Want a risk-free 5% return? How to buy a 3-month Treasury

The latest spike successful enslaved yields was capable to spook the banal marketplace into a sell-off Tuesday, but there's a metallic lining for fixed income investors: Short-term Treasurys are present touting a risk-free instrumentality of 5%.

The latest enactment follows comments from Federal Reserve Chair Jerome Powell, who said Tuesday that involvement rates are "likely to beryllium higher" than antecedently expected. "If the totality of the information were to bespeak that faster tightening is warranted, we would beryllium prepared to summation the gait of complaint hikes," helium said.

The output connected the 3-month Treasury touched a precocious of 5.015% connected Tuesday, the highest level since 2007. (Note: that output is annualized, not what you would get successful conscionable 3 months.)

Rates connected the 1-year measure and 2-year Treasury enactment – the second of which is astir delicate to the Fed's argumentation – besides popped much than 5% connected Wednesday morning, reaching levels past seen successful 2006 and 2007, respectively. Bond yields determination inversely to prices.

Treasury rates person popped higher arsenic the Fed continues its rate-hiking campaign.

Short-term Treasurys are a large mode to enactment idle currency to work, and you tin besides "ladder" them to get a small involvement connected your wealth implicit a definite term. This means you physique a portfolio of issues with antithetic maturities and reinvest the proceeds arsenic they mature.

Investors tin get successful connected the enactment successful a mates of ways.

First, they tin purchase Treasurys straight from the U.S. authorities via TreasuryDirect.gov. They volition person to acceptable up an relationship connected the tract and nexus their slope to it. For short-term investors, 4-week, 8-week, 13-week and 26-week T-bills are auctioned each week. Two-year notes are auctioned monthly, and 10-year Treasurys are auctioned each quarter.

If you clasp the Treasury to maturity, you aren't taxable to marketplace risk. The bonds mostly wage involvement doubly a year, but for T-bills, the involvement you get is the quality betwixt what you paid and the look worth you person astatine maturity.

Another mode for investors to bargain Treasurys is done a brokerage firm. This makes record-keeping easier for investors, particularly if they already person an idiosyncratic status relationship astatine a fixed firm.

The contented is that you whitethorn beryllium taxable to fees and minimum acquisition requirements if you bargain Treasurys done a brokerage account. Consider that you tin bargain Treasurys straight from the authorities with a minimum acquisition magnitude of $100, but a brokerage steadfast tin complaint you for broker-assisted trades. Others necessitate that you bargain astatine slightest $1,000 successful Treasurys.

Though Treasurys are considered risk-free due to the fact that their payments are backed by the afloat religion and recognition of the United States government, investors should beryllium alert that the existent complaint of instrumentality they're earning could beryllium eaten distant if ostentation rises astatine a gait greater than the yield. A further hazard is they whitethorn besides miss retired connected concern opportunities successful different assets similar stocks.

These bonds whitethorn beryllium a large mode to get immoderate involvement connected different idle cash, but they shouldn't marque up the entirety of your portfolio.

— CNBC's Michelle Fox and Gina Francolla contributed to this story.