Treasury Bills (T-bills) are the most marketable money market security. Their popularity is mainly due to their simplicity. T-bills are basically a way for the U.S. government to raise money from the public. In this tutorial we are referring to T-bills issued by the U.S. government, but many other governments issue T-bills in a similar fashion.

T-bills are short-term securities that mature in one year or less from their issue date. T-bills are issued with 3 month, 6 month, and 1 year maturities. T-bills are sold at a discount. This means that you buy T-bills for a price less than their par (face) value, and when they mature, the government pays you their par value. This is different than coupon bonds, which pay interest semi-annually. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. If a bought $10,000 par value of a 90 day T-bill at $9,800 and held it until maturity, your interest would be $200.

The biggest reasons that T-Bills are so popular is because they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000, and $1 million although brokers (including Disnat) generally require a minimum purchase of $10,000 face value. Other positives are that T-bills (and all treasuries) are considered to be the safest investments in the world because the federal government backs them. In fact, they are considered risk-free.

The only downside is that you won't get a great return because Treasuries are exceptionally safe. Corporate bonds, GICs, and money market funds will often give higher rates of interest. What's more, you might not get back all of your investment if you cash out before the maturity date.

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