Qfyilyi

From the Treasury Direct website, I saw this

Bills: U.S. Treasury Bills are a type of short-term security of one year or less, usually issued at a discount. The discount is the amount the security is lowered from its face value and is considered the earned interest when the security matures. For example, if you purchase a $10,000 26-Week Bill at $9,750 and hold it until maturity, the interest you earn is $250.

Basically this seems to say: give us your money, and in half a year we'll give it back to you. Why would anyone do this rather than 1) putting it in a bank account to earn small interest, or 2) just keeping it under a mattress in case it was needed?

No, what it says is “In half a year, we’ll give whoever holds this bond $10,000 for which you pay us $9,750 now”.

This is equivalent to an annual interest rate of about 5% (the example is showing a yield way more than currently available). Plus you can sell the bond to another person in the meantime.

That non-specific example illustrates about 5% annually; which is pretty good and about double the current actual market for a 6-month treasury.

Treasuries are marketable securities so you can sell it whenever you feel for whatever the market rate is at the time.

Welcome Wapiti!

Treasury Bills (T-bills) does seem like an oddball but it might work for some folks.

I'm going to address it both your questions individually as interest and liquidity.

1) Interest

Looking at the Department of Treasury's site for rates (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=billrates, Jan 8, 2019) I see the range is 2.40-2.60% depending on the timeframe (4 weeks - 52 weeks).

This appears mostly comparable to the top savings rates (2.00-2.45%, viewed Jan 8, 2019) found on Bankrate: https://www.bankrate.com/banking/savings/rates/

From an interest perspective, it's essentially the same. What needs to get taken into account are the amounts involved and any special hoops to jump through to avoid fees.

Some of the special savings rates found on Bankrate require a minimum balance. The top rate (2.45%) requires $25,000 balance while the second highest rate (2.39%) requires only $1. Each financial institution (FI) may have their own requirements to avoid any maintenance fees: electronic statements, use debit card X/mo, direct deposit, etc.

For amounts under $250,000, your money is insured by the FDIC (banks) or NCUA (credit unions) if your FI fails. For funds above that, you'll need to either open additional accounts or have them at other FIs to keep your money safe.

T-bills can be purchased in $100 increments, so there is no minimum balance requirement other than the purchase itself. It's also guaranteed by the US Government, so it's considered a risk-free investment (https://www.investopedia.com/ask/answers/013015/how-are-treasury-bills-taxed.asp).

If you have more than $250,000 that you want saved/invested "risk-free", then T-bills could be an option for this, outside the normal channels.

2) Liquidity

So keeping cash under the mattress has the advantage of being extremely liquid: you can take it out whenever you need it. It has the disadvantages of being insecure and losing value due to inflation (and maybe logistics if you have a very large sum of money).

Savings accounts are also very liquid with one catch: you are limited to six withdrawals per month per Reg D (https://www.nerdwallet.com/blog/banking/how-regulation-d-affects-your-savings-withdrawals/). Transactions in person or ATM don't count in this limit. Your money is kept safe and insured up to the $250,000 limit.

T-bills can be purchased in increments of 4-, 8-, 13-, 26-, and 52-weeks. You won't be able to access your money during that time, but you also won't lose it either unless the US Government defaults. It's the same concept as Certificates of Deposit (CDs).

Hopefully this helps answer why someone might choose one over the other.

Allen