Here's How to Buy Treasury Bills as Some Yields Reach 5%, According to Financial Experts

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  • Some Treasury bills, or T-bills, are now paying 5% after a series of interest rate hikes from the Federal Reserve. 
  • You can buy T-bills through TreasuryDirect, a website managed by the U.S. Treasury Department, or a brokerage account.
  • However, there are a few things to know about each purchase option, financial experts say.

With some Treasury bills now offering 5%, the assets have become more appealing to investors. But there are a few things to know about the purchase process, experts say.

Backed by the U.S. government, Treasury bills, or T-bills, are nearly risk-free, with terms of four weeks to 52 weeks. You receive T-bill interest at maturity, which is exempt from state and local taxes.  

After a series of rate hikes from the Federal Reserve, T-bills have become a competitive option for cash, with some T-bills paying more than 5%, as of Feb. 24.

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However, there's not a direct rate comparison with other products because T-bills are typically sold at a discount, with the full value received at maturity, explained Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee.

For example, let's say you purchase $1,000 of one-year T-bills at a 4% discount, with a $960 purchase price. To calculate your coupon rate (4.16%), you take your $1,000 maturity and subtract the $960 purchase price before dividing the difference by $960.   

Fortunately, you'll see the "true yield" or "bank equivalent yield" when buying T-bills through TreasuryDirect, a website managed by the U.S. Department of the Treasury, or your brokerage account, Keil said.

How to buy T-bills through TreasuryDirect

If you already have a TreasuryDirect account — say, because you've purchased Series I bonds — it's relatively easy to buy T-bills, according to Keil, who detailed the process on his website.

After logging into your account, you can pick T-bills based on term and auction date, which determines the discount rate for each issue.

"You don't really know truly what the rate is going to be until the auction hits," Keil said. The process involves institutions bidding against one another, with no action required from everyday investors. 

How to buy T-bills through TreasuryDirect

1. Log in to your TreasuryDirect account.

2. Click "BuyDirect" in top navigation bar.

3. Choose "Bills" under "Marketable Securities."

4. Pick your term, auction date, purchase amount and reinvestment (optional).

After the auction, "you get the exact same rate as the Goldman Sachs of the world," with TreasuryDirect issuing T-bills a few days later, he said.

There is one downside, however. If you want to sell T-bills before maturity, you must hold the asset in TreasuryDirect for at least 45 days before transferring it to your brokerage account. There are more details about the process here.

There's more liquidity through brokerage accounts

One way to avoid liquidity issues is by purchasing T-bills through your brokerage account, rather than using TreasuryDirect.

Keil said the "biggest benefit" of using a brokerage account is instant access to T-bills and immediately knowing your yield to maturity. The trade-off is you'll probably give up around 0.1% yield or lower, he said.

George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts, also suggests buying T-bills outside of TreasuryDirect to avoid liquidity issues.

For example, there are low-fee exchange-traded funds — available through brokerage accounts — that allow investors to buy and sell T-bills before the term ends, he said.

"The fees pose a small drag on the interest," Gagliardi said, but the ease of purchase and ability to sell before maturity "may override the small penalty in interest rates" for many investors.

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