After over a decade of low interest rates, Treasury bills are finally starting to look attractive. Treasury bills are some of the safest investments in the world, and as of January 2023, are paying over 4% interest.
So, how do you buy Treasury bills? You can buy Treasury bills on Schwab, other brokerages and Treasury Direct. I already have an account at Charles Schwab, which is why I started looked into how to buy Treasury Bills with them, though other brokerages may be just as easy. Here is how I bought a 3 month Treasury Bill at Charles Schwab.
What is a Treasury bill
A Treasury bill, also known as a T-bill, is a short-term debt obligation issued by the U.S. government. Treasury bills have different maturity time frames including 3 month, 6 months, 9 months, a year and longer fixed timeframes. T-bills are sold at a discount to their face value. This means you will pay less than face value, and receive the interest + initial principle (face value) when the T-bill is redeemed at maturity. Treasury bills are considered some of the safest investments because they are backed by the U.S. government.
Why Should You Buy A Treasury Bill
Before we go into how to buy a Treasury bill, why should you buy a Treasury bill in the first place? Right now, there is a lot of uncertainty in the economy and stock indices have been in a downtrend. There are limits to how much you can invest in Series iBonds, and also a mandatory 1 year holding period w/ a 5 year mandatory holding period to avoid a 3 month interest penalty. With inflation expected to go down, the value of buying Series iBonds isn’t as simple. Though the interest rates in January 2023 are 6.89%, in 6 months it will likely be lower and potentially comparable to the interest Treasury bills offers. With the recent increase in Treasury Bill interest rates, there are options to make 4%+ interest. And, you don’t have to hold for long with the options to buy 8-week and 12-week Treasury Bills.
Additionally, while Treasury bills are taxed federally, they are except from state and local taxes.
How to Buy a Treasury Bill at Charles Schwab
To buy a Treasury bill at Charles Schwab you will need a brokerage account. If you do not have a brokerage account, go to Charles Schwab and click “Open an Account.” You’ll need provide personal and financial information as well as transfer funds after the account is open, and it usually takes a few days before the cash is available to trade or buy Treasury bills.
Once you have a Charles Schwab brokerage account:
- Log in and open the “Trading” tab
- Click on the “Bonds” heading
- On the “Bonds” page, scroll down to “U.S. Treasuries” and click the term you want to buy
- Select the specific Treasury bill you wish to purchase and enter the desired quantity
- Review and confirm the details of your order, including the price and any fees
- Double check the price, as that will be the amount moved from your cash to the Treasury bill
- Submit your order and wait for it to be processed. If the market is open, it will be processed that day. If the market is closed, it will be processed the next business day.
- Once your order is complete, go to the “Accounts” tab, select “Positions” and scroll to “Fixed Income”. You will now see your Treasury bill there in your account.
How to Cash Out Your Treasury Bill On The Maturity Date
When a Treasury bill in a Charles Schwab brokerage account matures, the proceeds will automatically be credited to your in cash. No actions are needed to sell the Treasury bill or receive the proceeds.
The cash in your account will be the face value of the Treasury bill along with any accrued interest. If you hold the Treasury bill in a taxable brokerage account you will pay federal taxes on the earnings but are exempt from state and local tax. If you hold it in a retirement account like an IRA or Roth IRA, the tax rules will follow the tax rules for those accounts.
What Does Charles Schwab Charge to Buy A Treasury Bill
Pricing isn’t static, so be sure to check out https://www.schwab.com/fixed-income/pricing for the latest fees. As of January 4th, 2023 it is free to purchase online, and $25 if purchased broker assisted.
Why To Buy a Treasury bill at Charles Schwab vs Treasury Direct
When I started researching how to buy Treasury bills, I learned you could also buy directly with Treasury Direct. However, when I bought Series I-bonds on Treasury Direct I found the UI to be complex and a pain to log into my account. Since it is easy to log into Charles Schwab, and they also have an easy to use mobile app, I decided to buy treasury bills at Schwab.