Are Treasury Bills A Good Investment In 2023?

What Are Treasury Bills

Treasury bills are a type of short-term backed debt issued and backed by the US government. Treasury bills – also known as T-bills – are used by the US government to fund public projects and pay ongoing expenses like military budgets, highways, and public schools.

When you purchase a treasury bill, you’re essentially lending your money to the US government in a short-term loan. But what do you get in return? Unlike other types of debt securities like bonds, treasury bills don’t pay interest. Instead, treasury bills are assigned a face value and sold at a discounted price – compared to that face value – in auctions.

So, for example, imagine you purchase a treasury bill with a face value of $1,000, a 52-week term, and a 5% discount. You’ll end up paying $949.44 for that treasury bill – and receive $1,000 at the end of the term. That’s a 5.35% annualized return on your T-bill.

T-bills are accessible from the TreasuryDirect website, online brokerages, and banks. Most dealers offer the option to filter T-bills by term, auction date, amount, and reinvestment option so you can pick the one that better fits your investing horizon.

Is Public.com a Better Place to Invest in Treasuries?

Before we get into whether Treasury Bills are a good investment and how to actually go buy them on the TreasuryDirect website, I wanted to quickly mention another way I have personally bought treasuries in the past 6 months. Public.com is a newer site that has a great program where you can invest in LIQUID Treasuries (vs. being locked in for longer periods from Treasury Direct). However, Treasury Direct actually functions in a way that makes it a liquid investment where you can buy or sell mostly at leisure. I am using this right now to get a better return than I get on any High Yield Savings, with better liquidity than a Treasury!

Check it out by clicking below:

Are Treasury Bills A Good Investment In 2023?

Yes – treasury bills are generally considered a good investment. T-bills are backed by all the might of the US government and are one of the safest investments you can make.

Treasury bills are an excellent investment if you’re looking to make a large purchase within a short timeframe and want to build a bit of money until then. The longest T-bill term is 52 weeks, so at most, your money will be invested for a year.

Even though you can redeem your T-bills at any time before maturity, we don’t recommend it. You won’t lose money per se, but you’ll forfeit the remainder of your potential profits. Additionally, the bank or brokerage that handled your purchase may charge you an early redemption or penalty fee.

Are Treasury Bills Better Than CDs?

T-bills and CDs are good options if you’re looking for safe investments with higher yields and interest rates than those offered by regular savings accounts.

Treasury bills are the more flexible option, with maturity dates ranging from 4 to 52 weeks. For T-bills, there’s usually no fee associated with redeeming early; you’ll just forfeit some of your potential profits. T-bills aren’t as liquid as savings accounts – you still have to go through a broker or bank account to facilitate your trade. Still, they’re considered very liquid investments.

CDs (Certificates of Deposit) offer a higher yield than T-bills but are considerably less liquid. The liquidation process is not just longer, but the federal government doesn’t cap penalties; there’s just a minimum penalty. Penalties usually start at 90-120 days of the interest payments you would otherwise earn as profits. Some CDs can eat away at your principal if you withdraw too early.

Our Recommendation

If you’re still unsure which type of debt security is the best fit for you, here are our recommendations:

• If you’re looking for a higher yield than regular savings accounts while keeping healthy liquidity, T-bills are for you

• If you have a big purchase coming up and would like to keep your money growing safely, a T-bill with a short-term maturity is your best bet

• If you’re looking to add stability and diversity to your portfolio with government-backed debt obligations, T-bills are an excellent option

• If you’re looking for the highest yield and don’t mind the very low liquidity, you may want to try out CDs

In general, we recommend T-bills over CDs for most investors. CDs carry many risks, and since terms usually range from 5-60 months, they’re more susceptible to shifts in the economy – if interest rates go up, you may be better off with a regular savings account. Additionally, CDs have very high penalty fees for withdrawing early. All in all, CDs can be a lot harder to navigate than T-bills.

Do Stocks Outperform Treasury Bills?

It depends. Historically, treasury bills have outperformed dividend stocks in the short term, but both are very limited in terms of growth. If you’re looking to grow your wealth, you’re better off with growth-focused stocks.

