Treasury products

What a Treasury bill actually is

A Treasury bill, or T-bill, is a short-term IOU from the federal government. The board pays less than face value up front, and the government pays back the full face value when the bill matures. That gap is the entire return, there is no separate interest payment along the way. Terms are set in advance and run from four weeks up to 52 weeks, so a board can pick a maturity that lines up with when it actually expects to spend the money, a roof replacement scheduled for next spring, for example.

"We sell Treasury Bills (Bills) for terms ranging from four weeks to 52 weeks." "Bills are sold at a discount or at par (face value). When the bill matures, you are paid its face value."

Source: Treasury Bills, Bureau of the Fiscal Service, U.S. Department of the Treasury

Why boards use them for large reserve balances

FDIC deposit insurance covers an association up to $250,000 total per bank, not per account and not per signer. A reserve balance above that at one bank sits partly uninsured if the bank fails, see FDIC coverage. A Treasury bill sidesteps that ceiling entirely, because it is a government debt instrument, not a bank deposit, so the FDIC limit never applies to it in the first place.

"The standard maximum deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."

Source: Your Insured Deposits, FDIC

Getting your money before maturity

A T-bill is not locked up the way a CD often is. It can be sold on the secondary market before it matures if the association needs the cash sooner than planned. That flexibility is not a guarantee of the amount back, a bill sold early returns whatever the market will pay that day, which may be more or less than what the board paid for it. Which brokerage or account setup actually works for an association with rotating officers is not something this Course has verified, so confirm current account-opening requirements directly with a broker or with TreasuryDirect.gov before committing reserve funds.

"Investors can hold bills until maturity or sell them before maturity through the secondary market."

Source: Treasury Bills, Bureau of the Fiscal Service, U.S. Department of the Treasury

Where T-bills fit in a reserve strategy

A widely used model for public and quasi-public investment policy ranks objectives in a fixed order: safety of principal first, then liquidity, then yield. A T-bill's government backing and no-ceiling coverage serve the safety objective well, and choosing a term that matches an upcoming expense serves liquidity. Chasing the highest available rate should come after both, not before. A written investment policy is where a board records that order for itself, rather than deciding it case by case each time reserve money needs a home.