Investing in US Treasury Bills

One of your options for short-term investments is US treasury bills. However, if you've never thought of investing in treasury bills, you might not be familiar with how the process works or why these can be good investments, depending on your needs. Here's what you need to know.

How Treasury Investments Work
Investing in treasury bills is an easy method of short-term investment. When you purchase a treasury bill, you're paying for the government's guarantee to pay you X dollars on X date. The yield on treasury investments comes from investing in treasury bills below face value. For example, you might buy a $10,000 treasury bill with a one-year maturity for $9,800. Since you bought the treasury bill below face value, when the government repays you in one year, you'll make $200.

Benefits of Investing in Treasury Bills
Investing in treasury bills is one of the safest ways to hold your money for short-term investing. Treasury bills give you flexibility, offering short maturities of one month, three months, six months or one year. Treasury investments are also considered to be one of the safer investments because the US government holds the bond. If you're looking for a short-term haven for your investment dollars, investing in treasury bills may help protect your funds while other investment types are fluctuating. Investing in treasury bills can also help minimize tax liabilities, as treasury bills are exempt from state and local taxes.

Investing in Treasury Bills: How to Buy
Treasury investments are sold in auctions. The government issues a specific number of treasury bills, on which investors can place bids and safely determine their acceptable yield. If treasury bills are being purchased at a high rate and don't offer much yield at maturity, you can simply opt not to buy them. By specifying a set yield, you can ensure that you'll get a reasonable return on your treasury investments or avoid tying up your money there.

You can also buy treasury investments from banks and brokers on the secondary market. However, banks and brokers often charge a commission or charge you more for the treasury investments than they paid at the primary market. Keep this in mind when investing in treasury bills, and try to go directly to the primary market when possible, to ensure you're getting the best rate of return.

Investing in Treasury Bills and Taking a Loss
Before you buy, take note that some investors purchase treasury investments at face value, or even a slight loss, when the market is in fluctuation. This is because investing in treasury bills is virtually risk-free, and many investors would prefer to take a minor loss on guaranteed treasury investments than to take a potentially staggering loss in an uncertain stock market.