Investors who build a Treasury bill ladder (or T-bill ladder) often roll over bills to higher rates once they mature. The practice is a way to combat inflation through fixed-income investments. Here’s the benefits of Treasury bill ladders, exploring the potential of a T-bill ladder as a means to generate income, how the process stacks up against other investments, and more.
Investing with a Treasury Bill Ladder
Table of Contents
Key Takeaways
T-bill ladder is a strategy for investing in Treasury bills with different maturity lengths between 4 and 52 weeks. As bills with the shortest timeline mature, they are rolled over into a longer timeline.
Treasury bill interest rates change often, but rates are trending upwards. When you invest in T-bills on Public.com, you lock in an interest rate of 5.3%*,
What is a T-bill ladder and why should you build one?
A T-bill ladder is the process of investing in Treasury bills with varying maturity lengths and holding them until maturity (maturity periods are between 4 and 52 weeks). When the bills with the shortest timeline mature, you roll them over into a longer timeline.
The idea is that interest rates will rise over time (this is based on the assumption that the U.S. government will increase interest rates to continue fighting inflation) so you can earn interest on your short-term Treasury bills now while also attempting to grab hold of higher interest rates in the future.
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T-bills are government-backed securities with low risk, making them a relatively safe hedge against inflation. As the government seeks to fight inflation, it typically builds a more aggressive interest rate environment. If you move cash to assets like T-bills, you can get a higher return and protect your money against value loss. The act of diversification beyond the stock market and into Treasury securities like T-bills is good, but knowing tactics like how to build a Treasury bill ladder is even more helpful.
How you can make money with a Treasury bill ladder
Treasury bill interest rates change often, but rates are trending upwards. When you invest in T-bills on Public.com, you lock in an interest rate of 5.3%*, which is higher than other short-term investments as of 2/16/24. Investors can use t-bill ladders to purchase discounted T-bills with varying maturities. Upon maturity, the face value is paid out and can be reinvested or used for your short term investment goals and is a means to extended liquidity increasing your earnings over time
| T-bills | CDs (Certificates of Deposit) | I bonds (Inflation bonds) | |
|---|---|---|---|
| National average interest rate | 5.3% | 1.3% APY | 6.89% |
| Maturity terms | 4, 8, 13, 17, 26, or 52 weeks | 1 month - 5 or more years | 5–30 years |
| State or local income tax on earnings? | No | Tax reportable after $10 in earned interest | No |
| Contribution limit for 2023 | $10 million for each maturity length | There are no contribution limits on CDs unless imposed by the bank itself | $10,000 electronic, $5,000 paper |
* T-bills rate of 5.3% is for 6 month bills as 2/16/24. I bonds rate of 6.89% is valid upto April 30th 2023 . CD rates are monthly FDIC national averages for March 2023
Important: I bonds have higher yields than T-bills as of 29th Mar 2023, but their maturity dates are also much longer at 5–30 years.
How to build a Treasury bill ladder
Here’s an example of how to build your own Treasury bill ladder. Be aware that this is for illustrative purposes only; you should substitute in your own preferred maturity terms while still following the same general pattern we’re laying out here.
Example
Zainab decides to buy three sets of T-bills. Each set is worth $100 but has different maturity terms. Zainab buys T-bills that mature in 4, 8, and 13 weeks. Each of these count as the “rungs” on Zainab’s “ladder.”
Once the 4-week T-bills mature, Zainab rolls over that money (including accrued interest) into a new 13-week set of T-bills.
Once the 8-week T-bills mature, Zainab rolls over that money (including accrued interest) into a new 13-week set of T-bills.
Now, Zainab has 3 sets of 13-week T-bills, which mature every 4–5 weeks. As she rolls over the T-bills into a new set of 13-week T-bills, she collects interest approximately every month and compounds that interest by rolling it over into new T-bills. All the while, she maintains a short-term savings plan and a reliable cash flow.
How to buy T-bills
When you buy T-bills through Public, you lock your investment in at a 5.3% yield. All you have to do is:
- Move your cash to the Public brokerage app by linking a bank account or making a deposit with your debit card.
- Create your Treasury Account, which lets you purchase and manage your Treasury bills from one account.
- Purchase U.S. T-bills through your Public account and lock in your rate.
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The bottom line on Treasury bill ladders
We already know T-bills are a reliable investment strategy when looking to protect your cash during times of high-inflation and market conditions defined by volatility and fluctuations. Treasury bill ladders make fixed-income securities even more reliable—and building your T-bill ladder on Public for as little as $100 to start is a great way to go about it.
FAQs
Are Treasury ladders a good investment?
A Treasury ladder strategy is a solid low-risk investment that can protect your cash during times of high inflation. You don’t have to worry about the loss of principal as they are backed by US govt and can focus on earning interest on top of your cost basis.
How do I build a Treasury bill ladder?
To build a Treasury bill ladder, buy T-bills with different maturity dates. Once the T-bills with the shortest timeline mature, roll it over into a longer maturity term. The idea of reinvestment is that you earn money via compounding interest.
Do Treasury ladders provide a hedge against inflation?
Treasury bond ladders and Treasury bill ladders help keep your money liquid while earning interest on top of your cash. It’s a decent hedge against inflation, particularly as the Federal Reserve (aka the Fed) hikes interest rates.