Short-term government bonds are debt securities issued by the U.S. Treasury that mature in one year or less, though a few closely related securities stretch to two or five years. You lend money to the federal government, and it pays you back with interest on a set schedule. The minimum purchase is $100, and you can buy directly from the Treasury online or through a brokerage account.
The Securities That Count as Short-Term
Not everything the Treasury issues is short-term, and the pieces that qualify work differently from one another. Picking the right one depends on how long you want your money tied up and whether you’d rather collect interest as you go or all at once.
Treasury Bills
T-bills are the core short-term instrument. They come in seven maturities: 4-week, 6-week, 8-week, 13-week, 17-week, 26-week, and 52-week.1TreasuryDirect. When Auctions Happen (Schedules) Most are auctioned weekly; the 52-week bill runs every four weeks.
T-bills don’t pay periodic interest. You buy them at a discount and receive the full face value at maturity. Pay $980 for a $1,000 bill and the $20 difference is your return. The discount is set at auction, so the yield reflects market conditions the day you buy.
Short-Dated Treasury Notes
Treasury Notes are originally issued at 2, 3, 5, 7, and 10 years and pay interest every six months.2TreasuryDirect. About Treasury Marketable Securities As an older note enters its final year, it behaves like a short-term security. You can pick these up on the secondary market through a broker, often near face value since so little time remains. The upside is collecting coupon payments while you hold, rather than waiting for a single payout.
Floating Rate Notes
Treasury Floating Rate Notes mature in two years and pay interest that adjusts weekly. The rate is tied to the highest accepted discount rate of the most recent 13-week T-bill auction, plus a fixed spread set when the FRN is first sold. Interest is paid quarterly.3TreasuryDirect. Floating Rate Notes (FRNs) FRNs work in your favor when rates are climbing and against you when rates fall.
Cash Management Bills
Cash Management Bills are irregular issues the Treasury uses to cover temporary cash shortfalls. They can mature in as little as one day or as long as a few months, and the Treasury announces them on short notice.1TreasuryDirect. When Auctions Happen (Schedules) Individual investors rarely target these directly, though they turn up in money market funds.
How You Actually Earn Money
T-bills use a pure discount structure. You pay less than face value at purchase and pocket the difference at maturity. The discount is set at auction, so two investors buying the same maturity a week apart may earn slightly different yields.
Short-dated notes and FRNs pay coupons while you hold them. For a note bought on the secondary market, the coupon rate was locked in at original issue, so the yield you actually earn depends on what you paid. Pay more than face value and your effective yield drops below the stated coupon; pay less and it rises above.4TreasuryDirect. Understanding Pricing and Interest Rates
FRN returns are harder to predict because the index rate resets weekly. Quarterly payments grow in a rising-rate environment and shrink in a falling one. The fixed spread stays the same for the life of the note.
How Taxes Apply
Interest on all U.S. Treasury securities is exempt from state and local income taxes under federal law.5Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation You still owe federal income tax, but skipping the state layer can meaningfully raise your after-tax return compared to a bank CD or corporate bond paying the same nominal rate. That difference matters most in high-tax states.
For T-bills, the IRS treats the discount as interest income. You report it when the bill matures, and it appears on Form 1099-INT in box 3.6Internal Revenue Service. Publication 550 (2024), Investment Income and Expenses You owe nothing until maturity, so a 52-week bill purchased in March 2026 wouldn’t generate reportable income until March 2027. Coupon payments on notes and FRNs are reported in the year you receive them.
How to Buy Them
Two paths: buying directly from the government through TreasuryDirect, or going through a bank or brokerage. Each has tradeoffs.
TreasuryDirect
TreasuryDirect is the government’s free online platform for purchasing Treasury securities at auction. To open an individual account, you need a Social Security Number or Taxpayer Identification Number and a checking or savings account with routing and account numbers.7TreasuryDirect. Open an Account There are no purchase fees, and your securities are held electronically in book-entry form.8eCFR. 31 CFR 357.0 – Book-Entry Systems
The catch is liquidity. If you want to sell before maturity, you must first transfer the security to a broker through the commercial book-entry system, and you have to hold it for at least 45 days before doing so. A 4-week bill on TreasuryDirect can’t be sold at all, since it matures before the hold period ends.9TreasuryDirect. Selling a Treasury Marketable Security
Through a Brokerage
Most major brokerages let you buy Treasuries at auction or on the secondary market. Selling before maturity is usually just a few clicks, and you can manage the bonds alongside your other investments in one account. Some brokerages charge a small commission or markup on secondary purchases, though many now offer Treasury auctions commission-free. If easy access to your money matters, a brokerage account is generally the better choice.
The Auction
Whether you use TreasuryDirect or a brokerage, new T-bills are sold at a public auction, and the minimum bid is $100. You can invest in $100 increments up to $10 million per auction as a non-competitive bidder.11TreasuryDirect. Buying a Treasury Marketable Security
Settlement happens on the scheduled issue day. The purchase price is withdrawn from your linked bank account on TreasuryDirect or deducted from your brokerage balance, and the security appears as an electronic record.
Selling Before Maturity
Hold to maturity and the Treasury deposits the face value into your account automatically. Need the cash sooner? If the security sits in a brokerage account, you can sell it on the secondary market at the current price, which may be slightly above or below what you paid depending on how rates have moved.
On TreasuryDirect, the process is more involved. You must transfer the security to a bank, broker, or dealer through the commercial book-entry system, and the 45-day minimum applies.9TreasuryDirect. Selling a Treasury Marketable Security Once transferred, the broker sells it for you. If there’s any chance you’ll need early access, a brokerage account avoids the friction entirely.
Risks Worth Knowing
Short-term Treasuries are among the safest investments available, but safe doesn’t mean risk-free in every sense.
Inflation risk is the biggest practical concern. Lock in a 4% yield on a 26-week bill while inflation runs at 5%, and your purchasing power shrinks. T-bills offer no inflation adjustment. Treasury Inflation-Protected Securities do adjust principal for inflation, but they’re issued with 5-, 10-, and 30-year maturities, so they don’t solve the problem for short-term investors.13TreasuryDirect. TIPS Treasury Inflation-Protected Securities
Interest rate risk is minimal for bills held to maturity but matters if you sell early. When market rates rise, the resale value of existing lower-yielding securities drops. The effect is small for short maturities, though not zero. A short-dated note with six months remaining is more sensitive than a 4-week bill.4TreasuryDirect. Understanding Pricing and Interest Rates
Reinvestment risk is the flip side. When your 13-week bill matures, you reinvest at whatever rate is available that week. If rates have fallen, your next round earns less. Laddering purchases across several maturities spreads reinvestment dates across different rate environments and softens the effect.