Deciphering Your Financial Future: Choosing Between Treasury Bills and Certificates of Deposits.

Are you looking for a safe place to put some extra cash? Treasury bills (T-bills) and Certificates of Deposit (CDs) are both good low-risk investment options. But each has its own benefits, so let’s dig into the details of each choice to help you decide which one is the best fit for you!

T-bills are basically short-term loans that you give to the U.S. government. They are secure investments, backed by the federal government, so you can feel safe knowing your initial amount is protected. You buy them for less than their face value and when they mature (from four weeks up to a year), you receive the full face value back. For example, suppose you buy a $1,000 T-bill with a 26-week term at a 5% interest rate. You might pay $975 for it initially, and then, when it matures, you get the full $1,000 back, securing your profit.

T-Bills are a good investment if you don’t want to lock your money up for too long. However, because your rate is fixed until maturity, if market rates go up, you’ll miss out on those higher rates. On the bright side, you can sell your T-bills before maturity if necessary, without penalty.

Now, let’s talk about CDs. A Certificate of Deposit is like a special savings account which earns a fixed interest rate over a specified time (anywhere from a month to several years). You can get your money before the CD term ends, but usually, there’s a penalty for early withdrawal. There are some exceptions where certain CDs offer lower interest rates and no penalty for early withdrawal.

With CDs, the longer you’re able to leave your money in the account, the higher the interest rate. The downside is that if the rates drop during your CD term, your money is locked in at the predetermined rate. Additionally, if you open a long-term CD, inflation could potentially outpace your interest rate, erasing some of the benefits. If this worries you, strategies like CD laddering can help — although, it can be a bit complex to manage.

The key to choosing between T-Bills and CDs lies in three main areas: liquidity, taxes, and minimum deposits.

1. Liquidity (or access to your money): For T-bills, you have to hold them until maturity unless you transfer to a broker and sell on the secondary market — but there’s risk in that. CDs, on the other hand, can be cashed in early but usually with a penalty.

2. Taxes: Interest from T-bills is normally exempt from state and local taxes, whereas CD interest is fully taxable.

3. Minimum deposits: T-Bills require a minimum investment of $100 and are sold in $100 increments. CDs are more flexible and many financial institutions allow you to open an account with just a dollar.

At the end of the day, if you don’t like risk and want a safe investment, both T-bills and CDs can work for you. But remember to consider your investment goals, tax benefits, and current rates before choosing.

Finally, if liquidity is a main concern, check out Public.com’s Treasury account. It offers a great rate similar to T-bills or CDs, but with easy access to your money, similar to a checking account. Plus, there’s no required min or max amount to invest. Just some food for thought!