Author: AskMyFinance Editorial Team

A Treasury bill, or T-bill, is a short-term debt security issued by the U.S. federal government. It is one of the safest investments you can make — backed by the full faith and credit of the U.S. government. T-bills have become very popular with everyday investors since interest rates rose in recent years.

How Treasury Bills Work

T-bills are sold at a discount to their face value. When the bill matures, the government pays you the full face value. The difference between what you paid and what you received is your return.

For example: You buy a $1,000 T-bill for $975. When it matures in 26 weeks, you receive $1,000. Your gain is $25, which represents your interest income.

T-bills do not pay periodic interest like bonds. All the return comes at maturity.

T-Bill Maturities

Treasury bills come in several maturities:

• 4 weeks (about 1 month)
• 8 weeks (about 2 months)
• 13 weeks (about 3 months)
• 17 weeks (about 4 months)
• 26 weeks (about 6 months)
• 52 weeks (about 1 year)

The shorter the maturity, the more liquid the investment. Many investors “ladder” T-bills by buying different maturities so that some bills mature every few weeks, providing regular access to cash.

T-Bill Yields

T-bill yields change based on market conditions and Federal Reserve policy. When the Fed raises interest rates, T-bill yields typically rise too.

T-bill yields are quoted as an annualized rate. A 26-week T-bill with a 5% annualized yield does not earn 5% in 6 months — it earns roughly half that over the 6-month period.

Are T-Bills Safe?

T-bills are considered one of the safest investments in the world. The U.S. government has never defaulted on its debt. Your principal is guaranteed as long as you hold the bill to maturity.

Unlike savings accounts, T-bills do not have FDIC insurance — but they have something better: a direct government guarantee. The risk of loss is essentially zero if held to maturity.

If you sell a T-bill before maturity, you could receive more or less than you paid, depending on where interest rates have moved. Holding to maturity eliminates this price risk.

T-Bills vs High-Yield Savings Accounts

Both T-bills and high-yield savings accounts are safe ways to earn interest on cash. The main differences:

• Liquidity: High-yield savings accounts let you access money anytime. T-bills lock up money until maturity (though you can sell early on the secondary market).
• Yield: T-bill yields are often competitive with or higher than top savings account rates.
• Taxes: T-bill interest is exempt from state and local income taxes. Savings account interest is fully taxable at the federal, state, and local levels. For people in high-tax states, this can make T-bills more attractive.

How to Buy Treasury Bills

Through TreasuryDirect

The easiest way to buy T-bills directly from the government is through TreasuryDirect.gov. You create an account, link your bank account, and purchase T-bills directly.

Minimum purchase is $100. T-bills are sold at auction on a regular schedule. You can also set up automatic reinvestment so your T-bills automatically roll over into new bills when they mature.

Through a Brokerage

You can also buy T-bills through most major brokerage accounts, including Fidelity, Schwab, Vanguard, and others. Brokerages give you access to both new-issue auctions and the secondary market, where you can buy existing T-bills before they mature.

Buying through a brokerage is convenient if you already have an investment account. You can manage T-bills alongside your stocks and bonds in one place.

Through Treasury ETFs

If you want T-bill exposure without buying individual bills, consider a short-term Treasury ETF. These funds hold a portfolio of T-bills and pay monthly interest. Examples include the iShares 0-3 Month Treasury Bond ETF (SGOV) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL).

Tax Treatment

T-bill interest is:

• Subject to federal income tax
• Exempt from state and local income taxes

You report T-bill interest in the year it matures (not the year you bought it). TreasuryDirect and your brokerage will send you a 1099-INT form for any interest earned.

Who Should Invest in T-Bills?

T-bills are a good fit for:

• People who want a safe place to park cash for 1 to 12 months
• Investors building an emergency fund who want to earn more than a typical savings account
• Retirees who want capital preservation with competitive yields
• Residents of high-tax states who benefit from state tax exemption

T-bills are not ideal for money you might need immediately, since they lock up your cash until maturity. For truly liquid savings, a high-yield savings account or money market account is a better fit.

