Why Legendary Investor Warren Buffett Buys Treasury Bills

Larry, Managing Editor

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warren buffett treasury bills

Warren Buffett, the investment sage often called the Oracle of Omaha, is one of the largest fans of parking his cash in Treasury bills. At the end of 2023, Buffett’s company Berkshire Hathway held around $170 billion in Treasury bills! He frequently touts the safe nature of Treasury bills and enjoys reinvesting the proceeds from maturing Treasury bills into new T-bills at the government’s weekly auctions.

Why is Warren Buffett Buying Treasury Bills?

Berkshire Hathaway has a barbell approach to its investment portfolio, which supports its insurance business. The portfolio is heavily tilted towards stocks and cash. Cash, however, does not generate income by itself. As a result, Buffett is always on the lookout for cash investments that earn yield.

Treasury bills are ultra-safe U.S. Treasury-issued debt with guaranteed principal repayment and fixed interest payments.

Current short-term T-Bill rates are over 5%. With Berkshire Hathaway’s huge stash of cash being parked in T-Bills, the company is earning billions of dollars every year just from interest income.

In December 2023, Buffett went on CNBC to say: “Berkshire bought $10 billion in U.S. Treasuries last Monday. We bought $10 billion in Treasuries this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month [T-Bills]”. Berkshire participates in the weekly government action of the 3-month and 6-month bills to acquire these Treasury bills. 

Buffett confidently stated there’s nothing to worry about when it comes to buying Treasury Bills. “There are some things people shouldn’t worry about. This is one. The dollar is the reserve currency of the world, and everybody knows it.”

Are Treasury Bills A Good Idea Right Now?

Treasury bills currently pay over 5%, which rivals brokered CD rates and money market fund rates. Treasury bills are more liquid than brokered CDs, and money market funds primarily hold Treasury bills.

Notable investors and companies have been buying up Treasury Bills. Warren Buffett buys $10 billion worth of T-Bills per week, while companies like JP Morgan Chase and tech giants such as Google’s Alphabet, Apple, and Microsoft have also reported a large increase in short-term U.S. government securities such as T-Bills. Other star investors such as Joel Greenblatt and Ray Dalio also use Treasury bills to manage their cash. As an individual investor, Treasury bills are one of the best ways to earn income on our cash.

If you live in a state with high state and local taxes, another advantage of Treasury bills is that they are only subject to federal tax, and not these state and local taxes. This could reflect a significant amount of savings, in some cases up to 10%. You wouldn’t get these with investments such as stocks or brokered CDs, which are not exempt from state and local taxes.

Are Treasury Bills Safe?

Treasury bills are often seen as a haven for investors, who view these short-term IOUs from the U.S. government as a go-to choice to earn safe yield. The government promises to pay back each T-bill, ensuring investors get back their money upon maturity.

Though the yield might not always outpace inflation, meaning the real value of the returns could be less, it’s certainly a better pick than letting money sit idle. In a nutshell, for those on the lookout for a secure, easily cashable investment, T-bills are a compelling pick.

How Do I Buy T-Bills?

There are two primary ways to purchase T-Bills.

The easiest way and most popular way for the individual investor is to use your brokerage to buy T-Bills with your brokerage account. We strongly suggest this approach given the better user experience, ease of use, and the ability to manage all your investments on a single platform. 

The other way to purchase T-Bills is through TreasuryDirect, the official platform to buy U.S. Treasuries from the U.S. Treasury Department.

Buying T-Bills Through Your Broker

  1. If you don’t already have one, open an investment account with a brokerage firm. This can usually be done in a few minutes. 
  2. You often purchase T-Bills through the firm’s online trading platform or by speaking with a representative.
  3. Each brokerage platform will generally list T-Bills under the Fixed Income and Bonds category. 
  4. Select the T-Bill you want to purchase, including the maturity date and amount, and place your order.
  5. You can track your T-Bill investments through your brokerage, generally in your Account or Portfolio sections.

Buying T-Bills Through TreasuryDirect

The U.S. Department of the Treasury sells T-Bills directly to the public through its website, TreasuryDirect. Here’s how you can buy T-Bills through TreasuryDirect:

  1. Create an Account: Visit the TreasuryDirect website and create an account.
  2. Link Your Bank Account: You’ll need to link a bank account to fund your purchases.
  3. Select the T-Bill: Choose the specific T-Bill you want to buy, including the maturity date and amount.
  4. Place Your Order: Follow the prompts to complete your purchase.
  5. Manage Your Investments: You can manage your T-Bills and other Treasury securities through your TreasuryDirect account.

The TreasuryDirect platform can be less user-friendly, and can only be used to buy and sell Treasuries. Investors can use TreasuryDirect to purchase other Treasuries such as Series I Bonds TIPS, and floating rate notes. Series I Bonds offer inflation protection through a changing interest rate, while TIPS provide inflation protection through a changing principal indexed to inflation. Floating rate notes are tied to the 13-week T-Bill rate.