What Are Treasury Bill Rates and How to Buy T-Bills

Treasury bills may be an attractive choice if you’re seeking safe and secure investment options. T-bills are backed by the U.S. government, and they are highly liquid — meaning they can easily be sold for cash because they mature in one year or less.

The Department of the Treasury issues U.S. Treasury securities, including T-bills, to raise money needed to operate the federal government.

Here’s more about how T-bills work and what to know if you’re thinking of buying securities to take advantage of yields that now exceed 5%.

What is a Treasury bill?

A Treasury bill is essentially a short-term loan issued by the federal government. A T-bill matures in one year or less from the date of purchase; you’ll receive payment of principal and interest within 12 months.

T-bills are sold at a discount or at face value and in terms from four weeks to 52 weeks. Your “interest” is the face value minus the purchase price, and bills pay interest only at maturity.

You can keep a T-bill until it matures or sell it before then on the secondary market. But you won’t recoup the full face value of your Treasury bill if you sell it before maturity.

Although they offer short terms and low risk, T-bills generally can’t match the returns of stocks or corporate and municipal bonds.

How do Treasury bills work?

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

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.

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

With a competitive bid, you specify the discount rate you are willing to accept. Your bid for the full amount may be accepted if your specified rate is less than the discount rate set at auction; it may be accepted for less than the desired amount if your bid is equal to the discount rate. Your bid may be rejected if the specified rate is higher than the discount rate set at auction.

You can use TreasuryDirect or a bank or broker to place a noncompetitive bid. If you want to place a competitive bid, you’ll need to use a bank or a broker.

How to buy Treasury bills

You can buy a Treasury bill either through the U.S. government or through a bank or broker.

From Uncle Sam: You can purchase bills using TreasuryDirect. The minimum purchase is $100, and you must buy T-bills in $100 increments.

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 want. You must bid when TreasuryDirect auctions the type of security you want. (Check the site’s auction schedule.)

The TreasuryDirect site charges no fees for opening an account or buying securities.

From a bank or broker: Contact a broker, dealer or other financial institution to make competitive or noncompetitive bids. You may also be able to obtain cash management bills at various times and for variable terms.

If you go through a brokerage firm, such as Fidelity or Charles Schwab, your minimum investment may start at $1,000 or some other 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.

Source: Fiscal Data, Treasury Department

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. 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 $100.

Cons:

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

What causes Treasury bill rates to change?

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

Generally, the demand for Treasurys will increase when investor confidence is low, causing Treasury prices to rise and lowering their yields. As a result, declining Treasury yields are often viewed as a potential sign of an economic slowdown.

Overall, you can expect higher returns from T-bills with longer maturity dates.

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. You may need stocks for at least a portion of your portfolio. Consider yield, liquidity and risk to figure out what’s best for you.