Understanding Treasury Bills: A Simple Guide

Understanding Treasury Bills: A Simple Guide

July 29, 2023

Understanding Treasury Bills: A Simple Guide

When we talk about money and investments, we often think about businesses or stocks. But did you know that you can lend money to the government, too? That's where Treasury Bills, or "T-bills," come into the picture.

What are Treasury Bills?

Treasury Bills (T-bills) are like an IOU from the U.S. government. It's a way for the government to borrow money from people like you and me, as well as big institutions. The government uses this borrowed money to pay for its activities and projects.

These T-bills are "short-term" investments, which means they are for a short time, specifically one year or less.

Why are T-bills considered safe?

T-bills are seen as very safe investments. This is because they are backed by the full faith and credit of the U.S. government. It's like a promise from the government saying, "No matter what happens, we will pay you back." This is a powerful promise because the U.S. government has never failed to pay back its T-bill investors.

How do T-bills work?

You might be wondering how you make money from lending to the government. Here's how it works:

  1. Buying the T-bill: You buy a T-bill for less than its "face value." The face value is the amount the government promises to pay you when your T-bill matures, or in other words, when your lending period is over.
  2. Waiting for maturity: After buying, you wait for the T-bill to mature. This could be a few weeks to a year, depending on which T-bill you bought.
  3. Getting paid back: When the T-bill matures, the government pays you the full face value. The difference between what you paid and what you receive is your profit or interest.

For example, let's say you buy a T-bill with a face value of $1000 for $980. After waiting for the T-bill to mature, the government will pay you the full $1000. So, you've made a profit of $20.

Why invest in T-bills?

T-bills can be a good choice if you're looking for a safe place to put your money for a short time. They don't offer high returns compared to riskier investments like stocks, but they do offer peace of mind because they're so safe.

Remember, it's always important to think about your own financial goals and situation before making investment decisions. You might also want to talk to a Fiduciary Financial Advisor to make sure you're making the best choices for you.

And that's a quick introduction to T-bills! Hopefully, this helps you understand a bit more about how our government borrows money and how you can be part of it.

Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.


Article written by: Anthony Owens

Copyright © 2023 Anthony Owens @ Thriving Wealth Hub.

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