Why women are overlooking this great alternative to cash

Many of us hold cash in the bank for peace of mind. It feels safe, it’s easy to get to, and you know it won’t disappear overnight. But the problem with leaving money in cash is that it often doesn’t work very hard for you. Savings accounts might pay a small amount of interest, but if that rate is below inflation, the value of your money is quietly shrinking in real terms.

That’s where Treasury bills – often shortened to T-bills – come in. They’re a simple, low-risk way of getting your money to earn more than it might in a bank account, without tying it up for years.

So, what exactly are they? Treasury bills are short-term loans to the UK government. When you buy one, you’re effectively lending money to the government for a set period of time, usually one, three or six months. In return, you get back more than you put in. Instead of paying you interest like a savings account does, T-bills are sold at a discount and then redeemed at their full value. For example, you might pay £980 today for a T-bill worth £1,000 that matures in three months’ time, and at the end of that period you receive the full £1,000. The £20 difference is your return.

One of the main attractions of T-bills is their safety. Because they are backed by the UK government, they’re seen as one of the lowest-risk investments you can make. You are guaranteed your money back unless the UK government defaults on its debts, which is extremely unlikely. While no investment is entirely without risk, you can think of them as being a step up from cash in terms of return, but not a huge leap in terms of risk.

Another big advantage is their short length. Unlike other government bonds or savings products that might lock your money away for years, T-bills only last for a few months. That means you don’t have to make a long-term commitment, and you can reassess what you want to do with the money when they mature. Many people “roll” their money from one T-bill into another, but you can just as easily take your money back if you need it – to put into cash, investing – or even spend.

It’s also worth noting how the returns are set. Each week, the government runs auctions where T-bills are sold. Investors put in bids, and the rate you receive is set by demand at that auction. This means you don’t know the exact return you’ll get until after the auction takes place. In recent months, three-month T-bills have been offering yields around 4%, which is higher than many easy-access savings accounts. Of course, the exact figure changes over time as interest rates move.

There are some things to consider before jumping in. Once you’ve bought a T-bill, you can’t get your money back early – you have to wait until it matures. That's because Treasury bills are not traded on the secondary market, which means you can’t sell it on to someone else in the same way you can with shares or some other bonds. If you think you might need that cash in the meantime, you’re probably better off keeping it in an easy-access bank account. There’s also the fact that, because they’re sold at auction, there’s no guarantee your order will be filled. If there’s more demand than supply, you might not get the amount you want, or you might not get allocated any at all.

Other things to factor in are inflation. If inflation is higher than the return you’re getting on the T-bill then you could lose money in real terms. But that’s the same risk with cash, and whether you’re beating inflation or not will depend on the rate of inflation and the return you’re getting on your T-bill. 

Another thing to consider is the tax on the T-bills. They are classed as “deeply discounted securities,” which means your returns are taxed as income, even though they may appear similar to capital gains. That means you could be liable for income tax on your earnings. But the good news is that T-bills can be held in a Stocks and shares ISA or a SIPP, meaning any gains will be tax-free.

Despite these small drawbacks, T-bills can work really well as a way of putting spare cash to work without taking on too much extra risk. They can be particularly appealing if you have money sitting around for a house deposit, school fees, or just a rainy-day fund that you don’t want to leave languishing in a low-interest cash account.

At the moment, most investors buying T-bills are men. AJ Bell’s data shows that just 22% of the customers purchasing Treasury bills recently were women, compared with 78% being men. That gap highlights a missed opportunity. Women are often described as cautious investors – and let’s not forget being careful with your money can be a strength. But sometimes that caution can mean missing out on low-risk opportunities like T-bills, where the balance of safety and return can make a lot of sense.

So, if you’re looking for an alternative to cash, something that could help your money hold its value against inflation while keeping risk low, T-bills are worth considering. They won’t make you rich overnight, but they can make your savings work that bit harder, without the risk that comes with more volatile investments like shares. And with only a short wait before your money comes back to you, they could be a first step into the world of investing.