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What exactly are UK Treasury Bills?

03/06/2024

When the UK government needs to raise money, it can do so in many ways. One is to issue debt instruments: investors lending money to the government, with this money being paid back with interest.

One such debt instrument is gilts, while another is UK Treasury Bills. But what’s the difference between the two?

 

The difference between gilts and UK Treasury Bills

A gilt is generally a longer-term investment: the maturity period for a gilt can be anything from one year to 40 years or more. UK Treasury Bills have far shorter maturities: generally 28 days, 91 days or 182 days.

Gilts normally pay interest (known as a coupon). Treasury Bills pay no interest – instead, you purchase them at a discount on their maturity value. This means that if you buy a 28-day Treasury Bill with a maturity value of £1,000, you’ll pay £996.16 – and earn a yield of £3.84 over that 28-day period. Bear in mind that there may also be fees involved in the process.

 

Are UK Treasury Bills a safe investment?

Treasury Bills can be purchased through a bank or a broker, as well now as via Freetrade. Every week, the Treasury’s Debt Management Office holds an auction for Treasury Bills, with prices varying depending on term and interest rate.

Just like gilts, UK Treasury Bills are issued by the government, and therefore have the same risk profile as their longer-term counterparts. They are seen as very low risk, meaning they have the potential to bring stability to a portfolio – especially during a downturn.

Bear in mind, though, that taxation works differently for gilts and UK Treasury Bills. The latter are classed as “deeply discounted securities”, while gains from gilts are treated as capital gains. This means that any gains from UK Treasury Bills will be taxed as income – unless held within an ISA wrapper.

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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