Always keep in mind that treasury bills won’t make you rich. They’re a good hedge against inflation and can add stability to any portfolio, but they shouldn’t comprise your whole investing strategy. As always, diversification is key.

How Can I Purchase T-Bills?

You can purchase T-bills and other debt securities issued by the US government – like treasury bonds and notes – online from the TreasuryDirect website. Before you can start buying T-bills, you’ll need to create an account. Here’s how to get started:

• Visit the TreasuryDirect website

• If you don’t have an account, click Create New Account

• Fill in some of your basic financial information

• Log in to your account and navigate to the BuyDirect menu

• Pick a bill based on term, auction date, amount, or reinvestment

Alternatively, you can buy T-bills through a brokerage account. The benefit of doing this over using the TreasuryDirect website is higher liquidity. You’ll be able to purchase and sell t-bills immediately. The downside is the brokerage fee – most brokerages charge a very low fee for trading these, but it should still factor in your decision.

What Makes T-Bill Rates Go Up?

The largest factor that drives the price of T-bills is economic growth. When the market is booming, and interest rates are high, other investments like real estate, equities, and mortgages offer a considerably higher yield, and demand for T-bills and other debt-backed securities drops. During these periods, T-bills offer the highest yield to attract potential investors.

On the other hand, when the market is experiencing a downturn and investors are gravitating towards safer investments, demand for T-bills increases. With the influx of new investors, T-bills can afford to offer a lower yield because of high demand. During these periods, T-bills offer the lowest yield.

What Is The 10 Year Treasury Forecast For 2024

According to experts at Goldman Sachs Group, the benchmark 10-year yield for treasury bills in 2024 will stay just above 4%. The chief strategist at Goldman Sachs, Praveen Korapaty, estimates that we’ll see no recession and that inflation will still be above the Federal reserve bank’s target estimate.

Keep in mind these are just projections, and past performance is no guarantee of future results.

Are Treasury Bills Taxable?

Yes – even though local income taxes don’t apply to T-bills, all interests earned on a treasury bill purchase – including treasury bonds and notes – are taxable at the federal level. The interests from these in any given year must be recorded on a Form 1099-INT.

Another consideration is that if you live in a state with high local taxes, T-bills are particularly attractive compared to other debt securities like CDs, which are subject to local income taxes.

Conclusion

Treasuries are an excellent way to diversify your portfolio and add some stability. No matter if you decide to go for treasury bills, notes, or bonds, all three are fully backed by faith in the US government’s financial system. Treasury investments are very liquid and are often a good hedge against inflation. A very common strategy is to purchase T-bills when you have a large purchase coming up, so your money is safely invested, and you can turn in a small profit in a short period.

Another very common strategy is to purchase T-bills with staggered maturity dates. Usually, 3-6 month treasury bills offer the highest yield, so by staggering them, you can have a consistent source of income all year round.

FAQs

What Happens To Treasury Notes When Interest Rates Rise?

If interest rates are on the rise, existing interest rates will be lower compared to the rising market. In that case, treasury bills and other debt securities like bonds and notes are less attractive than stocks and other investments with higher yields or a more appealing growth prospect.

What Is The 3 Month Treasury Bill Rate?

As of mid-2023, the yield of a 3-month treasury bill hovers around 5.20%. Remember that past performance is no guarantee of future results, and treasury bills are particularly susceptible to market conditions and the existing inflation rate. Keep that in mind when building your portfolio and choosing the most optimal investments.

Are T-Bills FDIC insured?

No – treasury bills, notes, and bonds are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, they’re backed by the might and faith of the US government.

Are Treasury Bills A Risky Investment?

No – T-bills are so secure that they’re used as the benchmark for the rate of return of zero-risk investments. T-bills are backed by the full faith of the federal government – which has never defaulted on an obligation and is unlikely to do so. T-bills holders can rest assured they won’t lose their investment.

Is It Safe To Buy Treasury Bills Now?

Buying treasury securities is always safe. The treasury department backs T-bills through the economic power of the US government. T-bills can fit in almost all portfolios to add a measure of stability, but depending on market conditions, you may be better of with a higher-yielding investment.