If you have cash sitting in a checking account earning almost nothing, or money you will need in a few months and do not want to risk in the stock market, Treasury bills deserve a close look. Treasury bills, usually called T-bills, are short-term loans you make to the United States government. In return, the government promises to pay you back a fixed amount on a fixed date. They are simple, backed by the full faith and credit of the United States, and a popular place to park money you cannot afford to lose.
Quick answer
A Treasury bill is a short-term loan to the US government, sold at a discount and repaid at full face value at maturity, from 4 weeks to 1 year. Buy through TreasuryDirect ($100 minimum) or a broker. Interest is federally taxed but exempt from state and local tax. Holding to maturity means no nominal loss, but inflation can erode value.
What is a Treasury bill?
A Treasury bill is a short-term debt security issued by the United States Treasury. When you buy one, you lend money to the federal government for a short period, usually from a few weeks to one year. At maturity, the government pays you the full face value of the bill.
Unlike a savings account or a certificate of deposit, a T-bill does not pay regular interest along the way. There are no monthly deposits and no coupon payments. Instead, you buy the bill for less than its face value and collect the difference at maturity. That difference is your return.
Here is a simple example, using round numbers only as an illustration and not as a current rate. Suppose you buy a T-bill with a face value of 10,000 dollars. You might pay 9,850 dollars for it today. When it matures, the Treasury pays you the full 10,000 dollars. Your profit is 150 dollars. The larger the discount, the higher your return.
T-bills are considered one of the safest investments in the world because they are backed by the United States government. That does not mean they are risk-free in every sense, as covered below, but the risk that the government fails to pay you back on time is treated by most investors as extremely low compared with a corporate bond or any stock. They are also highly liquid, so you can usually sell before maturity, although the price will depend on market conditions at that time.
How long do T-bills last?
T-bills are short-term by design. They are currently issued in six standard maturities:
- 4 weeks
- 8 weeks
- 13 weeks, about 3 months
- 17 weeks, about 4 months
- 26 weeks, about 6 months
- 52 weeks, about 1 year
That range is part of the appeal. If you need money for a tax bill in three months, a home down payment in six months, or a tuition payment next year, you can pick a maturity that lines up with that date. You are not locking money away for five or ten years, as you would with a longer-term bond.
New T-bills are sold at auction on a regular schedule, typically weekly for the shorter maturities. You can also buy bills already trading on the secondary market through a broker, which gives you more choice of maturity dates.
The minimum purchase through TreasuryDirect is 100 dollars, in increments of 100 dollars. Many brokers have similar or slightly higher minimums, often 1,000 dollars for a new issue, so check your broker before you place an order.
How do T-bill yields work?
This part confuses most new buyers, because T-bills do not quote an interest rate in the same way a savings account does. Instead, you will see a discount rate and a yield. The discount is the gap between what you pay and what you get back. The yield turns that gap into an annual percentage, so you can compare a 4-week bill with a 26-week bill, or a T-bill with a savings account.
In practice, you will see two yield figures, and it is worth knowing why they differ:
- Discount yield. Based on the face value and a 360-day year. It is most often quoted in auction results, but it tends to slightly understate your true return because it divides by the face value rather than by the price you actually paid.
- Investment yield, also called the bond equivalent yield. Based on the price you paid and a 365-day year. It is usually the more useful number when comparing a T-bill with a savings account or a certificate of deposit, because it reflects the return on the money you actually put in.
You do not need to calculate either figure by hand. TreasuryDirect and most brokers show the yield before you buy. Compare like with like: the investment yield of a T-bill against the annual percentage yield of a bank account, after tax.
T-bill yields move with short-term interest rates. When short-term rates rise, new T-bills tend to offer higher yields. When rates fall, new bills tend to offer lower yields. A bill you already own locks in its discount at purchase, so its return does not change, but the next bill you buy may pay more or less.
Worked example: buying a 13-week bill
Example, using round numbers as an illustration only, not a quote for any current auction: you pay 9,900 dollars for a 13-week T-bill with a face value of 10,000 dollars. Your profit at maturity is 100 dollars, about 1 percent over 13 weeks. Annualized, that works out to roughly 4 percent on a simple basis, before adjusting for the exact day count and compounding conventions the Treasury uses.