The Bottom Line

Treasury bills offer safety, competitive yields, and a state tax advantage. They are a solid choice for short-term cash you do not need immediately. With TreasuryDirect.gov, buying T-bills takes less than 10 minutes to set up.

If you are not sure whether T-bills, high-yield savings, or CDs are right for your cash, compare rates and terms before deciding. See our guides on best CD rates and best high-yield savings account rates.

Passive income is money you earn with little or no active effort after the initial setup. It is not truly “doing nothing” — most passive income streams require upfront work, money, or both. But once they are running, they keep generating income without trading your time for every dollar.

Why Passive Income Matters

Most people have one income source: their job. If they stop working, the money stops. Passive income changes that equation. It gives you financial security and, eventually, the freedom to work less if you choose.

Building passive income takes time. But starting early — even with small amounts — can make a major difference over years and decades thanks to compounding.

10 Real Ways to Earn Passive Income

1. Dividend Stocks

When you own shares of a dividend-paying company, you receive regular cash payments just for holding the stock. Reinvest those dividends to buy more shares, and your income grows over time.

You can start with as little as $1 using fractional shares at most major brokerages. Read more about dividend investing for beginners.

2. High-Yield Savings Accounts

Keeping your emergency fund or cash savings in a high-yield savings account lets your money earn interest without any work. Rates at online banks can be 4 to 5 times higher than traditional bank accounts.

See our list of the best high-yield savings account rates for 2026.

3. Index Funds and ETFs

Invest in broad market index funds and let your money grow with the market. This is one of the simplest forms of passive investing. You do not need to pick stocks or watch the market daily.

4. Real Estate Rental Income

Owning rental property generates monthly income. It requires significant upfront capital and management, but property managers can handle the day-to-day for a fee.

If you do not want to be a landlord, look into real estate investment trusts (REITs). REITs trade like stocks and pay dividends from rental and property income.

5. Certificates of Deposit (CDs)

CDs pay a fixed interest rate for a set period. You lock up your money for six months to five years and earn guaranteed interest. There is no risk to your principal as long as the bank is FDIC insured.

6. Peer-to-Peer Lending

Platforms like LendingClub let you lend money to individual borrowers and earn interest. Returns can be higher than savings accounts, but there is credit risk — borrowers can default.

7. Creating Digital Products

An ebook, online course, or printable template takes time to create once, but can sell hundreds or thousands of times. Platforms like Gumroad, Teachable, or Etsy handle the sales and delivery.

8. Royalties

If you write a book, create music, or develop software, you can earn royalties every time someone buys or uses your work. Musicians earn streaming royalties, authors earn book royalties, and software developers can earn licensing fees.

9. Affiliate Marketing

Recommend products on a blog, YouTube channel, or social media. When someone clicks your link and buys, you earn a commission. Well-performing affiliate content can generate income for years after it is published.

10. Treasury Bills and I-Bonds

Government securities like Treasury bills and I-bonds pay interest with virtually no default risk. T-bills are short-term (a few weeks to a year), while I-bonds protect against inflation over longer periods.

Common Passive Income Myths

Myth: Passive Income Requires No Work

Almost all passive income streams require significant upfront effort. Writing a book takes months. Building a rental property portfolio requires capital and management. Dividend investing takes time to compound.

The “passive” part means you do not have to actively work for each dollar once the system is running — not that it builds itself.

Myth: You Need a Lot of Money to Start

You can start dividend investing or buying index funds with $1. High-yield savings accounts have no minimums at many banks. Digital products can be created with time and skill, not capital.

Myth: Passive Income Is Tax-Free

Most passive income is taxable. Dividends, interest, and rental income are all reported to the IRS. How they are taxed depends on the type of income and how long you have held the investment.

How to Get Started

1. Start with what you already have — if you have $1,000 in a checking account earning nothing, move it to a high-yield savings account today
2. Open a brokerage account and invest in a low-cost index fund
3. Reinvest all earnings instead of spending them
4. Add new streams gradually — do not try to build everything at once

The best passive income strategy is one you can start now and stick with for the long term. Start small, stay consistent, and let compounding do the heavy lifting over time.

