purchase price and the face value of the Treasury bill, as well as the interest earned over its holding period.
If you decide to sell your Treasury bills before maturity, you will incur a capital gain or loss depending on your purchase price.
Does TreasuryDirect Charge a Fee to Buy Treasury Bills?
There is no fee to buy T-Bills on TreasuryDirect.
There is also no charge to open an account or buy any securities on TreasuryDirect.
What are TreasuryDirect’s Treasury Bill Rates?
You can find the latest Treasury rates on rates can be found on the Treasury auction results page. Remember to pay attention to the Investment Rate instead of the High Rate. The Investment Rate is the annualized return on a T-Bill if held until it matures.
Are Treasury Bills Cash Equivalents?
Yes, Treasury bills are considered cash equivalents. Treasury bills are extremely liquid, and investors can easily sell them in the secondary market if necessary to get access to funds.
Is It Easy to Create a T-Bill Ladder on TreasuryDirect?
Creating a T-Bill ladder on TreasuryDirect involves buying a series of Treasury Bills with staggered maturities. By doing this, you can maximize T-Bill returns while maintaining liquidity.
Building a T-Bill ladder on TreasuryDirect will require more careful management and guidance, as TreasuryDirect does not offer a separate bond ladder-building tool that some brokerages, such as E*Trade or Fidelity, offer.
What’s the difference between a T-Bill ladder with Treasuries versus other securities such as long-term bonds or brokered CDs? T-Bills have shorter maturities, allowing you to reinvest or access funds more frequently. Additionally, T-Bills are highly liquid and can be easily sold through any broker. The same cannot be said as easily for brokered CDs.
Should I Buy T-Bills on TreasuryDirect?
TreasuryDirect is the U.S. government’s official website for purchasing Treasuries directly from the U.S. government, so there is no going wrong with the platform. We suggest learning how to buy Treasury bills on TreasuryDirect if you want to start buying Treasury bills for a minimum of $100 instead of $1,000, which is the minimum investment for T-Bills on brokerages. In addition, TreasuryDirect offers other Treasury products, including the Series I Bonds, which can only be bought on TreasuryDirect.
However, it may be easier to manage your Treasury investments on a brokerage, along with all your other investments, such as money market funds which primarily hold Treasury bills. In addition, brokerages offer useful tools such as T-Bill ladder-building utilities and easy access to the T-Bill secondary markets if you wish to liquidate them before maturity.
You can follow our T-Bill buying guides if you’d like to buy new-issue Treasury bills on a brokerage.
With low minimum investment, tax exemption, and guaranteed liquidity, Treasury bills offer a compelling investment option for those looking for a stable and reliable investment.