Tax on that $100 profit works like this: you owe federal income tax on it in the year the bill matures, but no state or local income tax. If your state rate is 5 percent, the exemption saves you about $5 on this bill compared with the same return from a bank account. Small on one bill, meaningful across a whole ladder.
Why do people buy Treasury bills?
Most buyers come back to three goals: safety, short-term timing, and a better return than idle cash.
Safety for money you cannot lose. If you are saving for a house deposit, a tax payment, or an emergency fund top-up, a stock market drop at the wrong moment could derail your plan. T-bills are designed for that kind of money. Your principal is backed by the United States government, and your maturity date is known in advance.
A parking spot between decisions. Investors often hold T-bills while they wait for a better opportunity, save for a larger purchase, or rebalance a portfolio. Because maturities are short, the money comes back soon, and you can redeploy it without waiting years.
A yield that can beat a checking account. Checking accounts often pay little or nothing. Many savings accounts pay more, but their rates can change at any time. A T-bill locks in a return for its term. Whether it beats your savings account on any given day depends on current rates, so compare before you buy rather than assuming one is always better.
T-bills are not a wealth-building engine on their own. Over long periods, stocks have historically offered higher returns, with much higher volatility. T-bills preserve cash over weeks and months, not fund a retirement thirty years away.
How to buy Treasury bills through TreasuryDirect
TreasuryDirect is the official website run by the United States Treasury where individuals can buy Treasury securities directly, with no broker in between. There are no commissions or broker fees for a new issue.
Here is how the process generally works:
- Open a TreasuryDirect account. You will need your Social Security number or taxpayer identification number, a United States address, a bank account for funding and for receiving maturity proceeds, and an email address.
- Link your bank account. TreasuryDirect pulls money from your linked bank account when you buy and deposits maturity proceeds back into it. Make sure the account has enough funds on the purchase date.
- Choose Treasury bills and a maturity. Select the term you want, such as 13 weeks or 26 weeks, and enter the amount you want to buy. Remember the 100-dollar minimum.
- Choose noncompetitive bidding. Most individual buyers choose this option. You accept whatever discount rate the auction sets, and you are guaranteed to get the amount you asked for, up to the purchase limits. Competitive bidding, where you state the rate you will accept, is mainly used by large institutions.
- Schedule your purchase. You can buy in an upcoming auction or schedule purchases in advance. TreasuryDirect also offers a reinvestment option, so a maturing bill can automatically roll into a new bill of the same term, which is useful for laddering.
- Wait for auction and settlement. After the auction, TreasuryDirect debits your bank account for the discounted purchase price. At maturity, it credits your bank account with the full face value, unless you chose to reinvest.
How to buy Treasury bills through a broker
Buying through a brokerage account is often easier if you already invest through a broker, and it gives you more flexibility. Most major online brokers offer new-issue Treasury bills at auction, with no commission for the new issue itself, plus a secondary market where you can buy and sell bills already trading.
The process is usually straightforward:
- Open or log in to your brokerage account. Make sure the account is funded, or that cash will be available by the settlement date.
- Find the fixed income or bonds section. Look for Treasury bills, Treasury securities, or new issues.
- Choose new issue or secondary market. A new issue buys at auction on the scheduled date. A secondary market purchase buys from another investor, and you can pick from many maturity dates, including bills that mature in a few days or weeks.
- Check the yield and maturity date. Before you confirm, check the maturity date, the price you will pay, and the yield. For a secondary purchase, also check for a markup or spread, because the price may differ slightly from the auction price.
- Place the order and check settlement. New issues settle shortly after the auction. Secondary trades usually settle the next business day. Your broker will show the bill in your account until maturity, when the face value is credited to your cash balance.
The main advantage of a broker is flexibility: you can sell before maturity and move maturity proceeds into another investment quickly. Watch for fees or markups on secondary trades, and note that minimums may be higher than TreasuryDirect.
What is T-bill laddering, and why does it help?
