Which is better Treasury bills or bonds?
Compared with
Cons: Interest Rate Risk: Long-term treasuries are more sensitive to changes in interest rates than short-term ones. If interest rates rise, the value of existing long-term bonds may decline, leading to potential capital losses.
While interest rates and inflation can affect Treasury bill rates, they're generally considered a lower-risk (but lower-reward) investment than other debt securities. Treasury bills are backed by the full faith and credit of the U.S. government.
The Bottom Line. Both Treasury bonds and Treasury bills are low-risk debt securities issued by the federal government. T-bonds are designed for long-term investing, while T-bills have much shorter maturity periods. Both can help diversify your investment portfolio while shielding you from state and local taxes.
- T-bills offer low returns compared with other debt instruments.
- The T-bill pays no interest payments leading up to its maturity.
- T-bills can inhibit cash flow for investors who require steady income.
- T-bills have interest rate risk, so, their rate could become less attractive in a rising-rate environment.
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.
Unlike a debt-limit default, a shutdown does not affect the government's ability to pay its debt to bondholders and therefore does not have a direct impact on the government's borrowing costs or creditworthiness.
So, the risks to investing in T-bonds are opportunity risks. That is, the investor might have gotten a better return elsewhere, and only time will tell. The dangers lie in three areas: inflation, interest rate risk, and opportunity costs.
When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.
Investors Near or in Retirement
A portfolio that includes Treasury bonds, bills, or notes, provides safety and helps to preserve their savings since Treasuries are considered risk-free investments. With their consistent interest payments, T-bonds can offer an ideal income stream after the employment paychecks cease.
Can Treasury bills lose value?
Investors who hold T-bills can rest assured that they will not lose their investment. T-Bills are considered a zero-risk investment thanks also to Treasury market liquidity.
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).
![Which is better Treasury bills or bonds? (2024)](https://i.ytimg.com/vi/eqsHUeycAj4/hq720.jpg?sqp=-oaymwEcCNAFEJQDSFXyq4qpAw4IARUAAIhCGAFwAcABBg==&rs=AOn4CLBac7KNaKIdLXDtl9KZJlk4wNjSYg)
Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.
Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.
Treasury bills can be a good choice for those looking for a low-risk, fixed-rate investment that doesn't require setting money aside for as long as a CD might call for. However, you still run the risk of losing out on higher rates and returns if the market is on the upswing while your money is locked in.
Low risk: Treasury bills are backed by the full faith and credit of the government, making them a very low-risk investment option. They also have a very short maturity date, so investors are not exposed to long-term market risks and are able to access their funds after brief periods.
3 Month Treasury Bill Rate is at 5.24%, compared to 5.24% the previous market day and 4.89% last year. This is higher than the long term average of 4.19%. The 3 Month Treasury Bill Rate is the yield received for investing in a government issued treasury security that has a maturity of 3 months.
1 Year Treasury Rate is at 4.94%, compared to 4.98% the previous market day and 5.05% last year. This is higher than the long term average of 2.94%.
When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment.
CDs offer a fixed rate for locking up your money for a fixed period of time, but you'll only earn the highest returns if you choose longer terms. Treasury bills are shorter term and depending on the term you choose, you could lock your money up for as little as a few days or as long as one year.
Who should buy Treasury bills?
Treasury bills are good investments for individuals looking to make a large purchase in a short timeline, as the money will only be tied-up for at most a year. Although T-bills don't typically earn as much as other securities, or in some cases CDs, they still offer higher returns than traditional savings accounts.
Treasury notes are medium-term, ranging from two to 10 years, and are otherwise the same, with semiannual interest payments and the face value when they mature. Treasury bills mature within a year, do not pay interest, and are sold at a discount to the face value that you get at maturity.
During a shutdown, the SSA would be partially closed — with around 8,500 of its 61,869 workers furloughed. Services that are not directly related to payment benefits and those not critical to direct-service operations would stop until the government reopens, the SSA said.
In a shutdown, the federal government temporarily stops paying employees and contractors who perform government services, whereas in a default the list of parties not paid is much broader.
Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
---|---|---|
$50 Bond | $100 | $207.36 |
$100 Bond | $200 | $414.72 |
$500 Bond | $400 | $1,036.80 |
$1,000 Bond | $800 | $2,073.60 |
References
- https://www.bdo.com/insights/industries/government-contracting/what-does-the-impending-government-shutdown-mean-for-government-contractors
- https://ledyard.bank/Wealth-Management/Insights/Articles/Our-Guide-to-Riding-Out-the-Bond-Market-Storm
- https://stockanalysis.com/article/10-percent-return-investments/
- https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-investment-bonds-and-taxes/L1RRzUja7
- https://www.treasurydirect.gov/forms/savpdp0039.pdf
- https://money.com/treasury-bills-vs-bonds/
- https://www.linkedin.com/pulse/investor-strategy-2023-real-estate-vs-treasury-bonds-robinson
- https://homework.study.com/explanation/which-of-the-following-types-of-bonds-has-the-least-default-risk-a-municipal-bonds-b-corporate-bonds-c-treasury-bonds.html
- https://www.morningstar.com/portfolios/experts-forecast-stock-bond-returns-2024-edition
- https://www.wsj.com/buyside/personal-finance/sell-bonds-buy-money-market-cds-a54146de
- https://www.americanbanker.com/list/what-bankers-need-to-know-about-the-government-shutdown
- https://www.americanbullion.com/can-banks-seize-your-money/
- https://www.nerdwallet.com/article/investing/10-year-treasury-yield
- https://www.investopedia.com/ask/answers/168.asp
- https://www.nerdwallet.com/article/investing/treasury-bond
- https://www.nerdwallet.com/article/investing/stocks-vs-bonds
- https://ycharts.com/indicators/1_year_treasury_rate
- https://www.govexec.com/pay-benefits/2023/09/your-guide-pay-and-benefits-during-shutdown/390423/
- https://www.afinwealth.com/blog-01/pros-and-cons-using-treasuries-short-and-long-term-investors
- https://goldenpi.com/collections/high-yield-bonds
- https://fortune.com/recommends/investing/cds-vs-bonds/
- https://www.investopedia.com/articles/investing/110915/3-signs-its-time-sell-your-bonds.asp
- https://www.schwab.com/learn/story/what-happens-to-bonds-when-interest-rates-rise
- https://www.fool.com/the-ascent/banks/where-put-money-recession/
- https://www.fool.com/investing/how-to-invest/bonds/patriot-bonds/
- https://www.usatoday.com/money/blueprint/investing/what-assets-are-recession-proof/
- https://time.com/personal-finance/article/savings-bonds-guide/
- https://obryanlawoffices.com/bankruptcy-help/can-the-irs-take-money-from-your-bank-account/
- https://www.axios.com/2023/05/20/debt-ceiling-risk-free-us-bonds
- https://www.cnn.com/cnn-underscored/money/how-to-cash-a-savings-bond
- https://www.morningstar.com/portfolios/should-you-t-bill-chill
- https://money.usnews.com/funds/etfs/rankings/long-government
- https://www.rbcwealthmanagement.com/en-ca/insights/global-insight-2024-outlook-highlights-bonds-are-back
- https://www.investopedia.com/ask/answers/difference-between-bills-notes-and-bonds/
- https://www.nerdwallet.com/article/investing/the-best-investments-right-now
- https://www.experian.com/blogs/ask-experian/treasury-bills-vs-bonds/
- https://www.forbes.com/advisor/investing/best-investments-stock-market-crash/
- https://www.nerdwallet.com/article/investing/how-to-buy-treasury-bonds
- https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp
- https://www.bankrate.com/investing/how-often-do-treasury-bonds-pay-interest/
- https://www.bankrate.com/investing/is-now-a-good-time-to-buy-bonds/
- https://www.fool.com/the-ascent/banks/articles/cds-vs-t-bills-whats-the-better-investment-now/
- https://money.usnews.com/investing/articles/best-investments-during-a-recession
- https://www.forbes.com/advisor/investing/how-a-government-shutdown-affects-your-investments/
- https://americanfundsretirement.retire.americanfunds.com/planning/what-is-asset-allocation/stocks-and-bonds.html
- https://www.experian.com/blogs/ask-experian/are-government-bonds-risk-free/
- https://www.cnn.com/cnn-underscored/money/cds-vs-bonds
- https://www.cnbc.com/select/cds-vs-savings-accounts-vs-treasury-bills/
- https://smartasset.com/investing/how-to-invest-100k
- https://www.investing.com/analysis/lessons-from-the-great-depression-200640177
- https://www.investopedia.com/ask/answers/013015/how-are-treasury-bills-taxed.asp
- https://www.businessinsider.com/personal-finance/recession-save-more-cash-strategies-2022-12
- https://public.com/learn/how-are-treasury-bills-taxed
- https://www.fidelity.com/learning-center/investment-products/mutual-funds/bond-vs-bond-funds
- https://www.businessinsider.com/personal-finance/treasury-bonds
- https://en.wikipedia.org/wiki/Government_shutdowns_in_the_United_States
