Got cash in your portfolio? Here’s a short-term alternative

The market for Treasury Bills – also called T-bills – has seen a resurgence as savers look for ways to earn a better return on their cash without taking on much extra risk. But there’s a clear gender gap in who’s buying them.

AJ Bell’s latest data shows that 78% of T-bill buyers are men, while only 22% are women. It’s a stark imbalance, and one that underlines how many investors are yet to take advantage of this low-risk, short-term option for their cash.

Whether you’re sitting on spare cash waiting for a better savings rate, or looking to park money between investments, T-bills could be worth a closer look.

What are Treasury Bills?

Treasury Bills are short-term loans to the UK Government. When you buy one, you’re effectively lending money to the government for a few months – typically one, three or six months.

Rather than paying interest, they’re sold at a discount and repaid at face value. So, if you buy a £1,000 T-bill for £980, you’ll receive £1,000 when it matures, with the £20 difference being your return.

In essence, they sit between cash savings and traditional bonds: low-risk, but with returns that tend to beat standard savings accounts.

Why investors are turning to them

The main draw of T-bills is safety. They’re backed by the UK Government, which makes them one of the most secure investments available. While no investment is entirely risk-free, the likelihood of the government defaulting is extremely low.

Another plus is their short duration. Many investors don’t want to lock money away for years in a fixed-rate savings account or bond that has a long time until it matures (also known as long-dated). With T-bills, your money is typically tied up for only a few months, meaning you can decide at each maturity whether to reinvest or withdraw.

It’s also worth noting that yields have been attractive recently. Three-month T-bills have been offering around 4%, depending on demand at auction – which would outpace many easy-access savings accounts.

How returns are set

T-bill rates don’t have a fixed return like a bank account. Instead the price you pay for them is determined at weekly government auctions. Investors submit bids, and the final rate depends on demand at that auction. That means you won’t know the exact return until after your bid is accepted – but in a high-interest-rate environment, recent yields have remained competitive.

To compare them to high-street bank accounts, you might want to work out the annualised return of the bills.

If we use the example above, of a £1,000 T-bill that you buy for £980 - your return would be £20. But to get the annualised return of that you’ll need look at the number of days you held the bond for. Let’s assume you held it for 91 days. You'd divide 365 (the number of days in a full year) by 91 (the days you held it for) which is 4.01. You then divide your return of £20 by the bond’s face value, so £20 divided by £1,000. And then multiply the two. So in this example that gives you 0.02 x 4.01 - which gives a figure of 0.0802. If you multiply it by 100 you’ll get it in percentage terms – so 8.02%. That’s just an example and not an indication of actual returns you could get.

Some recent examples of annualised yields on T-Bills range from 4.08% to 4.4%.

The key drawbacks

Despite their appeal, T-bills aren’t for everyone. Once you’ve bought one, your money is locked in until maturity – there’s no early exit. Unlike other government bonds or shares, you can’t sell them on a secondary market. This works in a similar way to fixed-rate savings accounts, but it’s important to be aware.

There’s also a chance your bid won’t be filled at auction if demand exceeds supply. And, as with any cash product, inflation risk applies: if inflation rises above your return, your money loses value in real terms.