Laddering means splitting a lump sum across several bills with staggered maturity dates, instead of putting all your money into one bill. As each bill matures, you can spend the money, keep it as cash, or reinvest it into a new bill at the far end of the ladder.
Here is an example using round numbers as an illustration only. Suppose you have 12,000 dollars you want to keep safe but accessible over the next year. You could split it into four bills of 3,000 dollars each, maturing in 13 weeks, 26 weeks, 39 weeks, and 52 weeks. Every three months, one bill matures and 3,000 dollars comes back to you. If you do not need it, you reinvest it into a new 52-week bill, and the ladder keeps rolling.
Laddering helps in three ways. First, it gives you regular access to cash, so you are never locked in for a full year on the whole amount. Second, it smooths out interest rate changes, because you reinvest only part of your money at a time, rather than betting everything on one auction. Third, it removes the guesswork of trying to time rates perfectly, which even professional investors struggle to do.
A shorter ladder works too: for money needed in the next six months, ladder 4-week, 8-week, 13-week, and 26-week bills.
How are Treasury bills taxed?
Taxes are one of the quiet advantages of T-bills, especially if you live in a state with income tax. Interest earned on Treasury bills is subject to federal income tax, but it is exempt from state and local income taxes. That exemption can make a real difference. If you live in a state with a high income tax rate, a T-bill yield that looks slightly lower than a bank account yield on paper may actually leave you with more after tax, because bank interest is taxed at both levels.
Here is a simple illustration, using hypothetical rates only. Suppose a T-bill and a savings account both offer a 4 percent return before tax, and your state income tax rate is 5 percent. The savings account interest is taxed federally and at the state level, while the T-bill interest is taxed federally only. After state tax, the T-bill keeps more of its return, even though the headline rates looked identical. Your actual benefit depends on your federal bracket, your state rate, and current yields, so run the numbers for your own situation.
A few tax details to keep in mind:
- You generally owe federal tax on the interest in the year the bill matures, not in the year you buy it, for bills with a maturity of one year or less. That timing can matter if you buy late in the year and the bill matures early the next year.
- TreasuryDirect and brokers issue tax forms, typically a 1099-INT, showing your Treasury interest for the year. Make sure your tax software or preparer separates Treasury interest from other interest so the state exemption is applied correctly.
- If you sell a T-bill before maturity on the secondary market, the tax treatment can be more complex, because part of your gain may be treated as a capital gain or loss rather than interest.
- T-bills held in a tax-advantaged account, such as an individual retirement account, do not get the same state tax benefit, because withdrawals from those accounts are taxed under retirement account rules. The state exemption matters most in a regular taxable account.
Tax rules can change, and this guide is not tax advice.
What are the risks of Treasury bills?
T-bills are often called risk-free, but that phrase is shorthand for one specific risk: the risk of default. On that measure, they are among the safest investments available. On other measures, they still carry risks you should understand.
Inflation risk. If inflation runs higher than your T-bill yield, your money loses purchasing power even though your dollar balance grows. For example, if a T-bill earns 3 percent over a year in this hypothetical example and prices rise 4 percent, you can buy slightly less at maturity than you could at purchase. T-bills protect your nominal dollars, not your purchasing power.
Interest rate risk, mainly if you sell early. If you hold to maturity, you get the full face value regardless of what rates do in between. If you sell before maturity and rates have risen, your bill will be worth less than face value, because new bills offer higher yields. The shorter the remaining maturity, the smaller this effect tends to be.
Opportunity cost. Money in T-bills is money not invested in stocks, real estate, or a business. Over short periods, that trade-off is often worth it for safety. Over decades, it can be expensive, because stocks have historically grown faster, albeit with much larger ups and downs. Use T-bills for money with a short horizon or a safety job, not as your entire long-term plan.
Reinvestment risk. When a T-bill matures, you may have to reinvest at a lower yield if rates have fallen. Laddering helps soften this, because only part of your money reinvests at a time, but it does not eliminate it.
Access risk. TreasuryDirect itself does not let you sell early in the same way a broker does. If early access matters to you, buy through a broker from the start.