See also:

• What Is the FIRE Movement? How to Retire Early in 2026

Dividend investing is a strategy where you buy stocks that pay regular cash payments to shareholders. These payments are called dividends. Over time, dividend investing can create a steady stream of passive income while you also grow your investment portfolio.

What Is a Dividend?

A dividend is a payment a company makes to its shareholders, usually every quarter. It comes out of the company’s profits. When you own shares in a dividend-paying company, you receive a portion of those profits just for holding the stock.

For example, if you own 100 shares of a stock that pays a $1 annual dividend, you receive $100 per year in dividends. That money is deposited directly into your brokerage account.

How Dividend Investing Works

When you invest in dividend stocks, you earn money in two ways:

1. Dividend income — the regular cash payments the company sends you
2. Capital appreciation — the increase in the stock price over time

Many dividend investors reinvest their dividends automatically. This is called a DRIP — dividend reinvestment plan. Instead of taking the cash, you use it to buy more shares. Over decades, this compounding effect can dramatically increase your portfolio.

What Is Dividend Yield?

Dividend yield tells you how much a company pays out relative to its stock price. You calculate it like this:

Dividend Yield = Annual Dividend Per Share / Stock Price

If a stock pays $2 per year in dividends and trades at $50 per share, the dividend yield is 4%.

A higher yield is not always better. Sometimes a very high yield signals that the stock price has fallen sharply, which can be a warning sign. Yields between 2% and 5% are generally considered healthy.

Types of Dividend Stocks

Dividend Aristocrats

These are S&P 500 companies that have increased their dividends every year for at least 25 consecutive years. They include well-known companies like Coca-Cola, Johnson & Johnson, and Procter & Gamble. Dividend Aristocrats are considered reliable income stocks.

High-Yield Dividend Stocks

These stocks pay above-average dividends, sometimes 5% or more. They often include real estate investment trusts (REITs), utilities, and master limited partnerships. Higher yields come with higher risk, so research carefully before investing.

Dividend Growth Stocks

These companies may pay a modest dividend today, but they grow it steadily over time. A company that starts at a 2% yield and grows its dividend 8% per year can become a much bigger income source over a decade.

Dividend ETFs and Index Funds

If you do not want to pick individual stocks, you can invest in dividend ETFs. These funds hold dozens or hundreds of dividend-paying stocks, giving you instant diversification.

Popular options include:

• Vanguard Dividend Appreciation ETF (VIG)
• Schwab U.S. Dividend Equity ETF (SCHD)
• iShares Select Dividend ETF (DVY)

These ETFs handle the stock selection for you and automatically reinvest dividends if you set them up that way.

Pros of Dividend Investing

• Regular income: You receive cash payments without selling your shares
• Lower volatility: Dividend stocks tend to be more stable than high-growth stocks
• Compounding: Reinvested dividends buy more shares, which pay more dividends
• Inflation hedge: Growing dividends can keep pace with rising prices

Cons of Dividend Investing

• Dividends can be cut: Companies can reduce or eliminate dividends during hard times
• Tax implications: Dividends are taxable in regular brokerage accounts (though qualified dividends are taxed at lower rates)
• Slower growth: High-dividend companies often grow more slowly than growth stocks
• Concentration risk: Focusing only on dividend stocks may leave you under-diversified

How to Start Dividend Investing

1. Open a brokerage account if you do not already have one
2. Decide whether to buy individual stocks or dividend ETFs
3. Look for companies with a history of consistent dividends and healthy payout ratios
4. Enable automatic dividend reinvestment (DRIP) if your brokerage offers it
5. Be patient — dividend investing rewards long-term holders

Dividend investing works well inside a Roth IRA or traditional IRA, where dividends can grow without immediate tax implications. See our guide on how to open a Roth IRA if you want to shelter your dividend income from taxes.

Is Dividend Investing Right for You?

Dividend investing works best for people who:

• Want a steady stream of income in retirement
• Prefer lower-risk, more stable investments
• Have a long time horizon and can let dividends compound

It is less ideal for young investors who want maximum growth, since growth stocks that pay no dividends can outperform dividend stocks over long periods.

A balanced approach is often best: hold a core of low-cost index funds for broad growth, then add dividend ETFs for income as you get closer to retirement.

