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What are treasury bills?

Treasury bills

Treasury bills are short-term, low-risk investments issued by the US government, often to pay for projects around the country.

They differ from most investments, as they do not involve regular interest payments. Instead, an investor pays a purchase price for a treasury bill that's below its face value, and after maturity they receive the total face value as a one-off payment.

Where have you heard about treasury bills?

Treasury bills were in the news a lot in 2016. At the end of the year, rates on treasury bills reached their highest point in 8 years, while earlier in the year, selling of treasury bills outside of the US reached a 38-year high.

Because treasury bills are issued by the government, they are often big news.

What you need to know about treasury bills.

Treasury bills are often short-term investments, ranging from a few days to yearly increments. Normally, the maturity period for a treasury bill is 1 month, 3 months or 6 months.

The minimum investment for a treasury bill is $1,000, with investment increments going up by $1,000 until the maximum investment of $5 million.

The major benefit of a treasury bill is its safety, as every investment is backed by the credit of the US government - which means a very small chance of it defaulting. Treasury bills also offer strong tax advantages compared to investment alternatives.

However, the low-risk can mean low returns. A treasury bill with a face value of $2,000 could cost as much as $1,800, if not higher, with a 6-month long maturity period.

Where there is the opportunity for profit on treasury bills, there is always the chance of loss.

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