Treasury bills versus other safe places for cash
Versus a savings account. A savings account lets you withdraw at any time and its rate can rise or fall. A T-bill locks in a return until maturity and requires you to wait, or sell, to get cash early. Savings accounts are insured up to the legal limit per depositor per bank, while T-bills are backed directly by the government. After tax, T-bills can win in high-tax states because of the state exemption, but a high-yield savings account may pay more elsewhere. Compare the after-tax yield, not just the headline rate.
Versus a certificate of deposit. A certificate of deposit also locks your money for a set term and pays a fixed return, but it is issued by a bank, its interest is subject to state tax, and early withdrawal usually triggers a penalty. A T-bill is issued by the Treasury, is exempt from state tax, and can be sold on the secondary market if you buy through a broker, although the sale price may be above or below what you paid.
Many savers use more than one: a savings account for immediate access, T-bills for money needed in three to twelve months, and longer investments for money needed years from now.
Pros and cons of Treasury bills
Pros: safety backed by the United States government; known maturity dates you can match to real expenses; no state or local tax on the interest; low minimums through TreasuryDirect; and easy laddering for regular access to cash.
Cons: returns are modest and can trail inflation; you cannot access TreasuryDirect bills early the way you can with a broker; reinvestment yields may fall; and as a long-term plan they give up the higher growth stocks have historically offered.
Who should, and should not, buy Treasury bills?
T-bills suit you well if you are saving for a known expense in the next few weeks or months, such as taxes, tuition, or a home deposit, and you cannot afford a drop in value before that date. They also suit part of an emergency fund, with a ladder so some cash matures regularly, or a lump sum you need to hold safely while you decide what to do next.
T-bills may not be the best fit if you need instant, same-day access to every dollar. A savings account suits that job better. They are also a weak fit as your entire plan for a goal twenty or thirty years away, where stocks have historically offered higher growth.
A practical checklist before you buy your first T-bill
- Know your date. Write down when you will need the money, then pick a maturity on or before that date. Do not buy a 52-week bill with money you need in three months.
- Compare after tax. Check the T-bill yield, your savings account rate, and your state tax rate. The best headline rate is not always the best after-tax rate.
- Choose your route. TreasuryDirect for direct, no-fee auction purchases you plan to hold to maturity. A broker for flexibility and early selling.
- Start small. Buy one small bill first, watch it settle and mature, and learn how the statements and tax forms look. Then scale up once you are comfortable.
- Decide on reinvestment in advance. Will maturing money roll into a new bill, or will you need it as cash?
- Keep records and spread maturities. Save auction confirmations and your annual tax form, keep a list of maturity dates, and keep at least some immediate cash in a bank account.
Frequently asked questions about Treasury bills
Are Treasury bills FDIC insured?
No, and they do not need to be. FDIC insurance covers bank deposits. T-bills are direct obligations of the United States government, which is a different and generally stronger form of backing.
Can I lose money on a Treasury bill?
If you hold to maturity, you receive the full face value, so you do not lose nominal dollars. You can lose purchasing power to inflation, and you can receive less than you paid if you sell before maturity after rates have risen.
Are T-bills a good place for an emergency fund?
They can be part of one, especially as a ladder where a bill matures every few weeks or months. They are less suitable as the only emergency fund, because you cannot always access the full amount instantly. A common approach is to keep one month of expenses in a bank account for immediate access, and hold the rest in a short T-bill ladder.
Further reading
For official detail, start with TreasuryDirect for buying direct and the Treasury’s daily yield curve rates for current auction context. On this site, see our guides to opening an investment account, personal finance books by goal, and our stock return calculator guide.
Treasury bills will not make you rich quickly, and they are not supposed to. Their job is narrower and more valuable: to keep short-term money safe, to pay you a modest return for lending to the government, and to hand the money back on a date you chose in advance.
If you have cash for a near-term goal, compare a T-bill with your savings account on an after-tax basis, pick a maturity that matches your date, and buy through the route you understand best. Start with one bill, then build a ladder only if the rhythm of maturing cash fits your life.
Sources and methodology
The figures, rules, and rates in this guide come from the authoritative sources linked throughout the article, including treasurydirect.gov, treasury.gov. Where a figure is an estimate or a worked example, the article says so.
