Since T-bills are short-term securities, the maturity date is often anywhere from one month to one year, when you reach the maturity date, the government repurchases them from you.
The money you make is in the form of interest income since the T-bills are sold at a discount. The yield you earn is the difference between the issue price (what you pay for the T-bill) and the resale price at maturity.
The benefit of a T-bill is that it’s a safe and low-risk investment guaranteed to you by the government. You don’t have to worry about losing your principal (initial investment) since the government guarantees 100% security. The main downside of buying T-bills is that, since it’s 100% secure, you won’t likely get the best possible return on your money.
Why invest in treasury bills?
If you’re unsure if investing T-bills is for you, here are some of benefits to consider:
- Safety: T-bills are guaranteed by the government, making them one of the safest investments available if you want to preserve capital while ensuring that your funds keep up with inflation.
- Flexibility: Short-term maturities, from one month to one year, mean that you don’t have to tie up your funds for returns compared to other fixed-income securities and investments that may experience market fluctuations.
- Diversification: These short-term fixed-income securities will balance riskier assets in your portfolio. If you want some stability in your portfolio or are close to retirement, you’ll want to diversify with fixed-income securities where you don’t have to worry about economic fluctuations.
Where to buy treasury bills in Canada
If you’re interested in investing in T-bills but are unsure where to start, these are your best options.
You can purchase T-bills directly through auctions offered by the Bank of Canada to ensure that you get them from the source, known as the primary market. You must track the Bank of Canada's official website to stay informed about auction dates and bidding deadlines. The way the process works is that you submit a bid in one of the public auctions to purchase a T-bill investment, and the security is awarded to the highest bidder.
However, we must point out how challenging it can be to purchase a T-bill directly from the Bank of Canada. We also have to stress that institutional investors will participate in these auctions, so they could be more experienced in the process than regular investors who are looking to diversify their portfolios. This process can be challenging for a new investor, especially if you’ve never participated in any kind of auction before.
To buy T-bills directly from the Bank of Canada, you must have a Canadian bank account and a valid Social Insurance Number. If you don’t purchase your T-bills directly from an auction through the Bank of Canada, you can buy them on the secondary market (any platform outside of the government auction).
Major banks such as RBC, CIBC and TD offer access to T-bills as investment options. It’s much easier to invest in T-bills through these various platforms since you don’t have to worry about bidding and getting involved in an auction.
For example, CIBC has the Canadian T-Bill Fund, which aims to maximize your interest income while preserving capital and maintaining liquidity. This fund is mainly invested in different types of T-bills.
Trading platforms such as Wealthsimple Trade, Questrade and Interactive Brokers allow you to purchase fixed-income securities.
However, the process varies on the brokerage, and you may not always be able to purchase T-bills directly from the platform. Reddit users and investors note that you need to purchase CBIL (a money market fund that invests in Canadian government treasury bills with maturities of 90 days or less) through Wealtshimple to invest in T-bills. On Questrade, you can’t purchase T-bills, but you can invest in other fixed-income assets.
If you want to buy a T-bill with National Bank Direct Brokerage, you can invest in the NBI Money Market Fund, which comprises T-bills and various other short-term investments. This fund requires a minimum investment of $1,000.
While a financial advisor can charge anywhere from 1% to 3% annually for investment advice and managing your funds, you benefit from customized advice for your personal situation. If you’re unsure how to purchase T-bills or incorporate them into your portfolio, you could outsource the management to a professional.
How to buy treasury bills in Canada
1. Choose a platform
You’ll want to start off by comparing platforms based on fees, user experience reviews on forums and available T-bill options. Before you sign up for an account, you’ll want to research to determine if they offer the fixed-income security you’re looking for. Since you can’t purchase T-bills directly on Wealthsimple or Questeade, you’ll want to review the best options. You may also have to contact the fixed-income securities department directly to find out details.
For example, if you want to purchase T-bills in Wealtshimple, your best choice is to invest in CBIL. You can purchase shares of CBIL anywhere you invest in stocks. If you want to purchase an actual T-bill, then you’ll have to find a platform that sells them.
2. Set up an account
Steps to open an account with Wealthsimple, Questrade or a major Canadian bank will vary depending on the platform. You’ll want to have your documentation ready, like your SIN and current banking information if you’re opening up an account.
3. Fund your account
Depending on how you choose to invest in T-bills, you’ll want to ensure you have the funds ready to purchase the investment. You’ll want to transfer funds into your brokerage or trading account. The process will depend on the brokerage and on what type of T-bill you purchase. It’s also important that you figure out what the minimum purchase is so that you have sufficient funds to get started with buying T-bills.
