📈Treasury Bills: A Solid Choice with High Yields

🔑 Key Points to Consider

Interest rates have recently reached levels not seen in over two decades. Despite this, T-bill yields have stood tall, clocking in above 5% as of July 27.

These short-term securities, with durations ranging from one month to a year, are holding their ground against long-term Treasurys, making them an appealing choice for those looking to maximize their cash returns.

🔍 Unveiling Treasury Bills: What Are They?

Let's start with the basics.

Think of T-bills as dynamic financial instruments issued by the U.S. government. In essence, they're like the versatile Swiss Army knife of the financial world – flexible, reliable, and incredibly useful.

But here's where things get intriguing. T-bills are sold at a discount to their face value. It's like getting a sneak peek at a blockbuster movie before everyone else but at a reduced price.

However, when these bills mature, they pay you their full-face value. It's as if that movie ticket you bought at a discount turned into an all-access pass to the entire theater!

Now, you might be wondering why anyone would invest in something sold at a discount. The answer lies in the difference between the purchase price and the face value – that difference becomes your earnings, your profit.

Whether you're a seasoned investor or new to the world of finance, T-bills offer a unique blend of simplicity and profitability.

💡 T-Bills vs. Other Popular Choices: A Standout Performance

In times of economic turbulence, T-bills shine even brighter. While other investment options may experience volatility, T-bills remain a beacon of stability.

Their ability to weather economic downturns is like having a financial umbrella during a storm – a reassuring shelter for your funds.

But that's not all – let's take a closer look at the unique advantages T-bills bring to the table:

1. Zero Default Risk: Imagine an investment with zero default risk – that's exactly what T-bills offer with their U.S. government guarantee. In a world where uncertainties loom, this guarantee provides an unparalleled sense of security.

2. Low Minimum Investment: Whether you're a seasoned investor or just starting, T-bills welcome you with a low minimum investment requirement of $100. It's an open invitation to embark on your financial journey, regardless of your budget.

3. Tax Benefits: T-bills are a tax-savvy choice. While federal income taxes apply to their interest income, they enjoy exemption from state and local income taxes. This tax advantage can significantly enhance your overall returns.

4. Easy Liquidity: Unlike many investments that tie your funds, T-bills offer liquidity. You can effortlessly buy and sell them in the secondary bond market, providing you with financial flexibility when you need it.

💡 Before You Dive In

Before you jump headfirst into T-bills, here are a few things to keep in mind:

1. T-Bills vs. Other Options: T-bills are unique in that they are often sold at a discount but redeemed at their total value upon maturity.

This makes direct rate comparisons tricky. For instance, a $1,000 T-bill bought at a 4% discount for $960 actually has a coupon rate of 4.16%.

2. TreasuryDirect's True Yield: When purchasing T-bills through TreasuryDirect (managed by the U.S. Department of the Treasury) or your brokerage account, you'll receive the accurate "true yield" or "bank equivalent yield."

This eliminates any guesswork when it comes to your returns.

🛍️ How to Buy T-Bills

There are a couple of pathways to acquiring T-bills, each with its own benefits:

Via TreasuryDirect

• Log in to your TreasuryDirect account.

• Click "BuyDirect" in the top navigation bar.

• Select "Bills" under "Marketable Securities."

• Choose your desired term, auction date, purchase amount, and reinvestment preference (if any).

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However, there is a catch with this route that you should beware of.

If you decide to sell T-bills before they reach maturity, you'll need to keep the asset within your TreasuryDirect account for a duration of at least 45 days before you're allowed to shift it to your brokerage account.

Through Your Brokerage Account

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Purchasing T-bills via your brokerage account offers instant access and clear visibility into your yield to maturity.

While you sacrifice around 0.1% yield compared to TreasuryDirect, the convenience outweighs the slightly lower return for many investors.

🔄 Flex Your Financial Muscles

Don't forget the power of flexibility. If the idea of selling before maturity appeals to you, consider purchasing T-bills through your brokerage account.

With exchange-traded funds (ETFs) in tow, you have an exit strategy at hand, even if it comes with a minor reduction in interest due to fees.

That is, exchange-traded funds (ETFs) accessible through brokerages allow you to trade T-bills before they mature.

📈 In Conclusion

T-bills continue to shine as a high-yield option despite the current interest rate landscape. Whether you choose TreasuryDirect or your brokerage account, these short-term securities offer competitive returns for your cash.

Remember, making informed decisions is the cornerstone of successful financial planning. If T-bills align with your goals, take advantage of their potential!

*Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Consult with a qualified financial advisor before making any investment decisions.