This Risk-Free Investment Yields a Guaranteed 4.5%

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Consider investing in T-bills for a guaranteed return. 

Last year, the S&P 500 dropped by close to 20% and the NASDAQ by 33%, showing their worst performance since 2008. With inflation still at a historic high, the market is volatile, which is making investors nervous. There are opportunities in the bond market, however, that are now providing very attractive yields not seen in over 15 years. The interest rate on U.S. six-month Treasury bills exceeded 5% recently, reaching the highest level since 2007. With bonds back in fashion with investors, here is how they work, how you can buy them, and why they are such a great low-risk investment option.

What are Treasury bills?

Treasury bills, also known as T-bills, are short-term debt obligations issued by the U.S. government. They typically mature in one year or less and have maturities ranging from four weeks to 52 weeks (one year). As of Feb. 17, 2023, here are the current interest rates for different daily T-bills:

4 weeks: 4.59%8 weeks: 4.75%13 weeks: 4.82%17 weeks: 4.92%26 weeks: 5.03%52 weeks: 5.02%

The current rate of return, which ranges from 4.59% to 5.03%, is higher than most savings accounts, money market accounts, and certificates of deposit (CDs). Currently, the average rate of a savings account in the U.S. is 0.33%, a money market account is 0.44%, and a 6-month CD is 0.81%.

Plus, T-bills are considered a risk-free investment because they are backed by the full faith and credit of the U.S. government. This means there is virtually no chance that your principal will be lost or that you will not receive your interest payments when they’re due.

How do you buy Treasury bills?

The easiest way to buy T-bills is through an online broker like TD Ameritrade or Fidelity. But you can also purchase them directly from the U.S. Department of Treasury via its website at treasurydirect.gov. When buying T-bills through an online broker, you will need to open an account first and then select the type of bill you want to buy — either a 4-, 13-, 26-, or 52-week bill — and decide how much you want to invest.

Then simply place your trade order with the broker and wait for it to settle (which usually takes two business days). Usually with direct purchases from treasurydirect.gov, you can buy any amount starting at $100 all the way up to $10 million per day without paying any fees or commissions. However, if you choose to use an online broker, there may be fees associated with buying T-bills and there is often a higher minimum purchase requirement. For example, you may be required to purchase a minimum of $1,000 in T-bills versus the $100 that treasurdirect.gov requires. Just be sure to do your research before purchasing through a stock broker.

Why should you invest in Treasury bills?

Currently, Treasury bills offer investors several benefits over other types of investments. They include safety (they are backed by the full faith and credit of the U.S.), liquidity (they can easily be sold before maturity), and attractive rates of return compared to other investments like CDs or money market accounts. Additionally, because they mature quickly — in one year or less — you don’t have to worry about long-term commitments or locking yourself into something for too long if your needs change or the market changes.

If you’re looking for a safe investment with an attractive return that doesn’t require a long-term commitment, then consider investing in Treasury bills. Not only do these investments offer a guaranteed return, but they are currently offering their highest rates in over 15 years, making now a particularly attractive time to invest.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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