Here’s How To Buy Treasury Bills With Some Yields As High As 5%

With some T-bills now being offered at 5%, the asset is becoming more attractive to investors. But there are a few things to know about the buying process, experts say.

Backed by the US government, Treasury bills or T-bills are virtually risk-free, with a tenure of four weeks to 52 weeks. You receive interest on your T-bill when due, and it’s exempt from state and local taxes.

After a series of rate hikes from the Federal Reserve, T-bills have become a competitive cash option, with some T-bills paying more than 5%, as of Feb. 24.

More personal finance:
Some Treasury bills now pay 5%. Here’s what you should know
Fidelity says retirees lost 23% of their 401(k) savings in 2022
How to choose the most tax-friendly investment accounts

However, there is no direct comparison of pricing to other products because Treasuries are typically sold at a discount, with full value received at maturity, explained Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee.

For example, suppose you purchase $1,000 of one-year Treasury bills at a 4% discount, with a purchase price of $960. To calculate your coupon rate (4.16%), you need to take the $1,000 for your due date and subtract the purchase price of $960 before dividing the difference by $960.

Fortunately, you’ll see the “real yield” or “bank equivalent yield” when you buy T-bills through TreasuryDirect, a website operated by the U.S. Treasury Department, or your brokerage account, Keil said.

If you already have a TreasuryDirect account — for example, because you bought Series I bonds — it’s relatively easy to buy Treasury bills, according to Keil, who details the process in their website.

After logging into your account, you can choose treasury bills based on the term and auction date, which determines the discount rate for each issue.

“You never really know what the price will be until the auction starts,” Keel said. The process involves institutions bidding against one another, with no action required by ordinary investors.

After the auction, “you get exactly the same price as Goldman Sachs in the world,” with TreasuryDirect issuing treasury bills a few days later, he said.

However, there is one downside. If you want to sell Treasury 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.

One way to avoid liquidity issues is to buy Treasury bills through your own brokerage account, rather than using TreasuryDirect.

Keil said the “biggest benefit” of using a brokerage account is instant access to T-bills and instantly knowing your yield to maturity. The trade-off, he said, is that you’ll probably part with about 0.1% return or less.

George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts, also suggests buying Treasurys outside of TreasuryDirect to avoid liquidity problems.

For example, there are low-fee exchange-traded funds — available through brokerage accounts — that allow investors to buy and sell Treasury bills before the term expires, he said.

“The fee is a small drag on interest,” Gagliardi said, but the ease of buying and the ability to sell before maturity “may outweigh the small penalty in interest rates” for many investors.