Passive Income with U.S. Treasury Bills is a great option now that the Fed keeps raising rates. At the moment the Fed rate is at 5.25% and projected to increase to 5.5% by the end of the year.

In this blog I’m going to go over the 2 ways to invest in U.S. Treasury Bills, and the implications of investing in T-Bills as opposed to longer term U.S. Treasury bonds or other types of Corporate bonds.

#1 Invest at TreasuryDirect.gov

As an individual in the United States you can open an account directly with the U.S. treasury and invest in T-Bills there of various short term durations. You might want to check when the next Fed meeting is and time it so they mature around then. That way you can get new T-Bills at a higher rate if they do in fact raise interest rates again.

It’s easy to open an account. Just go to the website TreasuryDirect.gov and follow the instructions. When you have an account, just go purchase T-Bills. You can purchase them in $100 increments. You will be given the average price that is determined through the weekly auction.

You will link a bank account that will debit the amount of the Bill when you the auction is complete.  If you bid for $100 T-Bill, it costs less than $100 because they give you the interest when it matures.  There is a math formula to determine the actual amount of interest per the interest rate and the time to maturity but basically you will be buying a 15 week T-Bill for around $97 and getting $100 when it matures.

If you want step by step video instructions click here.

#2 Invest in an Online Brokerage Account Such as Schwab

Another way for an individual to buy T-Bills is through an online brokerage account such as Schwab.  I have both Etrade and Schwab and I have found that Schwab is easier if you have smaller amounts of money to invest.

One of the downsides is that the minimum order is $1,000, so you need more money to start.  In Schwab it’s pretty easy to find $1,000 options, but in Etrade I found you need to have a minimum of $50,000, making it not really sustainable for me.

An advantage of using Online Brokerage accounts like Schwab is that if you want to sell your T-Bills before they mature you can, though they are of such short duration you probably won’t need to.

Again, when you purchase T-Bills, you will be paying a lower price than $1,000.  You will get $1,000 when they mature.  The brokerage account automatically calculates the Anualized Rate for you so you can compare options.

Implications of investing in T-Bills as opposed to longer term U.S. Treasury bonds or other types of Corporate bonds

You may be wondering why you should invest in shorter duration T-Bills as opposed to longer term U.S. Treasury bonds or other types of Corporate bonds.

Well, U.S. Treasury Bills are shorter duration, so if the Fed does raise interest rates again, you can re-invest at a higher rate.

Currently, longer term treasury bonds have lower rates, and the actual value of the longer term treasury bonds goes down as rates increase.

Corporate bonds are based on the strength of the corporation, and not backed by the U.S. government.  As rates rise, the debt that corporations have create an increased interest expense (if they have debt with an adjustable rate).

It’s good to fully understand the interest rate environment and what the Fed is trying to do.  They are trying to lower the inflation rate.  What is that?

It’s basically the cost of housing, food and everything.

So in order to do that housing prices need to go down, and food prices and so on.  Well, obviously that is going to be painful for people who are borrowing money out or their home equity to pay for College or renovations or whatever.

That is why the Fed is increasing the rate.  So people borrow less, spend less, so that the demand decreases and prices go down.  Of course with less spending that means less jobs.

That is what the Fed is doing.  They are trying to do it without breaking the economy (making too many businesses go out of business) and creating a huge recession/depression.

Conclusion

I hope you got a lot of value out of this blog on how to make passive income with U.S. Treasury Bills.  If you want more detailed training, click here.  Aloha!