How to invest in UK Treasury Bills

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As interest rates have risen, interest in UK Treasury bills has increased. With rates at higher levels, these instruments are offering attractive returns with a low level of risk. In this guide, we are going to cover the basics of UK Treasury bills and how to invest in them.

What are UK Treasury bills?

UK Treasury bills are debt (fixed income) instruments issued by the UK’s Debt Management Office (DMO). They are designed to help finance the UK government’s operations.

The DMO issues Treasury bills on a weekly basis. They can be issued with maturities of between one day and 364 days. However, regular weekly tenders are typically for maturities of one month (approximately 28 days), three months (approximately 91 days), or six months (approximately 182 days).

It’s worth noting that, unlike longer-term UK government debt securities or ‘gilts’, UK Treasury bills don’t pay regular coupons (interest payments). Instead, you purchase the bills at a price that is less than their maturity value and then receive the full maturity value when they mature.

So, for example, you might buy a 28-day UK Treasury bill with a maturity value of £1,000 for £996. When the instrument matures after 28 days, you will receive £1,000.

Potential risks and returns

Returns from UK Treasury bills will vary depending on several factors including the Bank of England (BoE) base rate, market conditions, and demand. The instruments are issued every week by the DMO at a different yield. Generally speaking, higher BoE base rates equate to higher returns from UK Treasury bills.

As for risks, UK Treasury bills are generally considered to be very low risk investments. That’s because they are issued and backed by the UK government, which has a strong credit rating. Given that they are backed by the UK government, investors are very likely to receive the full maturity value at maturity.

Where to invest in UK Treasury bills

There are several ways to invest in UK Treasury bills. You can either invest in UK Treasury Bills directly through the Debt Management Office or through an investing app like Freetrade.

One way is to invest in them directly through Treasury bill ‘primary participants’ such as HSBC and Barclays. You can find a full list of the primary participants here. The issue with this approach, however, is that you have to purchase a minimum of £500,000 worth of bills.

Another approach is to invest via Freetrade. With Freetrade, you can invest in 28-day UK Treasury bills. And the minimum investment is only £50.

The downside with Freetrade is that you cannot sell or cash out of your UK Treasuries bills – you will need to wait for them to mature to get your capital back. And your money could be tied up for longer than the maturity period.

For example, your money is generally tied up for around 31 days for a 28-day UK Treasury bill. So, you need to be sure that you won’t need access to your money before the maturity date. Read our Freetrade review to find out more.

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