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Buying T-Bills from Vanguard, Robinhood, Fidelity, and TD Ameritrade

Unlocking the Treasury Bill (T-Bill) Universe: Vanguard, Robinhood, Fidelity, and TD Ameritrade Revealed

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Federal Reserve

As the federal reserve has been increasing interest rates throughout 2022 and 2023 Treasury Bills (T-Bills) have increased their rates substantially. This "risk-free" return has breached over 5% for some recent auctions of short duration treasuries. When it comes to low-risk, short-term investments, Treasury bills (T-bills) have emerged as an attractive option.

FRED:FEDFUNDS Rates By TradingView

Issued by the U.S. Department of the Treasury, these debt securities offer a secure investment avenue. In this article, we will explore the process of purchasing T-bills through popular investment platforms, including Vanguard, Robinhood, Fidelity, and TD Ameritrade. Additionally, we will highlight the benefits of investing in T-bills, explain why their discounted nature makes them an appealing choice, and provide some alternatives.

T-Bill Purchasing Brokerage Comparison

BrokerageT-Bill AvailabilityT-Bill Auction AccessAlternative Options
VanguardYesNoVanguard Federal Money Market Fund
TD AmeritradeYesNoN/A
RobinhoodNoNoRobinhood Savings Account

When it comes to investing in U.S. Treasuries, there are two main ways to do it: buying them directly, such as via Fidelity, or purchasing them through secondary markets like on Vanguard or TD Ameritrade. Let's break down the difference between these options in a way that's easy to understand.

Buying Treasuries Directly

If you choose to buy treasuries directly via Fidelity, it means you're buying them when they are first made available by the U.S. government. Here's what you need to know:

How It Works: Fidelity gives you the opportunity to purchase treasuries as soon as they are issued by the U.S. government. It's like getting in on the ground floor of a new investment.

Different Types: Treasuries come in different timeframes, from short-term to long-term. You can choose the ones that fit your needs and financial goals.

Guaranteed Returns: When you buy treasuries directly, you are guaranteed to receive the full amount you invested plus interest when the treasuries reach their maturity date. It's like knowing you'll get back what you put in, plus a little extra.

Acquiring Treasuries in Secondary Markets

If you choose to acquire treasuries through secondary markets like on Vanguard or TD Ameritrade, it means you're buying them from other people who already own them. Here's what you should know about this approach:

Flexibility: In secondary markets, you have more flexibility to buy and sell treasuries whenever you want, before their maturity dates. It's like being able to trade your treasuries with other people.

Price Changes: The prices of treasuries in secondary markets can go up or down based on supply and demand. So, if more people want to buy treasuries, the price might go up. And if more people want to sell, the price might go down.

Potential Gains or Losses: When you buy treasuries in secondary markets, the value of your investment can change depending on what happens in the market. You might make some extra money if the price goes up, but you could also lose money if the price goes down.

Can I Buy T-Bills Through Vanguard?

While Vanguard does not directly offer T-bills, investors can access them through Vanguard's brokerage services. Investors can purchase T-bills in the secondary market through Vanguard's platform. Additionally, Vanguard offers a wide range of investment options, including stocks, ETFs, mutual funds, bonds, options, and CDs.

As an alternative to T-bills, investors can consider the Vanguard Federal Money Market Fund, which offers a low-risk investment option with potential stability and modest returns. The Vanguard Federal Money Market Fund, also known by its symbol VMFXX, offers a slightly lower rate than holding treasuries directly but gives you liquidity whenever you want and is backed almost completely by short term securities.

As of May 16, 2023 VMFXX offered a 5.02% yield compared to the 5.21% yield the last 13 week treasury bill. VMFXX is a great way to get exposure to T-Bills without the liquidity issues of having to wait to maturity.

Can You Buy T-Bills on Robinhood?

At present, Robinhood does not support direct T-bill purchases. While Robinhood is known for its commission-free trading and investment options, T-bills are not available on their platform. As an alternative, Robinhood offers a savings account with a competitive interest rate of 4.65%. The savings account provides an opportunity for investors to earn interest on their cash holdings.

Can I Buy T-Bills Through Fidelity?

Fidelity Treasury Direct

Fidelity Treasury Direct

Yes, Fidelity Investments offers a direct route for investors to purchase T-bills through its TreasuryDirect program. In addition to T-bills, Fidelity provides a wide range of investment options, including stocks, ETFs, mutual funds, bonds, options, and CDs. Through the TreasuryDirect program, investors can buy T-bills directly from Fidelity. This streamlined process makes Fidelity a convenient choice for T-bill investments.

How to Buy T-Bills on TD Ameritrade

TD Ameritrade, now part of Charles Schwab, provides access to T-bills through its trading platform. Investors can buy T-bills in the secondary market on TD Ameritrade's platform. Similar to Fidelity, TD Ameritrade offers a comprehensive range of investment options, including stocks, ETFs, mutual funds, bonds, options, and CDs. However, direct T-bill purchases are not available.

Why Are Treasury Bills Sold at a Discount?

One intriguing aspect of Treasury bills (T-bills) is that they are sold at a discount to their face value. This means that investors purchase T-bills for less than their eventual full value at maturity. The discount represents the interest earned by investors. There are a few key reasons why T-bills are sold at a discount:

Zero-Coupon Securities

T-bills are considered zero-coupon securities, meaning they do not provide regular interest or coupon payments like traditional fixed-income securities such as bonds. Instead, the interest is earned through the difference between the purchase price and the face value of the T-bill.

Auction System

The U.S. Department of the Treasury issues T-bills through an auction system. The auctions are held regularly and are open to a wide range of investors, including individuals, institutional investors, and foreign governments. The auction system involves competitive bidding, where investors submit bids stating the discount rate they are willing to accept.

Competitive Bidding

During the T-bill auction, investors compete by submitting bids for the desired amount of T-bills and the discount rate they are willing to accept. The discount rate represents the annualized yield an investor will earn on the T-bill. The Treasury accepts the highest bids first and continues accepting lower bids until the auctioned amount is filled.

Supply and Demand

The discount rate at which T-bills are sold is determined by the supply and demand dynamics in the auction. If there is high demand for T-bills, the discount rates tend to be lower. Conversely, if demand is lower, the discount rates may increase. The auction process ensures that T-bills are sold at market-determined rates.

Guaranteed Returns

Despite being sold at a discount, T-bills provide investors with a guaranteed return. At maturity, investors receive the full face value of the T-bill, regardless of the discounted purchase price. This means that the difference between the purchase price and the face value represents the interest earned by the investor.

The auction system and the discount pricing of T-bills provide flexibility for investors and allow the market to determine the interest rates on these short-term debt instruments. The discounted nature of T-bills makes them an attractive choice for investors seeking low-risk, short-term investments with guaranteed returns.

Best Way to Buy Treasury Bills on Vanguard, Robinhood, Fidelity, or TD Ameritrade

As you can see there are numerous options to purchase treasury bills with varying levels of support. If you want direct access to new treasury bill (t-bill) auctions by the US Treasury then Fidelity is your best bet. It comes with the downside that you will want to hold those t-bills to maturity.

If you liquidity is more important that a higher interest rate then buying VMFXX through Vanguard is a fantastic option to get exposure to short duration treasury bills with instant liquidity any time you need it.