If you’re looking to get higher yields amid rising interest rates, you might want to consider a Treasury bill ladder, depending on your goals, according to financial experts.
Backed by the US government, Treasury bills, or T-bills, are considered a relatively safe asset, with terms ranging from four weeks to 52 weeks. You receive interest when the T-bill matures.
A ladder strategy consists of several T-bills with staggered maturities. When one expires, you can reinvest the funds for higher returns, which may be attractive when interest rates rise. Or you can spend your money elsewhere.
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“Bond ladders are cool again,” said Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee, who now looks at four-month, eight-month and 12-month T-bill ladders.
Over the past year, T-bill yields have increased following a series of interest rate hikes from the Federal Reserve – and there may be more on the horizon. On February 27, six-month and 1-year Treasury bills were paying more than 5%.
How to get higher results in short term
Keith Singer, CFP and president of Singer Wealth Advisors in Boca Raton, Florida, says there is currently an inverted yield curve, meaning some short-term Treasurys have higher yields than longer ones.
“The market expects rates to go down,” he explained. Based on what is known now, the yield curve shows that inflation will cool and the Fed will eventually start cutting rates, he said.
You can buy T-bills through TreasuryDirect, a website maintained by the US Treasury Department, which allows you to automatically reinvest them in the same term. Or you can buy T-bills through a brokerage account, which offers more liquidity and flexibility.
It is better than keeping money in the bank and better than buying a certificate of deposit.
Singer Keith
President of Singer Wealth Advisors
“It’s better than keeping money in the bank and better than buying certificates of deposit,” Singer said, noting there is also a limit of $250,000 per person, bank and ownership category, for Federal Deposit Insurance Corporation insurance.
Keil also agreed that T-bills now offer the “best rate” compared to other relatively safe options for cash.
However, the right choice of T-bills and the amount invested in each depends on your goals and when you need the money.
For example, if you invest money for a house in a year, you can include a 1-year T-bill in the ladder. “If interest rates go up a little bit, you’re not going to take a shower,” Singer said. “Because it will grow up fast.”
While the T-bill ladder may not be a good long-term strategy, it makes sense if you need quick cash for a short-term goal, he added.