There are a lot of options for investing your money. You can use high-yield savings accounts, ETFs, retirement accounts, or even direct stock trading. But one stable and perhaps underused option is treasury bill investing, which can see you get consistent returns for mid-term savings timing.
What Are Treasury Bills?
Buying a treasury bill is essentially making a mid-term loan to the government. The US Treasury takes the money and uses it for its own purposes while promising you guaranteed interest and guaranteed repayment on your investments. It’s arguably the most predictable and stable possible investment, because the government always settles its debts without issue.
Why Invest in Them?
The best thing about treasury bills is that they offer extremely reliable interest rates. Currently, treasury investments can yield around 5% interest, which is a considerable return for the kind of mid-term periods (anywhere from a month to a year) these bills need to mature. You also don’t need to pay state taxes on the interest, only federal taxes.
Similar Investments
Treasury bills are somewhat similar to high-yield savings accounts. Both of these investment options are mid-term savings solutions that offer reliable, consistent interest rates. They sit somewhere between conventional savings accounts and longer-term investments like retirement accounts.
How to Choose
So, how do you choose between these two options? It’s really a question of how soon you need the money back. You could consider using a HYSA for your emergency savings, since you’re able to take money out of those types of accounts on the fly. Treasury bills, meanwhile, don’t allow you to withdraw without penalty until they’ve matured.
Money That Needs to Grow
If you’ve got a stack of money that you can do without for a year, throw it in a treasury bill and watch it grow. This is a great use of money that you simply don’t need. For instance, if you’ve got plenty of extra money in your savings account, you could safely move some of it to a treasury bill to quietly grow your finances.
Why is That Better?
But wait, you’re thinking, what if I need that money? Well, here’s the thing. Holding onto finances that are making a small amount of interest back is really bad for your long-term financial health. Inflation slowly erodes the purchasing power of your money, so it’s vital that your excess funds are earning interest that exceeds the current inflation rate.
How to Decide How Much to Save
If you’re struggling to figure out how much you should sink into a treasury bill, consider your emergency accounts first. Do you have three months of your average pay set back for a rainy day? If so, you could consider sliding twenty percent of your income each paycheck into treasury bills just to keep your passive income rolling in.
Laddering Treasury Bills
If you follow this pattern, you can start “laddering” your treasury bills. This means that you’ll have a constant stream of investments maturing one after the other. You can keep reinvesting the amounts that each bill yields into further treasury bills, or, if your circumstances have changed and you need the money, you can just start putting the finances back into your checking account.
Read More: Tips for Growing Wealth You Haven’t Thought Of
Snowballing Your Money
This approach is popular among people who want to invest but don’t want to fuss with the constant research and maintenance needed to invest in direct stocks. While treasury bills don’t yield as much as successful ETFs or stocks, for instance, they’re much more reliable.
Read More: Should You Invest in Certificates of Deposit?
Should You Save this Way?
If you’re the kind of person who doesn’t mind squirreling money away for a while to get a return on your investment, treasury bills are a great way to do just that. However, if you think you’ll need the money in an emergency, instead just drop it into a high-yield savings account!
Read More: Investing Basics You SHOULD Already Know
