Buying a 3-month Treasury bill (T-bill) is a safe and straightforward way to invest in the U.S. government’s debt. T-bills are considered one of the lowest-risk investments because they’re backed by the full faith and credit of the U.S. government. This guide will walk you through the entire process, from understanding what T-bills are to purchasing and managing your investment.
A 3-month Treasury bill is a short-term debt security issued by the U.S. Department of the Treasury. It matures in 13 weeks (about 91 days), making it one of the shortest-term T-bills available. When you buy a T-bill, you’re essentially lending money to the government. In return, you receive the full face value of the bill when it matures.
Key Features of 3-Month T-Bills
No interest payments: T-bills are sold at a discount from their face value. For example, you might pay $995 for a $1,000 T-bill. The difference ($5) is your profit.
Low minimum investment: You can buy T-bills in increments of $100, starting at $100.
Auction-based pricing: The price and yield are determined through competitive and noncompetitive bidding.
Why Choose 3-Month T-Bills?
Liquidity: They mature quickly, so you can access your money in 91 days.
Safety: They’re nearly risk-free compared to stocks or corporate bonds.
Tax advantages: T-bill earnings are exempt from state and local taxes.
Risks to Consider
Inflation risk: If inflation outpaces the T-bill’s yield, your purchasing power may decrease.
Opportunity cost: You might earn more from other investments, but with higher risk.
Current Interest Rates
Check the Treasury’s website or financial news outlets for the latest 3-month T-bill rates. Rates vary based on market conditions and demand.
Step 1: Prepare to Buy
Before purchasing a T-bill, gather the following:
Bank account: You’ll need a U.S. bank account to fund your purchase.
Social Security Number (SSN): Required to open an account with TreasuryDirect or a brokerage.
Government-issued ID: For identity verification.
Step 2: Open an Account
- Go to TreasuryDirect.gov.
- Click “Open an Account.”
- Provide your SSN, email, and bank account details.
- Verify your identity via a verification code sent to your email or phone.
Step 3: Place Your Order
- Log in to your TreasuryDirect account.
- Click “BuyDirect” under the “TreasuryDirect” tab.
- Select “Treasury Bills” and “3-Month.”
- Enter the amount you want to invest (minimum $100).
Noncompetitive bidding: You accept the average yield from the auction.
Competitive bidding: You specify the yield you want, but there’s no guarantee your bid will be accepted.
- Review your order and submit.
- Step-by-Step Process for Brokers/Banks
- Log in to your brokerage/bank account.
- Search for “Treasury Bills” or “Fixed Income.”
- Find the 3-month T-bill listing.
- Enter the quantity or dollar amount you want to buy.
- Confirm the purchase.
Step 4: Wait for the Auction
T-bills are sold weekly through auctions. If you bid noncompetitively, your order is guaranteed, and you’ll pay the average price determined at the auction. Competitive bids may not be filled if your yield is too low. 3-month T-bills are auctioned every Monday.The auction results are announced the next day.
Step 5: Receive Your T-Bill
Once the auction closes, your account will reflect the T-bill purchase. On TreasuryDirect, it appears in your “Current Holdings.” Brokers may show it in your portfolio.
Step 6: Hold Until Maturity
TreasuryDirect: The funds are deposited into your linked bank account.
Brokers/Banks: The money is typically credited to your account or reinvested.
Step 7: Reinvest or Cash Out
Reinvest: Use the proceeds to buy another T-bill.
Cash out: Withdraw the funds to your bank account.
Common Questions About 3-Month T-Bills
Conclusion
Buying a 3-month Treasury bill is a smart choice for conservative investors looking to preserve capital. By following these steps, you can easily purchase T-bills through TreasuryDirect or a brokerage. Remember to monitor interest rates and consider reinvesting to maximize returns. Start small, stay informed, and grow your savings safely.
Related Topics:
How Do You Buy a 3-Month Treasury Bill?
