Treasury bills have become a popular savings vehicle for anyone who pays attention to yield. In environments where rates are elevated, T-bills can offer returns that rival or beat high-yield savings accounts — with the full backing of the U.S. government. Here’s how they work, what sets them apart from other Treasury securities, and the easiest ways to buy them in 2026.
What Are Treasury Bills?
Treasury bills (T-bills) are short-term debt securities issued by the U.S. Department of the Treasury to finance government operations. They are considered among the safest investments in the world because they are backed by the full faith and credit of the U.S. government.
Unlike bonds that pay regular interest, T-bills are sold at a discount to their face value. When the bill matures, you receive the full face value. The difference is your return.
Example: You buy a 26-week T-bill with a face value of $1,000 for $975. At maturity, you receive $1,000. Your profit is $25, which represents your interest income.
T-Bill Terms and Maturities
The Treasury issues T-bills in several maturity lengths:
- 4-week (1-month)
- 8-week (2-month)
- 13-week (3-month)
- 17-week (4-month)
- 26-week (6-month)
- 52-week (1-year)
Auctions for different maturities are held weekly. New 4-, 8-, 13-, 17-, and 26-week bills are auctioned weekly. The 52-week bill is auctioned every four weeks.
T-Bills vs. Treasury Notes vs. Treasury Bonds
These are all U.S. government debt, but they differ in maturity length and how interest is paid:
| Security | Maturity | Interest Payment |
|---|---|---|
| Treasury Bill (T-Bill) | 4 weeks to 1 year | Discount at issuance; full value at maturity |
| Treasury Note (T-Note) | 2 to 10 years | Semiannual coupon payments |
| Treasury Bond (T-Bond) | 20 or 30 years | Semiannual coupon payments |
| Treasury Inflation-Protected Securities (TIPS) | 5, 10, or 30 years | Semiannual coupon; principal adjusted for inflation |
| I Bonds | Up to 30 years | Inflation-adjusted, compounding monthly |
For short-term cash management — anything under a year — T-bills are the relevant instrument.
How T-Bill Interest Rates Work
T-bill rates are driven by the federal funds rate and broader market expectations for short-term rates. They are quoted as a discount rate and also expressed as an investment yield (or bond equivalent yield).
When comparing T-bills to other savings products, use the investment yield (sometimes shown as “coupon equivalent rate” on TreasuryDirect), not the discount rate. The investment yield accounts for the fact that you invested less than face value and adjusts for the number of days in the period.
Tax Treatment of T-Bills
T-bill income has a favorable tax feature:
- Federal income tax: T-bill interest is subject to federal income tax in the year the bill matures or is sold
- State and local tax: T-bill interest is exempt from state and local income taxes
This state tax exemption makes T-bills especially attractive in high-income-tax states like California (13.3% top rate), New York (10.9%), or New Jersey (10.75%). A T-bill yielding 4.5% in California is equivalent to a fully taxable savings account paying approximately 5.1% for someone in the top state bracket.
How to Buy Treasury Bills
There are three main ways to buy T-bills:
1. TreasuryDirect.gov (Direct from Treasury)
The most direct path. You create an account, link a bank account, and participate in Treasury auctions. You can buy T-bills for as little as $100 in increments of $100. The main downside: TreasuryDirect’s interface is dated, and selling before maturity requires transferring to a broker.
Steps:
- Create an account at TreasuryDirect.gov
- Link your bank account
- Navigate to “BuyDirect” and select the T-bill maturity you want
- Place a non-competitive bid (you accept the average auction rate)
- Funds are debited; T-bill is credited to your account
2. Brokerage Account
Fidelity, Schwab, Vanguard, and most other brokerages allow you to buy Treasury securities through their platforms. Benefits: easier interface, ability to sell before maturity, and integration with your existing investment accounts. Minimum purchases vary but can be as low as $1,000.
3. Treasury ETFs and Money Market Funds
If you want T-bill exposure without buying individual bills, several ETFs hold exclusively short-term Treasuries (like SGOV, BIL, or CLTL). T-bill-only money market funds at brokerages also provide daily liquidity with yields close to current T-bill rates. These options sacrifice the state tax exemption on gains in some cases — check with your tax advisor.
T-Bills vs. High-Yield Savings Accounts
| Feature | T-Bills | High-Yield Savings |
|---|---|---|
| Safety | U.S. government backed | FDIC-insured up to $250K |
| State tax | Exempt | Fully taxable |
| Liquidity | Locked until maturity (or sell in secondary market) | Withdraw anytime |
| Rate | Fixed at auction | Variable |
| Minimum | $100 (TreasuryDirect) | Often $0 |
In a high-tax state, T-bills often win on after-tax yield. In a low-tax state, the comparison is closer — the convenience of a savings account may outweigh a small rate difference.
Auto-Roll: Maintaining Your T-Bill Strategy
On TreasuryDirect, you can set up automatic reinvestment — when your T-bill matures, the proceeds are automatically used to purchase a new T-bill of the same maturity at the next auction. This “auto-roll” feature is useful for maintaining a T-bill position passively without logging in each time.
At brokerages, you can often set similar auto-reinvestment options, or simply maintain a rolling ladder of 4- and 13-week bills.
Risks of T-Bills
T-bills are among the lowest-risk investments available, but there are a few considerations:
- Rate risk: When your T-bill matures, you reinvest at whatever rate is current — which could be lower if the Fed has cut rates
- Opportunity cost: Short-term T-bills typically yield less than longer-term bonds or stocks over time
- Liquidity if locked: On TreasuryDirect, you cannot easily access your money before maturity (you’d need to transfer to a broker to sell)
Frequently Asked Questions
Are T-bills safe in a government default scenario?
T-bills are backed by the U.S. government. While debt ceiling crises occasionally cause short-term market disruption, a true default on Treasury obligations has never occurred. T-bills remain the global standard for risk-free investment.
How is T-bill interest reported for taxes?
You’ll receive a Form 1099-INT at year-end showing your interest income. Report this on Schedule B of your federal return. The income is not included in your state return.
Can I buy T-bills in an IRA?
Yes, through a brokerage IRA. Buying in an IRA eliminates the federal tax on interest, but also means you lose the state tax exemption (which wouldn’t apply in a tax-deferred account anyway). Most people maximize T-bill tax efficiency in taxable accounts where the state exemption delivers real savings.
Bottom Line
Treasury bills are one of the best short-term savings instruments for investors who want government-backed safety with yields that can match or beat high-yield savings accounts. The state tax exemption gives them a meaningful edge in high-tax states. Whether you buy through TreasuryDirect or a brokerage, T-bills are a straightforward, low-risk way to park cash you won’t need for up to a year.