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.