Ready to start? Read our guide on the best brokerage accounts for beginners or learn about index funds vs ETFs.

Index funds and ETFs are both popular ways to invest. But they are not the same thing. Knowing the difference can help you decide which one is right for your goals.

What Is an Index Fund?

An index fund is a type of mutual fund. It tracks a market index, like the S&P 500. When you invest in an index fund, you buy a share of every stock in that index.

Index funds have low fees because they do not try to beat the market. A fund manager just copies the index. This keeps costs down for investors.

You buy and sell index funds at the end of the trading day. The price is set once a day, after the market closes.

What Is an ETF?

An ETF stands for exchange-traded fund. Like an index fund, it tracks a group of stocks or other assets. But an ETF trades on a stock exchange, just like a single stock.

You can buy and sell an ETF at any point during the trading day. The price changes throughout the day as the market moves.

ETFs often have very low expense ratios. Some popular ETFs charge as little as 0.03% per year.

Key Differences Between Index Funds and ETFs

How You Buy Them

You buy an index fund directly from a fund company, like Vanguard or Fidelity. You usually need a minimum investment, often $1,000 or more.

You buy an ETF through a brokerage account, just like you would buy a stock. Many brokerages let you buy a single share, which can cost as little as $1 if you use fractional shares.

Trading Flexibility

Index funds price once per day. If you want to invest fast during a market dip, you cannot do that with a traditional index fund.

ETFs trade all day. You can set limit orders or stop-loss orders, just like with a stock. This gives you more control over the price you pay.

Fees

Both have low fees compared to actively managed funds. Index funds sometimes have no transaction fees if you buy from the fund company directly. ETFs may charge a commission depending on your brokerage, though most major brokerages have dropped commissions on ETF trades.

Minimum Investment

Index funds often require a minimum to get started. ETFs do not — you can buy as little as one share, or even a fraction of a share at some brokerages.

Tax Efficiency

ETFs tend to be more tax-efficient than index funds. This is because of how they are structured. ETFs use a process called “in-kind creation and redemption” that limits taxable events inside the fund. Index funds may create taxable capital gains distributions even when you don’t sell your shares.

Which One Is Better for You?

For most long-term investors, the difference is small. Both options give you broad market exposure at low cost.

Choose an index fund if you:

• Invest on a set schedule and want automatic contributions
• Do not want to worry about bid-ask spreads
• Prefer the simplicity of buying directly from a fund company

Choose an ETF if you:

• Want to start investing with less money
• Like the ability to trade throughout the day
• Are investing in a taxable account and want to limit taxes

How to Buy Index Funds or ETFs

You need a brokerage account to buy ETFs. For index funds, you can either use a brokerage account or open an account directly with the fund company.

Look for funds with low expense ratios — ideally under 0.20%. Some of the most popular options include:

• Vanguard Total Stock Market ETF (VTI) — 0.03% expense ratio
• iShares Core S&P 500 ETF (IVV) — 0.03% expense ratio
• Fidelity Zero Total Market Index Fund — 0.00% expense ratio
• Schwab S&P 500 Index Fund — 0.02% expense ratio

Common Questions

Can You Hold Both?

Yes. Many investors hold both index funds and ETFs in their portfolios. There is no rule that says you have to pick just one.

Are ETFs Riskier Than Index Funds?

Not usually. An ETF that tracks the S&P 500 has the same underlying risk as an index fund tracking the same index. The difference is in how you buy them, not in how risky they are.

Can You Invest in ETFs Through a 401(k)?

Most 401(k) plans offer mutual funds or index funds, not ETFs. But some newer 401(k) plans and self-directed accounts do offer ETFs. Check your plan documents to see what is available.

The Bottom Line

Both index funds and ETFs are solid choices for long-term investors. They give you broad market exposure at low cost. The best option depends on how you like to invest and what kind of account you are using.

If you are just getting started, opening a brokerage account is the first step. Look for a platform with no commissions on ETF trades and access to low-cost index funds. From there, pick a broad market fund and start investing consistently.

Want to learn more? Read our guide on best brokerage accounts for beginners or explore how a Roth 401(k) works.