What Is Treasury Bills?
Treasury bills are short-term government securities that mature in one year or less. Learn how T-bills work, current rates, and how to buy them through TreasuryDirect.
Definition
Treasury bills (T-bills) are short-term debt securities issued by the U.S. government with maturities of 4, 8, 13, 17, 26, or 52 weeks. Unlike traditional bonds, T-bills do not pay periodic interest. Instead, they are sold at a discount to face value and you receive the full face value at maturity. The difference is your return.
T-bills are considered one of the safest investments in the world because they are backed by the "full faith and credit" of the U.S. government. The risk of the U.S. government defaulting on a T-bill is essentially zero. This is why T-bill rates serve as the benchmark "risk-free rate" that all other investments are compared against.
Interest earned on T-bills is exempt from state and local income taxes (though still subject to federal tax), which can be a meaningful benefit for investors in high-tax states like California, New York, and New Jersey.
Real-World Example
You buy a 26-week (6-month) T-bill with a face value of $10,000. At a 5% annualized yield, you pay approximately $9,750 at purchase. After 6 months, you receive $10,000. Your profit of $250 is exempt from state taxes. If you live in a state with a 10% income tax rate, this tax advantage is equivalent to earning roughly 5.5% in a taxable savings account.
Why It Matters
T-bills are the gold standard for parking cash safely while earning a return. When T-bill rates are high (as they were in 2023-2026), they offer competitive yields with zero credit risk. They are ideal for emergency funds, short-term savings goals, or reducing portfolio risk during uncertain markets. Many investors use T-bills instead of savings accounts for their state tax advantage and direct government backing.
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Frequently Asked Questions
How do I buy Treasury bills?
You can buy T-bills directly from TreasuryDirect.gov (no fees, minimum $100), through a brokerage account, or by purchasing Treasury ETFs like SHV or BIL. TreasuryDirect is free but less convenient; brokerage purchases are easier to manage.
Are Treasury bills better than savings accounts?
T-bills often offer higher effective yields than savings accounts because of their state tax exemption. However, savings accounts offer immediate liquidity while T-bills lock up your money until maturity (though you can sell on the secondary market).
What is the minimum to buy a T-bill?
The minimum purchase on TreasuryDirect is $100. Through a brokerage, you can often buy Treasury ETFs for the price of a single share (or fractional shares).
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