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Buying 3-Month Treasury Bill on Brokerage Account

Purchasing a 3-month Treasury bill can be a great way to invest your money. It is a short-term investment backed by the U.S. government, making it a safe and reliable option. You can buy a 3-month Treasury bill directly from the government or via a brokerage account.

This blog will guide you through the process of buying a 3-month Treasury bill on a brokerage account.

If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

What is a 3-Month Treasury Bill?

A 3-month Treasury bill, often referred to as a T-bill, is a U.S. government debt obligation with a short maturity term of three months. T-bills represent a loan made by you, the investor, to the U.S. government. In return, the government promises to pay back the loan upon maturity.

Here’s where it gets interesting: T-bills don’t work like traditional loans. Instead of receiving interest over the term of the loan, you purchase T-bills at a discount to their face value. For instance, you might buy a 3-month Treasury bill with a face value of $1,000 for a discounted price of $990.

When the T-bill matures three months later, the U.S. government pays you its full face value. In our example, you’d receive $1,000. This means you’d make a profit of $10 ($1,000–$990) from your investment. This profit, known as the yield, is effectively the interest you earn on the T-bill.

So, a 3-month Treasury bill offers a low-risk, short-term investment opportunity backed by the full faith and credit of the U.S. government. It’s an excellent option for investors seeking a secure place to park their cash while earning a modest return.

Choosing a 3-month Treasury bill for your portfolio provides you with a short-term, low-risk investment. It gives you the flexibility to reassess your investment strategy quarterly, which is a key advantage for investors who prefer not to have their funds tied up for extended periods.

For instance, they allow for easy access to your capital within a quarter of the year. This makes them ideal for investors seeking a low-risk option or looking to park their money temporarily. 

Additionally, they are backed by the full faith and credit of the U.S. government, offering almost a risk-free investment.

Why should I consider investing in a 3-Month Treasury Bill?

Investing in a 3-month Treasury bill can be an excellent option for many investors. The primary benefits include safety, liquidity, and accessibility.

Safety

A 3-month Treasury bill is one of the safest investments you can make. Why? Because the U.S. government guarantees it. This means the government guarantees your initial investment and the return you’ll receive when the bill matures. In an unpredictable financial world, this kind of guarantee provides investors with a sense of security. The risk of losing your investment is virtually non-existent, barring an unforeseen, unprecedented catastrophe.

Liquidity

One of the many benefits of a 3-month Treasury bill is its high level of liquidity. Since this T-bill matures in just three months, you can quickly and easily access your investment. This high liquidity makes it an excellent option for those who may need to access their funds on short notice, without having to worry about penalties for early withdrawal or being locked into a lengthy investment term.

Accessibility

Another significant advantage of the 3-month Treasury bill is its accessibility. This investment isn’t just for the ultra-wealthy or institutional investors. No minimum wealth or income requirement restricts who can purchase these Treasury bills. This accessibility makes 3-month Treasury bills a viable investment option for a wide range of individuals, from young people just starting their investment journey to seasoned investors looking for a secure place to park their cash. This wide accessibility democratizes investment opportunities, opening up a traditionally exclusive market to everyone.

 3-month treasury bill
Buying 3-Month Treasury Bill on Brokerage Account 4

Investing in a 3-month Treasury bill can be an excellent option for many investors. The primary benefits include safety, liquidity, and accessibility.

How can I buy a 3-Month Treasury Bill?

You can purchase a 3-month Treasury bill in two main ways: directly from the U.S. government via TreasuryDirect, or through a brokerage account. 

Purchasing Treasury Bills via TreasuryDirect

TreasuryDirect is a platform provided by the U.S. Department of the Treasury that allows individuals to buy and sell Treasury securities directly from the U.S. government.

To buy a 3-month Treasury bill via TreasuryDirect, you need to open an account on the TreasuryDirect website. Once you’ve registered and logged in, you can submit a non-competitive bid for a 3-month Treasury bill in an auction. If successful, the Treasury will deposit the T-bill directly into your TreasuryDirect account upon settlement.

Purchasing Treasury Bills via a Brokerage Account

You can also purchase a 3-month Treasury bill through a brokerage account. Unlike TreasuryDirect, buying through a broker allows you to place a competitive bid. 

To do this, you’ll need to open a brokerage account if you don’t already have one. Once you’ve funded your account, you can place an order for a 3-month Treasury bill, specifying the quantity you wish to purchase.

What is a Brokerage Account?

A brokerage account is an investment account you open with a brokerage firm. It allows you to buy and sell a wide variety of investments, including stocks, bonds, mutual funds, and Treasury bills like the 3-month Treasury bill.

There are several types of brokerage accounts, including cash accounts and margin accounts. 

A cash account requires you to pay for securities in full at the time of purchase. This is the most straightforward type of brokerage account and is generally suitable for buying 3-month Treasury bills. 

A margin account, on the other hand, allows you to borrow money from the broker to buy securities. While this can potentially amplify your returns, it also introduces additional risks, especially for short-term, low-yield investments like T-bills.

How do I open a Brokerage Account?

Opening a brokerage account is a straightforward process. First, choose a broker that suits your needs. Look at factors like fees, investment options, research and educational tools, and customer service.

Once you’ve chosen a broker, you can usually open an account online. Opening a brokerage account is a relatively straightforward process. 