4. Purchase T-bills
The next step is to purchase T-bills, but at this point, you’ll want to review the various options by maturity date and investment amount. T-bills differ from stocks and other investments because you may not be able to select the specific amount that you want to invest; you may have to choose only what’s available.
5. Monitor your investment
You’ll want to monitor your investment by tracking maturity dates and deciding whether to reinvest returns. Since the T-bill rates are affected by the interest rates set by the Bank of Canada, you’ll want to pay attention to announcements, as your return rates could drop when rates come down. Since monetary policy will be a key factor in determining your rates, you’ll want to stay informed about what’s happening.
How to buy treasury bills in Canada with Wealthsimple
Pros
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Commission-free trading, easy-to-use interface
Cons
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Limited access to T-bills
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Primarily ETFs that track government securities
How to buy treasury bills in Canada with Questrade
Pros
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Access to a broad range of government securities, including T-bills
Cons
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Trading fees apply for each purchase
Quick note: Questrade focuses on bonds and GIC for fixed-income securities.
Comparing T-bills to other investments
T-bills offer liquidity and shorter terms; Guaranteed Investment Certificates (GICs) may provide higher rates. While the concept of investing in these fixed-income securities is similar in the sense that both are safe investments, the way they work varies greatly.
T-bills are sold at a discount and pay face value at maturity, meaning that the difference is the amount you earn in interest income. T-bills will have a maturity date that’s much shorter than a GIC. For example, you could lock a GIC in for two years with a few clicks in your online brokerage account, while a T-bill may have a maximum maturity of one year.
It’s worth pointing out that T-bills are government bonds issued by the Government of Canada while you purchase a GIC through big banks, digital banks and credit unions.
Related read: Best GICs
Bonds are long-term investments with higher returns but greater sensitivity to market changes. Corporate bonds, GICs and other money market funds will provide you with a higher interest rate if you’re looking for another safe choice.
When deciding on a fixed-income security, you’ll want to find a term that matches your investing goals. If you’re looking for something with a shorter time horizon, you’ll want to choose a T-bill.
Related read: How to buy bonds
Exchange traded funds (ETFs) offer diversification but include management fees and market risk since you have to factor in typical economic fluctuations. However, when you invest in an ETF, you can decide on which industry you’ll invest in. Purchasing a T-bill is a fixed-income investment since the rate of return is guaranteed, while you never know what will happen with an ETF in the short run.
Related read: Best ETFs
The good news is that you can invest in T-bills in Canada by adding exposure to ETFs, such as the Vanguard Canadian Government Bond Index ETF (VGV), which invests mainly in government fixed-income securities. You can purchase this ETF with any brokerage that sells securities without worrying about bidding in a public auction.
Reddit user @TyrconnellFL summarized it best when it comes to comparing T-bills to ETFs:
“Treasuries are safe. You will not lose principal. You will get the yield promised by the bill/note/bond.
Invest in securities, meaning stock, including ETFs that cover large chunks of the stock market, are not safe. You can lose money. You can lose a lot of money! In the long term, it’s always recovered, and there’s every expectation that it will continue to go up in the long term.
Given decades, you can expect to get double what treasuries yield, more or less, at current rates. But if you want to have money safely available next year, that’s not at all reliable in stock. It’s reliable in cash equivalents: savings account, CD, treasuries. Probably high-quality non-government bonds too.
The tradeoff is higher expected volatility, more wild swings, for higher expected growth.”
Tax implications of treasury bills
Tips for maximizing returns with T-bills
If you want to maximize returns from T-bills, there are certain tips that you’ll want to follow:
Start investing in treasury bills today
Investing in T-bills is a safe and practical way to preserve capital and ensure that your funds are growing since you’re loaning money to the government, so you don’t have to worry about the security of your savings. However, the process of trying to add T-bills to your portfolio could be confusing for a beginner, and you’ll want to consider consulting with a financial advisor prior to deciding on how to balance your funds.
If you’ve already created a portfolio on a platform such as Questrade and Wealthsimple, you’ll want to take some time to explore the available options when it comes to fixed-income securities, as you may not be able to find T-bills. As a reminder, you’ll want to ensure that your portfolio is designed to meet your short-term and long-term financial objectives.
FAQs about buying treasury bills in Canada
Martin Dasko has been helping millennials make sense of their finances without missing out on life since 2008. Martin started his financial writing career as a business major in Ryerson when he realized that there was so much school didn't teach us about managing money. Martin covers topics ranging from investing in real estate to trying to build your credit score without letting life pass you by.
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