How to Earn Interest on Your Cash Allocation with Low-Risk Treasuries

Do you know who is one of the largest players in the treasury market? Surprise! It is Warren Buffett! Bet you would have never guessed! Shocking, I know, but it makes sense because he has said for years he has had trouble finding companies to buy or invest in because of the size necessary to move the needle. So he uses Treasuries as a liquid place to store his money until he finds an investment he likes.

Many very famous investors use treasuries to have their cash earn a few bucks while keeping it fairly liquid in case an opportunity presents itself.

Today, we are going to discuss in-depth Treasuries ranging from:

Let’s take a moment and look at the size of the bond market. Currently, as of January 13, 2020, the bond market is valued at $42.8 trillion, of which treasuries account for $15.6T, corporate bonds valued at $9.2T, and mortgage-backed securities at $9.7T.

Compare the bond market to the nearly $20 trillion domestic stock market, and you get a picture of how big the bond market is and how much of an impact it can have on our economy and the world.

Based on the size of the market and the possible benefits you could reap from treasuries, I think our potential investment bears learning a bit more about this market.

So, let’s dive in.

What are Treasuries?

Treasuries, for those not familiar with them, are government debt. Pretty simple, huh?

Ok, let’s dive a little deeper.

According to Investopedia:

U.S. Treasury securities—such as bills, notes, and bonds—are debt obligations of the U.S. government. When you buy a U.S. Treasury security, you are lending money to the federal government for a specified period.

Because these debt obligations are backed by the “full faith and credit” of the government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities – or “Treasuries” – are generally considered the safest of all investments. They are viewed in the market as having virtually no “credit risk,” meaning that it is highly probable your interest and principal will be paid fully and on time.”

One note about treasuries: because of their safety, they usually come with a lower interest rate attached to them. We experience a bit of give and take when working with treasuries, but the upside is you gain safety. Experts say greater rewards come with higher risk, and I don’t buy the theory. Using treasuries as a safe, secure method of investing can allow one to sleep better at night.

Ok, so that is an overview of treasuries; now, let’s dive into the nitty-gritty of each type.

Treasuries come in many different flavors, but we will focus on the three main bonds. Remember, a bond is a loan we give to someone, in this case, the U.S. government.

T-bills – They have the shortest range of maturities of all government bonds. T-bills auction off regularly; you can find the schedule on They have five terms:

  • 4-weeks
  • 8-weeks
  • 13-weeks
  • 26-weeks
  • 52-weeks

T-bills will have the lowest interest rates available because they have the shortest duration of any of the government’s bonds. As a short-term bond, they are perfect for ladders or if you want to earn some interest and have the money more readily available than a bank CD.

How T-bills work is they issue them at a discount to their par value, and when they mature, be it four weeks or 13 weeks, you would receive the principal back plus the interest.

Let’s look at an example.

If we buy a $1,000 13-week bill for a 0.153% discount rate, the purchase price would be $999.82, a discount of $0.18. We can determine the purchase price from the following formula:

P = F (1 – (d x t)/360), thus
P = 1000 (1- (.00153 x 229)/360), solving

P = $ 999.82

P = Price
F = Face value
d = rate of discount
t = days to maturity

Notes – T-notes represent the middle range of the length of bonds that the government issues. These notes come in longer durations that remain available at auction, just like the T-bills. The lengths for T-notes are as follows:

  • 2-year
  • 3-year
  • 5-year
  • 7-year
  • 10-year

As with the T-bills, the schedule remains available at; we can purchase bills by auction or buy directly on the government website, accepting the yield offered. More on this in a moment.

T-notes issue with increments of $100, with the minimum being $100, and they mature at the same price, with their interest paid semi-annually. Currently, the 10-year Note is yielding 1.88%. Again, you can find rates for any duration of T-notes at

As a side note, 10-year notes are the standard rate we use when calculating any discounted cash flow or intrinsic value calculation.

If it seems like I am an ad for the government website, it truly is a fantastic resource to learn more about all treasuries and a place where you can manage your treasury portfolio. And I receive no money for any of these recommendations; this is entirely my opinion based on the ease of use I have found.

Bonds – T-bonds remain the long-form for treasury bonds, issued for 30 years and paying interest every six months until they mature. When the T-bonds mature, they pay at their face value and issue in $100 multiples. The current rate of the 30-year T-bond as of January 30, 2020, is 2.33%.

