Treasury bills are short-term debt securities issued by the U.S. government with maturities of one year or less, and here is how Treasury bills work in practice: you buy one for less than its face value, wait out the term, and the Treasury pays you the full face value at maturity. The difference between what you paid and what you collect is your return. Because the federal government stands behind every bill, T-bills are treated as the closest thing to a risk-free investment and set the baseline for interest rates across the economy.
How You Actually Earn a Return
T-bills don’t pay interest the way a savings account or a coupon bond does. There is no monthly deposit, no quarterly check. You pay the discounted price up front, and the full face value lands in your account on the maturity date. That gap is the whole return.
A simple example: buy a $10,000 bill for $9,800 and you collect $10,000 at maturity, earning $200. The deeper the discount at purchase, the higher the effective yield.
The minimum purchase is $100, with additional purchases in $100 increments, so you don’t need a large sum to start. The exact price you pay is set at auction, which means the yield you lock in reflects market conditions on that auction day rather than a rate the Treasury publishes in advance.
How Long Your Money Is Tied Up
The Treasury currently issues T-bills in seven maturities: 4, 6, 8, 13, 17, 26, and 52 weeks. The 6-week bill is the newest, added to regular weekly issuance in June 2023. Each maturity has its own weekly auction cycle, with announcement and auction days that shift around federal holidays.
Shorter maturities suit money you may need soon. The 52-week bill lets you lock in a rate for a full year. Many investors ladder several maturities together so that something is coming due on a rolling basis.
How to Buy a T-Bill
Through TreasuryDirect
TreasuryDirect is the government’s own online platform. You open an account using your Social Security number and bank details, pick a maturity, and place a non-competitive bid. After the auction settles, the discounted purchase price is pulled from your linked bank account, and the face value is credited back on the maturity date. There are no transaction fees.
TreasuryDirect only accepts non-competitive bids. You agree to accept whatever yield the auction produces, and in exchange your order is guaranteed to be filled. For most individual investors, that is exactly the right trade.
Through a Brokerage
Any standard brokerage account can also buy T-bills, either at auction or on the secondary market after issuance. A broker gives you more flexibility. You can pick up a bill that is only a few weeks from maturity for very short-term cash parking, or submit a competitive bid at auction with a specific yield target. Some brokers charge a small commission or build a markup into the price, so check fees before you buy. The secondary market for T-bills is extremely liquid, which keeps spreads tight.
Competitive vs. Non-Competitive Bids
At auction, bidders choose one of two routes. A non-competitive bid accepts the going rate and ensures you receive the bills you ordered. A competitive bid names the exact yield you are willing to accept; if the auction clears below that yield, your bid is rejected. Competitive bidding is a tool for institutional investors and dealers managing large positions. Individual investors are almost always better served by non-competitive bids.
Getting Your Money Back Before Maturity
Most T-bill investors simply hold to maturity and collect the face value. If you need cash earlier, you can sell on the secondary market, but the path depends on where the bill lives.
Bills held in a brokerage account are easy to sell: place a sell order and the trade settles quickly. Bills held in TreasuryDirect cannot be sold directly from the platform. You have to transfer the security to a bank, broker, or dealer using FS Form 5511, then ask that institution to sell on your behalf.
There is an additional constraint that catches people off guard. TreasuryDirect imposes a 45-day holding period on newly purchased bills, during which the bill cannot be transferred or sold. In practical terms, a 4-week bill bought through TreasuryDirect is locked until maturity, because it matures before the hold expires. If you think you may need early access, a brokerage is the better venue.
Sale price before maturity depends on where interest rates have moved since you bought. If rates have risen, newer bills offer better yields, so yours fetches a lower price. If rates have fallen, your bill becomes more attractive and its price rises. Short maturities keep this swing modest compared with longer-term bonds, but it is not zero, and in a fast-moving rate environment you could sell at a small loss.
How T-Bill Earnings Are Taxed
Interest from T-bills is subject to federal income tax but exempt from all state and local income taxes. That state exemption is a real edge in high-tax states, and it can add meaningful after-tax yield compared with a CD or corporate bond paying the same stated rate.
You will receive a 1099-INT reporting the interest earned during the year. If your bills are in TreasuryDirect, the form appears in your account at the start of the year. If a brokerage holds them, the broker issues the form. The interest shows up in Box 3 (interest on U.S. Treasury obligations), not Box 1.
For individual investors on the cash method, the income is taxable in the year the bill matures and pays out, even if you bought it the previous calendar year. Buy a 26-week bill in September that matures in March, and all the interest lands on next year’s return. Businesses and institutions on the accrual method report interest as it accrues, regardless of when it is actually paid.
TreasuryDirect also offers voluntary federal withholding on interest payments. You can elect to have up to 50 percent withheld, which can simplify quarterly estimated taxes if T-bills are a significant source of income.
What Can Still Go Wrong
Credit risk is essentially off the table. The U.S. government has never defaulted on a Treasury obligation, and T-bills are backed by the full faith and credit of the federal government. That is why they function as the global benchmark for safety.
The real risk is inflation. If you are earning 4 percent on a 13-week bill while inflation runs at 4.5 percent, your purchasing power is quietly shrinking. Short maturities soften this, because you can roll into new bills at updated rates every few weeks, but during stretches when inflation outpaces short-term rates, T-bills will not keep you whole.
There is also opportunity cost. Money parked in T-bills is money not invested in assets with higher long-term return potential. For an emergency fund or a near-term savings goal, that trade-off makes perfect sense. For a 30-year retirement horizon, it generally does not. T-bills are a tool, and the right question is whether this particular tool fits the job in front of you.
How T-Bills Stack Up Against Other Short-Term Options
When people shop for a home for short-term cash, T-bills usually compete with three alternatives: high-yield savings accounts, CDs, and money market funds.
T-Bills vs. CDs
Bank CDs carry FDIC insurance up to $250,000 per depositor, per institution. T-bills have no dollar cap on their government backing, which matters above the FDIC limit. CDs typically charge an early withdrawal penalty if you cash out before maturity; T-bills can be sold on the secondary market without a fixed penalty, though at a market price that may be slightly above or below what you paid. The state tax exemption often tips the after-tax math toward T-bills, particularly in states with income tax rates above 5 percent.
T-Bills vs. Money Market Funds
Government money market funds invest heavily in T-bills and similar short-term government debt, so yields track closely. A money market fund gives you daily liquidity: cash moves in and out without waiting for a maturity date or arranging a transfer. Buying T-bills directly locks in a known yield at auction and avoids a fund’s expense ratio, however small. If you are investing a lump sum for a defined number of weeks, a T-bill is cleaner. If your cash needs are unpredictable, a money market fund is more practical.
T-Bills vs. High-Yield Savings Accounts
High-yield savings accounts offer FDIC insurance and same-day access, but the rate can change at any time at the bank’s discretion. A T-bill locks in your rate for the full term. Savings interest is taxable at both federal and state levels; T-bill interest avoids state tax. On the other hand, a savings account requires no auction and no learning curve. You deposit money and earn interest. That simplicity has real value for anyone not interested in the auction mechanics.