- https://smartasset.com/investing/what-are-t-bills-and-should-you-invest-in-them
- https://www.cnbc.com/bonds/
- https://www.investopedia.com/articles/investing/080813/how-profit-inflation.asp
- https://www.forbes.com/advisor/investing/treasury-bills/
- https://www.theguardian.com/us-news/2024/mar/08/government-shutdown-averted
- https://www.kiplinger.com/investing/what-does-a-government-shutdown-mean-for-stocks
- https://www.thebalancemoney.com/lowest-risk-bonds-what-types-of-bonds-are-the-safest-417025
- https://www.nerdwallet.com/article/finance/how-does-a-government-shutdown-affect-you
- https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/market-pulse/government-shutdowns
- https://www.investopedia.com/ask/answers/111414/what-causes-bonds-price-rise.asp
- https://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp
- https://goldenpi.com/collections/highly-safe-bonds
- https://www.experian.com/blogs/ask-experian/are-treasury-bonds-good-investment-for-retirement/
- https://www.investopedia.com/articles/bonds/08/bond-risks.asp
- https://www.nasdaq.com/articles/are-treasury-bonds-a-safe-alternative-to-bank-savings-accounts
- https://www.nerdwallet.com/article/investing/u-s-treasury-bonds-bills-and-notes-what-they-are-and-how-to-buy
- https://www.reuters.com/markets/us/us-treasury-yields-flat-until-june-fall-second-half-2024-01-10/
- https://www.opm.gov/support/retirement/faq/cost-of-living-adjustments/
- https://www.treasurydirect.gov/marketable-securities/treasury-bills/
- https://www.cnbc.com/2024/03/05/us-treasury-yields-investors-fret-over-economic-outlook.html
- https://fortune.com/recommends/investing/high-yield-savings-vs-certificate-of-deposit-vs-treasury-bill/
- https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp
- https://www.bankrate.com/loans/personal-loans/what-happens-to-your-loans-when-a-lender-goes-bankrupt/
- https://www.forbes.com/advisor/investing/best-safe-investments/
- https://www.fidelity.com/learning-center/trading-investing/bond-market-outlook
- https://www.brookings.edu/articles/what-is-a-government-shutdown-and-why-are-we-likely-to-have-another-one/
- https://fortune.com/recommends/investing/safe-investments/
- https://www.nerdwallet.com/article/investing/treasury-bills
- https://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/guidance-for-shutdown-furloughs.pdf
- https://www.americanprogress.org/article/5-reasons-why-careening-from-near-shutdown-to-near-shutdown-is-bad-for-america/
- https://www.financestrategists.com/wealth-management/bonds/are-bonds-good-during-a-recession/
- https://www.investopedia.com/ask/answers/041515/treasury-bond-good-investment-retirement.asp
- https://www.opm.gov/support/retirement/faq/survivor-benefits/
- https://www.doi.gov/pressreleases/government-shutdown-will-close-americas-national-parks-impede-visitor-access
- https://www.cbo.gov/publication/59946
- https://www.investopedia.com/articles/bonds/08/lose-money-bonds-losses.asp
- https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/
- https://www.schwab.com/learn/story/why-havent-tips-returns-kept-pace-with-inflation
- https://www.bankrate.com/investing/how-to-invest-in-bonds/
- https://www.naco.org/news/congress-enacts-third-stopgap-fund-government-through-march-2024-avoid-government-shutdown
- https://money.usnews.com/investing/articles/best-bond-etfs-to-buy-now
- https://www.investopedia.com/ask/answers/042215/what-are-risks-associated-investing-treasury-bond.asp
- https://obamawhitehouse.archives.gov/1600/legislative-branch
- https://www.treasurydirect.gov/research-center/history-of-marketable-securities/bills/t-bills-indepth/
- https://www.cbsnews.com/news/government-shutdown-2023-does-congress-get-paid/
- https://www.kiplinger.com/politics/social-security-checks-impact-government-shutdown
- https://www.fool.com/the-ascent/banks/articles/3-reasons-to-buy-t-bills-yourself-and-not-through-your-bank/
- https://tradingeconomics.com/united-states/government-bond-yield
- https://www.kiplinger.com/personal-finance/why-treasury-bills-are-a-good-bet
- https://www.investopedia.com/terms/t/treasurybill.asp
- https://www.crfb.org/papers/government-shutdowns-qa-everything-you-should-know
- https://www.taxpolicycenter.org/taxvox/government-shutdown-employment-effects-state
- https://www.cramer.senate.gov/news/press-releases/senate-passes-fiscal-year-2024-appropriations-minibus
- https://www.schwab.com/learn/story/fixed-income-outlook-rocky-road-bond-market
- https://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/unemployment-compensation-for-federal-employees-fact-sheet-december-2018.pdf
- https://ycharts.com/indicators/3_month_t_bill