First, select the broker that best meets your needs. Then, visit their website and follow their process for opening a new account. This usually involves filling out an online application form, providing some personal information, and agreeing to the broker’s terms and conditions. 

Once your application is approved, you’ll need to fund your account before you can start trading. Most brokers accept funding through bank transfers, checks, or even transfers of existing investment accounts.

How do I buy a 3-Month Treasury Bill on a Brokerage Account?

After you’ve opened and funded your brokerage account, you’re ready to buy a 3-month Treasury bill. Here’s how you do it:

Funding Your Account

The first step in buying a 3-month Treasury bill is ensuring you have sufficient funds in your brokerage account. The amount you need should cover the cost of the bill itself and any potential brokerage fees. Remember, Treasury bills are sold at a discount to their face value, so the cost will be less than the bill’s eventual maturity value. Once you’ve confirmed your account has enough funds, you’re ready to proceed to the next step.

Placing Your Order

With sufficient funds in your account, you’re ready to place your order. Start by navigating to the trading platform provided by your broker. This could be on their website or app. Once there, look for U.S. Treasury bills in the list of available investments.

When you’ve found the U.S. Treasury bills, select the 3-month option. This is where you’ll indicate the amount you wish to purchase. Be sure to double-check all the details of your order before submitting. When you’re satisfied that everything is correct, submit your order.

Upon submission, your broker will execute the order on your behalf. They will purchase the 3-month Treasury bill at the best available rate. Once the transaction is complete, you’ll see the 3-month Treasury bill appear in your account’s portfolio. It’s as simple as that to start investing in one of the safest assets available.

Can I buy a 3-Month Treasury Bill directly from the government?

Yes, you can buy a 3-month Treasury bill directly from the U.S. government through TreasuryDirect. This can be a good option if you don’t want to use a broker, but remember that buying through a broker can give you access to more investment options and potentially better prices. t’s straightforward and ideal for non-competitive bidding.

Brokerage accounts, on the other hand, offer additional services, like investment advice and a wide range of securities beyond T-bills. They also allow competitive bidding, potentially enabling you to secure a better yield. The right choice depends on your individual needs and investment goals.

How is the interest on a 3-Month Treasury Bill calculated?

A 3-month Treasury bill is sold at a discount to its face value. The discount is essentially the interest you earn when the bill matures. Yield, on the other hand, is the return on your investment, expressed as an annual percentage of the discount price. The yield is higher than the actual interest rate due to the short-term nature of the bill.

To calculate the yield of a 3-month Treasury bill, subtract the purchase price from the face value, divide the result by the purchase price, and then multiply by 100 to get a percentage. Multiply this percentage by four to annualize it (since there are four 3-month periods in a year).

 3-month treasury bill

To sell a 3-month Treasury bill, you will need to contact your broker or use their online trading platform.

What are the risks involved in buying a 3-Month Treasury Bill?

While investing in a 3-month Treasury bill is generally considered low risk, there are some potential risks to consider. 

Investing in 3-month Treasury bills is relatively safe but still has some risks. These include interest rate risk (if rates rise, the price of existing T-bills falls) and reinvestment risk (you may not be able to reinvest the proceeds at the same rate when the bill matures).

To mitigate these risks, diversify your investment portfolio. Don’t put all your money in 3-month Treasury bills. Spread your investments across a variety of assets and investment horizons to protect yourself from fluctuations in interest rates.

Can I sell my 3-Month Treasury Bill before it matures?

Yes, you can sell a 3-month Treasury bill before it matures. This is done in the secondary market, where investors buy and sell previously issued securities. 

If you need to sell your 3-month Treasury bill before it matures, you can do so on the secondary market. However, the price you get may be more or less than what you paid, depending on market conditions.

To sell a 3-month Treasury bill, you will need to contact your broker or use their online trading platform. Specify the quantity of bills you want to sell and at what price. 

Your broker will then list the bills on the secondary market for you. Once a buyer is found, the transaction will be completed, and the funds will be deposited into your brokerage account.

Conclusion

Investing in a 3-month Treasury bill can be a strategic move for your portfolio, offering a low-risk, short-term investment backed by the U.S. government. However, like any financial decision, it requires careful thought and understanding.

Whether you choose to buy through TreasuryDirect or a brokerage account, ensure you understand the process, the costs, and the potential returns. You should also be aware of potential risks and ways to mitigate them. The interest rate risk and reinvestment risk, although relatively low, should be part of your consideration.

Remember to compare the pros and cons of each purchase method. While TreasuryDirect allows direct buying from the government, a brokerage account provides additional services and a wider range of investment options.

Finally, always consider the role of a 3-month Treasury bill within your broader investment portfolio. It can serve as a short-term investment or a temporary safe harbor for your funds, but it should not be the entirety of your investment strategy. Diversification remains a key principle of sound investment.

With careful planning and understanding, a 3-month Treasury bill can be a valuable addition to your investment strategy.

Pained by financial indecision? Want to invest with Adam?

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

This website is not designed for American resident readers, or for people from any country where buying investments or distributing such information is illegal. This website is not a solicitation to invest, nor tax, legal, financial or investment advice. We only deal with investors who are expats or high-net-worth/self-certified  individuals, on a non-solicitation basis. Not for the retail market.

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