We can find rates for all treasuries here:

  • One month – 1.53%
  • Two months – 1.55%
  • Three months – 1.54%
  • Six months – 1.57%
  • One year – 1.56%
  • Two years – 1.58%
  • Three-year – 1.59%
  • Five-year – 1.67%
  • Seven year – 1.79%
  • Ten year – 1.88%
  • 20 year – 2.19%
  • 30 year – 2.33%

The above offers just a sample of the data available on the site. The cool part is that you can see the daily ups and downs of the rates. We have other treasury securities, such as E.E. bonds, I bonds, TIPS, etc. But we will focus on the three we can use in our investing plan.

How to Invest In Treasuries

We can purchase all three types of Treasury securities online at auction in $100 increments. Depending on the treasury you are trying to buy, there will be different schedules for each type, bills, notes, or bonds.

We can purchase any of the treasuries either through your broker/bank or directly on the government site. We make the purchases through an auction process. The auction happens on different schedules, depending on the type of security you are purchasing.

How the auction process works via

“You can bid for a note in either of two ways:

  • With a noncompetitive bid, you agree to accept the yield determined at auction. With this bid, we will receive the note you want and the full amount you want.
  • With a competitive bid, you specify the yield you are willing to accept. Your bid may be: 1) accepted in the full amount you want if your bid is less than the yield determined at auction, 2) accepted in less than the full amount you want if your bid is equal to the high yield, or 3) rejected if the yield you specify is higher than the yield set at auction.

You may use TreasuryDirect, a bank, or a broker to place a noncompetitive bid.

To place a competitive bid, you must use a bank or broker.”

That spells it out much better than I could. I use the noncompetitive bid option as it makes it much easier for me, but in the future, I might explore bidding on my own as I get more comfortable with the process.

The biggest advantage treasuries offer is the safety of principle. With the backing of the U.S. government, their full faith and backing helped give treasuries a great sense of safety. Remember what Warren Buffett likes to say: never lose your principle; that is the greatest advice to any beginning investor.

But, like any investment, treasuries come with risks and downsides.

Treasuries remain extremely sensitive to inflation and interest rate changes; this is why you need to be aware of the current interest rate environment.

Interest rates paid to all treasuries remain among the lowest in securities investments, partially because they tie to the debt and the safety they imply. Typically, treasuries will pay a better interest rate than most money-market funds or bank products, such as a savings account or CD.

With the history of low-interest rates, online banks offer comparable rates; however, the treasuries offer relatable rates and, in the case of CDs, more liquidity.

I have found that using remains the simplest way to invest in T-bills, mainly because they allow you to purchase them in increments of $100, whereas my brokerage accounts at Ally and Charles Schwab require at least $1,000 to purchase them.

Also, setting up your account at remains quite simple; you link your bank account, transfer the money, and then you are ready to go. Once your treasuries mature, you can either reinvest them or transfer them back to your bank account automatically. Offering a quick, simple, and easy method to use.

With the elimination of brokerage fees, purchasing any bond is free, like buying a stock.

We must consider taxes when investing in treasuries, just like stocks. No one is excited about taxes, but we must consider taxes when investing.

The same tax rules apply to all three types of Treasury securities. The interest paid on T-bills, T-notes, and T-bonds is fully taxable at the federal level but is tax-free for states and localities. And if you hold your securities with the U.S. government site, the interest you earn is easily seen on the website. Additionally, the Treasury Department sends our 1009-INT form directly to us, whereas we will have to contact our bank or broker to gather that information.

Yucky, I know, but on a need-to-know basis, we need to know.

Bond Ladders: What They Are and How to Use Them

To build a bond ladder, you purchase bonds, typically individual securities, but also possible with funds. You do this by staggering your maturity dates, so the bonds mature differently.

We can utilize this strategy with treasury securities, corporate bonds, and municipal bonds. It is a strategy that I use with T-bills in my emergency fund.

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So, how do we make a bond ladder using treasuries?

Creating a bond ladder is pretty easy, and there are three steps to the process. Think of the construction of a ladder using rungs, the height of the ladder, and the space between each rung. These are our steps:

  1. Rungs: Invest in a range of bonds with different maturity dates. You should select the number of bonds, maturity dates, and yields you want for your portfolio. 
  2. Heights: Hold each bond or fund until it reaches maturity, collecting interest payments along the way.
  3. Spacing: Once each bond or fund matures, we can choose whether to reinvest in our ladder or use the funds elsewhere. 

