CDs vs. T-Bills: What's the Better Investment Now? | The Motley Fool (2024)

FAQs

CDs vs. T-Bills: What's the Better Investment Now? | The Motley Fool? ›

Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.

If you're saving for a goal less than a year away: If you're saving money for a goal with a short-time horizon, T-bills can make more sense than CDs. They provide a higher APY than savings accounts, and they're more liquid than CDs.

Bonds are typically longer, higher-risk investments that deliver greater returns and a predictable income. Bonds are also more liquid than CDs because you can buy or sell them on the secondary market—although some bonds may be harder to sell than others.

Treasury bonds—also called T-bonds—are long-term debt obligations that mature in terms of 20 or 30 years. They're essentially the opposite of T-bills as they're the longest-term and typically the highest-yielding among T-bills, T-bonds, and Treasury notes.

Treasury bills can be a good investment depending on your financial goals and risk tolerance. They are considered one of the safest investments available, backed by the full faith and credit of the U.S. government--meaning that you are not likely to experience losses on your initial investment.

1 Year Treasury Rate (I:1YTCMR)

1 Year Treasury Rate is at 4.12%, compared to 4.07% the previous market day and 5.42% last year. This is higher than the long term average of 2.97%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.

The bottom line. CDs are a safe investment that can net you a higher return than most savings and money market accounts. Since rates have increased over the past year, they're more appealing to some savers. But with some banks already dropping rates, it's best to lock in a rate soon.

While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.

The return on T-bills tends to have an inverse relationship with inflation and the Federal Reserve benchmark rate. A higher rate set by the Federal Reserve means lower returns on T-bills. By contrast, CDs and high-yield savings accounts tend to give higher returns as the Federal Reserve benchmark rate increases.

6 Month Treasury Bill Rate (I:6MTBRNK)

6 Month Treasury Bill Rate is at 4.51%, compared to 4.53% the previous market day and 5.30% last year. This is higher than the long term average of 4.49%.

What is the downside of T Bill? ›

The biggest downside of investing in T-bills is that you're going to get a lower rate of return compared to other investments, such as certificates of deposit, money market funds, corporate bonds or stocks. If you're looking to make some serious gains in your portfolio, T-bills aren't going to cut it.

Bonds are generally considered a less-risky complement to the volatility of stocks in an investment portfolio. U.S. Treasurys, and specifically Treasury bills and Treasury notes, are the benchmark for a nearly risk-free investment if held to maturity.

Bond and Treasury bill ladders are typically regarded as low-risk investment techniques, but investors should be aware of certain potential risks. Interest rate risk is one of the main risks connected to Treasury securities. Treasury securities' market value can change inversely with changes in interest rates.

Buffett hasn't been a fan of bonds for a long time. He prefers equities, which offer capital-appreciation potential, and cash—mostly risk-free U.S. Treasury bills—which mature within a year. Berkshire held $235 billion of T-bills on June 30.

Treasury bills can be a good choice for those looking for a low-risk, fixed-rate investment that doesn't require setting money aside for as long as a CD might call for. However, you still run the risk of losing out on higher rates and returns if the market is on the upswing while your money is locked in.

The federal funds rate — the lending rate between banks — can also affect T-bill prices. When lending interest rates are high, investors tend to look toward more profitable investment options, such as stocks and funds, and away from Treasury bills.

T-bills are known to be low-risk, short-term investments when held to maturity because the U.S. government guarantees them. Investors owe federal taxes on any income earned, but no state or local tax. Treasury bills typically earn lower returns than other debt securities and even some certificates of deposit.

CDs are among the safest investments you can make with your savings. These accounts are insured by FDIC (if a bank) or NCUA (if a credit union) up to $250,000. As a deposit account, a CD is more like a very safe savings account, not an account with stocks or bonds you could lose money on.