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Treasury Bills (T-bills): What They Are and How to Buy Them


Written by Ali Cybulski | Edited by Becca Stanek | Updated on 1/2/2025


Treasury bills, commonly known as T-bills, are short-term securities — essentially loans — issued by the Treasury Department to raise money needed to operate the federal government.

T-bills may be attractive if you’re seeking a safe investment option because they’re backed by the U.S. government and highly liquid, meaning they can easily be sold for cash. But they also produce lower returns than higher risk investments, such as stocks and bonds.

Here’s more about Treasury bills, including how to buy them and take advantage of yields that exceed 4%.

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What is a Treasury bill?

When you buy a T-bill, you are extending a short-term loan of one year or less to the U.S. government. You will typically pay less than face value for a bill and then receive the bill’s full value when it matures.

You can keep a T-bill until it matures or sell it before then on the secondary market. If you sell before maturity though, you may not recoup the full face value of your Treasury bill.

T-bills usually offer lower returns than Treasury bonds or notes. But for most of 2023 and into 2024, short-term Treasurys have yielded more than these medium- and long-term Treasurys, according to Fidelity Investments.

How do Treasury bills work?

Treasury bills are sold in electronic form only and can be purchased through a bank, broker, dealer or through TreasuryDirect, the U.S. government’s website for buying treasuries.

You can buy bills at a discount or at face value, and they are purchasable in terms of four, eight, 13, 17, 26 and 52 weeks. Your “interest” is the face value minus the purchase price. Bills pay interest only at maturity.

The Treasury Department sells T-bills in $100 increments and requires a $100 minimum purchase. You can buy a bill in two ways: with a noncompetitive bid or a competitive bid.

With a noncompetitive bid, you agree to accept the discount rate determined at auction. You’re guaranteed to receive the bill you want in the amount you want.

Meanwhile, with a competitive bid, you specify the discount rate you are willing to accept. Your bid may be accepted if the rate is less than the discount rate set at auction, or it may be accepted in less than full if your bid is equal to the discount rate. The bid may be rejected if your specified rate is higher than the discount auction rate.

Note that auctions for Treasury bills are scheduled weekly for four-, eight-, 13-, 17- and 26-week bills and every four weeks for 52-week bills. See the auction calendar for specific dates.

How are T-bills taxed?

Federal tax is due on interest earned from Treasury bills. Remember to report interest from your Treasury bill in the year it matures or you sell it, which may not be the year you bought it.

T-bills are exempt from state or local taxes.

What causes Treasury bill rates to change?

T-bill rates can be influenced by many factors, including the federal funds rate, inflation and even a bill’s term.

Federal funds rate: Federal Reserve rate changes significantly affect T-bill rates. Short-term Treasurys typically move along with the target federal funds rate.

Maturity period: Your Treasury bill’s term also affects its price. A 1-year bill offers a higher rate of return than a 3-month bill, for instance, because it means additional risk as you’re tying up your money for a longer period of time.

T-bill demand: Generally, the demand for Treasurys will increase when investor confidence is low, causing Treasury prices to rise and lowering their yields. Often, declining Treasury yields are interpreted as a sign of a potential economic slowdown.

Inflation: Inflation can mean less demand for T-bills and lower prices. That’s because inflation can erode the T-bill’s purchasing power. Say the inflation rate is 5% and the T-bill discount rate is 3% —in this scenario, the real rate of return is a loss.

How to buy Treasury bills

You can buy a Treasury bill either through the U.S. government or through a bank or broker. Here’s an overview of both processes:

Through the U.S. government: You can purchase bills at TreasuryDirect.gov. The minimum purchase is $100, and you must buy T-bills in $100 increments. The TreasuryDirect site charges no fees for opening an account or buying securities.

To make a purchase, you’ll need to set up a TreasuryDirect account if you don’t already have one. You can use the account to make noncompetitive bids for securities. You must bid when TreasuryDirect auctions the type of security you want.

Through a bank or broker: To make a purchase through this route, contact a broker, dealer or other financial institution to make competitive or noncompetitive bids. If you use a brokerage firm, such as Fidelity or Charles Schwab, your minimum investment may start at $1,000 or another amount.

Investors can also buy and sell T-bills on the secondary market through a brokerage.

What are Treasury bill rates?

This chart shows average monthly interest rates of Treasury bills from May 31, 2023, to April 30, 2024. You can search for additional rate history between 2001 and 2024 on the Treasury Department’s Fiscal Data website.

T-bills: Average monthly rates
Date Average interest rate
11/30/24 4.74%
10/31/24 4.90%
9/30/24 5.15%
8/31/24 5.28%
7/31/24 5.34%
6/30/24 5.35%
5/31/24 5.35%
4/30/24 5.36%
3/31/24 5.37%
2/29/24 5.39%
1/31/24 5.41%

Source: Fiscal Data, Treasury.gov

Pros and cons of investing in T-bills

Pros

  • Invest with low risk. T-bills can be a good option if you have a short investment timeline and want to minimize your risk, as they’re backed by the U.S. government.
  • Buy and sell quickly and easily. Treasury bills mature in a year or less, which means you won’t have to wait long to recoup your money.
  • Enjoy tax benefits. Your T-bills won’t be subject to state or local income taxes.
  • Make a low minimum investment. You can get started on TreasuryDirect with an investment of just $100.

Cons

  • Your returns may be modest. A T-bill can offer a lower yield compared to riskier options, such as stocks and bonds.
  • You won’t receive periodic interest payments. Bills pay interest only at maturity.
  • You may be stuck with a lackluster rate. Your rate could become less attractive in a rising-rate environment.
  • You may bid competitively for bills but not receive them. TreasuryDirect’s auction system can result in confusion for some investors.

Are Treasury bills a good investment?

Whether Treasury bills are a good investment depends on your risk tolerance and investment timeline as well as your financial goals. T-bills are typically low risk but also low reward.

Some investors like the short-term nature and high liquidity of T-bills. If you shy away from risk and desire the safety of U.S. government backing, then a T-bill might be a good fit for you.

Treasury bills may not be the right choice, on the other hand, if you need to earn more interest for long-term investment goals, such as retirement. For this purpose, stocks can make more sense, at least for a portion of your portfolio.

To determine what's best for your investment goals, consider yield, liquidity and risk.

Frequently asked questions

How do treasury bonds compare with treasury notes and treasury bills?

Treasury bonds have long maturities of 20 or 30 years and pay interest every six months, whereas Treasury notes have midrange maturities of two, three, five, seven or 10 years. Both pay interest every six months. Treasury bills, on the other hand, have terms of one year or less and pay interest at maturity.

What types of interest payments does a T-bill earn?

A T-bill only earns interest when the bill matures. That’s when you are paid the par amount — also called the face value — of the bill. Bills are usually sold at a discount from the par amount, and the difference between the par amount and the purchase price is your interest.

Are Treasury bills the only type of debt security issued by the Treasury Department?

Treasury marketable securities have been one of the primary financing tools the U.S. government has used to operate throughout the years, going as far back as the Revolutionary War. The five types of Treasury marketable securities are bills, notes, bonds, Treasury Inflation-Protected Securities (TIPS) and Floating Rate Notes (FRNs). These securities can be bought and sold in the secondary market.

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