The rungs of the ladder are your bonds or fund. We can determine how many bonds we need by dividing the total dollar we want to invest by the length of time we want the ladder to last; of course, if you don’t have a ton of money to start, you can build it up by using the treasury website to start creating your bond ladder with treasuries. Using T-bills as a starting point is an easy way to get the hang of building a ladder, and the amount required to start is far smaller than buying corporate bonds at $1,000 each or buying from your broker.

The height between each rung represents how close our bonds are to maturity. This can range from every few months to several years, depending on the types of bonds we choose — T-Bills for shorter goals, notes for medium goals, and bonds for longer-term goals.

With today’s low-interest rates, a ladder will help you build a safe portfolio that can grow your money over time. Most experts recommend longer ladders as they tend to produce higher income because bonds with longer maturities typically offer higher yields. Shorter ladders can reduce the returns, but on the other side, they offer less reinvestment risk and increase our liquidity.

Your goals and what you want to achieve with them will help you design your ladder to meet those goals.

Using shorter maturing T-bills is why I have created a ladder using T-bills; the liquidity meets my needs in case I ever need it.

An example of a bond ladder using T-bills:

  • 4 – weeks
  • 8 – weeks
  • 13 – weeks
  • 26 – weeks
  • 52 – weeks

Let’s say we invest $500 in each rung of the ladder, then every four weeks, the first rung will mature, giving me access to the initial $500 investment plus any interest earned. And likewise, for each rung, i.e., 8 – weeks, 13 – weeks, and so on.

The above is a simple example, but you can certainly use this strategy with longer-maturing bonds such as T-notes and T-bonds.

We can set up our ladder to be recurring so it continues to grow its interest payments and provide us with liquidity if we need it.

Now, as with any investment strategy, there are a few pros and cons that I must make you aware of before going on.


  • Bond ladders can create predictable streams of income – Unlike investing in stocks, we know what we will receive in regards to our principal and the date and amount of our coupons that we will receive.
  • Bond ladders can smooth the possible impact of interest rate fluctuations. With the ability to stagger the maturities of our bonds, we can smooth out the ups and downs of the interest rate environment. If the interest rates are higher, we can reinvest at higher rates when our bonds mature. And vice versa, we can choose other options if rates are lower. Plus, we still have other bonds earning higher rates until they mature.
  • Bond ladder’s greatest benefit is flexibility – I think the greatest benefit is the flexibility that bond ladders provide us. Particularly regarding government treasuries, with the ability to great ladders with smaller amounts to begin. You can continue to invest with greater amounts to build up your ladder. Also, with the differing maturities available, it gives you the flexibility to build a ladder to meet your needs, whether it be saving for a new car/house, an emergency savings account, or you want to have some money in a more secure place.

The ladder strategy helps to maximize its benefits. Since we have multiple bonds with staggered points of maturity, bonds continue to constantly mature, producing yields and freeing their principal for reinvestment or other uses.


  • Bond ladders only work if you hold the bonds until they reach maturity. Selling the bonds early or changing investment strategies exposes you to additional risks and defeating the ladder’s purpose.

Final Thoughts

Many investors and institutions utilize treasuries as a part of their investing strategies, as a storehouse for cash and safety. Many investors that we look up to hold T-bills as a short-term way to make some money on their cash while waiting for other opportunities to invest in the stock market. With the lower interest rate environment, locking any money up in a long-term bond is not necessarily something you might want to do; when you do that, you run the risk of not beating inflation over the life of that bond.

Fixed-income investors who live in states with high-income tax rates can also benefit from the tax exemption of Treasuries at the state and local levels.

After all, even investors as sophisticated as Warren Buffett use treasuries in Berkshire Hathaway. And I figure if they are good enough for him, it might benefit us to learn more about these investment vehicles. Next time you look at a balance sheet on a 10-K, notice that it says cash and cash equivalents. Surprise, those cash equivalents are most likely treasuries.

I have found in my travels that once we peel back to the veil of unknowing, we can find some great ideas and possibilities to grow our knowledge. And after all, knowledge is power.

I hope you found some value in this article and that it helps you on your investing journey.

As always, thank you for taking the time to read this article, and if you have any questions, please let me know.

Take care,


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