This is a financial promotion by Retail Book Limited (FRN 994238). Values can fall as well as rise. This information is not investment advice. It is intended for UK retail investors.
Looking for a way to seek competitive returns versus a savings account? A Treasury Bill ladder could be the answer. T-Bills can help provide steady returns and regular access to your money. Let’s break down how it works and why it might be right for you.
A Treasury Bill ladder is a way to organise your T-Bill investments so that they mature at different times. Instead of putting all your money into one T-Bill, you spread it across several with different end dates. This creates a “ladder” of investments, with each rung representing a T-Bill that matures at a set time.
T-Bills are sold at a discount and repay their face value at maturity, the discount represents your return. If you sell a T-Bill before maturity, the price you receive may be lower than you invested.
Why Build a T-Bill Ladder?
There are three main reasons:
Regular Liquidity
With a ladder, some of your money becomes available at regular intervals. You don’t have to wait a whole year to access your cash. When one T-Bill matures, you can use the money or reinvest it.
Interest Rate Flexibility
If interest rates go up, you can reinvest maturing T-Bills at higher rates. If rates go down, you still have some T-Bills locked in at the older, higher rates. This helps you avoid putting all your money in at the wrong time.
Reduced Reinvestment Risk
You don’t have to worry about reinvesting all your money at once, which could be risky if rates are low. A ladder spreads out this risk.
How Do You Build a T-Bill Ladder?
Here’s a classic example. Say you have £1,000. You split it into four equal parts and buy T-Bills that mature in 1, 3, 6, and 12 months. Each time a T-Bill matures, you reinvest in a new 12-month T-Bill. After the first year, you’ll have a T-Bill maturing every three months. This keeps your money working while giving you regular access to cash.
Example is for illustration only and does not represent actual yields or expected performance.
Alternative Ladder Strategies
There are other ways to build a ladder, too:
- Income Ladder: If you want monthly income, you can buy T-Bills that mature every month.
- Barbell Strategy: If you want maximum flexibility, you can put half your money in short-term T-Bills and half in long-term ones.
- Bullet Ladder: If you know you’ll need cash at a certain time, you can build a “bullet” ladder, with all T-Bills maturing at once.
These options may not be suitable if you require immediate access to all funds or if you expect to need the entire amount at a single date sooner than the ladder permits.
Next Steps
A T-Bill ladder is easy to set up:
- Decide frequency: Choose how often you want access to your money - monthly, quarterly, or yearly
- Split your investment: Spread it across T-Bills with different maturities
- Place your orders: Use your investment platform or broker
- Reinvest or withdraw: When one matures, decide whether to reinvest or use the cash
- Review annually: Make sure your ladder still fits your needs
A T-Bill ladder may be appropriate if you want predictable maturity dates and are comfortable that returns depend on auction pricing and may be below inflation.
Risk Warning: If you sell a T-Bill before maturity, you may get back less than you invested. Past performance is not a guide to future results. Returns may be lower than inflation. Always read the risk warnings and consult a professional adviser if unsure.
Retail Book Limited (“RetailBook”), a limited company registered in England and Wales (company no. 14087330) with its registered office at 10 Queen Street Place, London, United Kingdom, EC4R 1AG. RetailBook is authorised and regulated by the Financial Conduct Authority (FRN 994238).
