Treasury Bills with Low Transaction Costs, Liquidity, and Other Benefits
Treasury bills offer plenty of benefits and are used as a source of fixed income. The main advantages for holders include low costs, favorable tax treatment, and security. Treasury bills are safe to invest in because they are backed by the government. What is more, this is a liquid instrument in that it is short-term in nature.
T-Bills and Other Instruments
Investors can choose from a selection of products, including TIPS, FRNs, bonds, notes, and T-bills, offered by brokers, brokerage firms, banks, and other establishments. T-bills are one alternative to other instruments, but some point to the fact that they offer low yields. The difference between bills, notes, and bonds is the term to maturity. Bonds are considered long-term investment vehicles with a term to maturity of over ten years. Notes have shorter terms of 2 to 10 years while bills have the shortest term, ranging from 1 month to 1 year. Holders earn interest at maturity.
Benefits for Holders
Treasury securities offer many benefits, including low level of risk, zero chance of default, convenience, and others. They are easy to order online and through a brokerage firm. Holders also save on local and state income tax. T-bills offer benefits to governments as well, helping them to meet their borrowing requirements in a cost-effective way. This is a marketable, liquid security with guaranteed returns. It is popular with customers because of the fact that it is easy to invest in T-bills. There is a choice of products with different terms, including 1-year, 6-month, and 3-month maturities. A major benefit for investors is that they are affordable meaning that they can be purchased by people from all walks of life. This is the safest investment instrument (virtually risk-free), and many use it to diversify their investment portfolios. Bills offer acceptable level of returns for a safe investment vehicle. They are issued in various denominations - $50,000, $10,000, $5,000, $1,000, and so on. They can be purchased by government agencies, associations, enterprises, corporations, small businesses, and individual investors with surplus income or funds.
The fact that treasury securities are non-callable benefits investors and adds a degree of security. Non-callable products are not redeemable before maturity. The transaction costs and spread are low, which is one way to increase profitability and returns for holders.
Downsides
There are downsides, one being that bills are not offered frequently. The Treasury offers them 4 times a year, which makes the secondary market a good place to buy treasury securities. In this way, customers pay a commission which lowers their returns. The fact that this product has a short maturity means that consumers are constantly on the lookout for new ways to invest their surplus income. On the positive side, customers who need urgent cash benefit from shorter terms.
Low-Risk Alternatives
T-bills are intended for investors with a low-risk profile and offer additional income. Other similar products include savings, high-yield, and money market accounts. Customers looking for treasury securities are also offered inflation protected securities and treasury strips. There are other alternatives and conservative investment vehicles, for example, conservative stocks, variable and fixed annuities, money market funds, and certificates of deposits. Many investors also add conservative bonds to their portfolios, including corporate, municipal, and savings bonds. Whatever the type of instrument, factors to look into include taxation, rate of return, liquidity, safety, and whether it is inflation adjusted.
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