What is the difference between a T-bill and a T note?
If you'll need the money sooner, a Treasury bill with a shorter maturity might be best. If you have a longer time horizon, Treasury notes with maturities of up to 10 years might be better. Typically, the longer the maturity, the higher your return on investment.
For this reason, T-bills have interest rate risk, which means there is a danger that bondholders might lose out should there be higher rates in the future. Although T-bills have zero default risk, their returns are typically lower than corporate bonds and some certificates of deposit.
At maturity, you receive the face value, letting you earn a return. While T-bills are a safe investment, they are subject to interest rate and inflation risks. You can sell them on the secondary market, but the price may be lower than expected if inflation or interest rates rise.
Treasury notes and Treasury bonds pay interest every six months. Treasury bills don't pay a fixed interest rate. Instead, they are sold at a discount rate to their face value. The “interest” you receive (so to speak) is the difference between the face value of the bill and its discount rate when it matures.
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.
A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.
Bonds are generally considered a less-risky complement to the volatility of stocks in an investment portfolio. U.S. Treasurys, and specifically Treasury bills and Treasury notes, are the benchmark for a nearly risk-free investment if held to maturity.
Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.
Drawbacks of Investing in Treasury Bills
The biggest downside of investing in T-bills is that you're going to get a lower rate of return compared to other investments, such as certificates of deposit, money market funds, corporate bonds or stocks.
Why does Warren Buffett buy T-bills?
Buffett hasn't been a fan of bonds for a long time. He prefers equities, which offer capital-appreciation potential, and cash—mostly risk-free U.S. Treasury bills—which mature within a year. Berkshire held $235 billion of T-bills on June 30.
Key Takeaways
Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes.
Treasury bills (T-bills) are short-term securities with maturities ranging from four weeks to 52 weeks. By buying directly from the U.S. Treasury, you can avoid paying any extra fees or commissions to your bank.
Maturity of T-bills
Upon maturity of the T-bills, when will I receive the principal amount? On maturity, the principal amount will be credited to your respective account by the end of the day, typically after 6pm.
Treasury Bills
Except for holidays or special circumstances, the offering is announced on Tuesday, the bills are auctioned on Thursday, and they are issued on the following Tuesday.
6 Month Treasury Bill Rate is at 4.54%, compared to 4.58% the previous market day and 5.31% last year. This is higher than the long term average of 4.49%. The 6 Month Treasury Bill Rate is the yield received for investing in a US government issued treasury bill that has a maturity of 6 months.
The minimum amount that you can purchase of any given Treasury Bill, Note, Bond, TIPS, or FRNs is $100.
- Best for earning a high APY: My Banking Direct High Yield Savings Account.
- Best for low minimum deposit: Western Alliance Bank High-Yield Savings Account.
- Best for ATM card: UFB Portfolio Savings.
- Best for money market account: CFG Bank High Yield Money Market Account.
You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov).
The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.
Is it better to buy Treasury bills or notes?
U.S. savings bonds are a long-term choice and are appropriate for savers looking at a 20-year or 30-year time horizon. Treasury bills are a short-term alternative, maturing in a year or less. Treasury notes are at the midpoint, maturing in two to 10 years. U.S. Department of the Treasury.
Use the Education Exclusion
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.
T-bills are considered risk-free because you can be certain you'll get your money back. But risk and return are directly proportional, and T-bills offer very low returns on investment. Consequently, if you invest in T-bills, there's a risk you're foregoing the opportunity to earn a higher return elsewhere.
Buffett has always been a fan of T-bills. At the annual Berkshire conference in May, the 93-year-old investor called them “the safest investment there is.” Treasury bills are short-term securities issued — and backed — by the U.S. government.
Some of the major downsides to Treasury bonds are: Lower yield: You'll typically earn less interest on Treasuries compared with other, riskier securities.
