Treasury Bills

Treasury bills are the gold standard when it comes to a safe investment, because you are investing directly in the Government of Canada. In fact, Treasury bills, or T-bills as they are more commonly known, are so safe that their return is called the “risk-free rate of return.” This rate is used as a benchmark against which other, riskier returns are measured.

T-bills have the same benefits as Guaranteed Investment Certificates (GICs) in that they are guaranteed and easy and convenient to buy, but T-bills have one additional benefit: They are backed by either the federal or provincial government that has issued the T-bill, so there is no requirement for insurance protection. The government that has issued the T-bill provides the security underlying the investment that ensures principal plus return will be paid to the investor on maturity.

T-bills are sold at a discount. This means that the investor pays less than the actual denomination being purchased but receives the full amount at maturity.

T-bills are offered with terms to maturity of 91, 182, and 364 days, although some institutions offer one-month and two-month terms. T-bills are offered in face values of $1,000, $5,000, $25,000, $50,000, and $100,000. Canadians can also buy T-bills with a face value of $100,000 denominated in US dollars.

Provincial T-bills are also issued for terms of up to one year. Their yields are slightly higher than Government of Canada T-bills because they are rated slightly lower. However, the additional degree of risk in a provincial T-bill is infinitesimal – the chances of one of our provinces going bankrupt are rather remote!

 One good feature of T-bills is the ease with which they can be converted back to cash, usually within one business day. This means you have access to your cash at any time or if an emergency should arise. There is an active trading market for T-bills, and for this reason they are considered to be a very liquid investment.

T-bills are available for purchase through all financial institutions, and there are no fees associated with the investment either when you purchase it or on maturity. T-bills are known as a “book-based” product, meaning that no certificate or “bill” is actually delivered upon purchase. The purchase price is simply deducted from your account, and at maturity the full face value of the T-bill is credited back to your account.

T-bills can be held within Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Tax-Free Savings Accounts (TFSAs).

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