What Are Treasury Bills (T-Bills)? How They Work and How to Buy Them

By Markets & Investing DeskUpdated Nov 10, 2026

Definition

Treasury bills are short-term U.S. government debt that matures in one year or less. You buy a bill below face value and receive the full face value at maturity, and the difference is your interest.

Key takeaways

T-bills are U.S. government obligations with standard terms of 4, 6, 8, 13, 17, 26 and 52 weeks.
They are sold at a discount to face value (par). The gap between the price paid and the amount repaid is the interest earned.
The minimum purchase is $100, in $100 increments. A single non-competitive bid can be as large as $10 million per auction.

Treasury bills (T-bills) are short-term debt securities issued by the U.S. Department of the Treasury that mature in one year or less. They pay no periodic interest. You buy a bill for less than its face value and receive the full face value at maturity, and the difference between the two amounts is your interest. Because T-bills are backed by the full faith and credit of the U.S. government and mature quickly, they are among the most widely used places to hold cash for weeks or months.

What Are Treasury Bills?

The Treasury issues T-bills to fund federal spending. The amount repaid at maturity is the face value, also called par value. A bill with a $1,000 face value repays exactly $1,000 at maturity. Because nothing is paid along the way, an investor earns a return only by paying less than $1,000 at the start, so T-bills trade at a discount to par before they mature: the discount is the interest. In bond terms, a T-bill is a zero-coupon security.

Besides the regular schedule of bills, the Treasury also issues cash management bills from time to time. These are short-term bills with irregular terms, used to bridge temporary gaps in the government’s cash needs.

How Treasury Bills Work

Auctions and bidding

New T-bills are sold at auction on a regular schedule. Investors take part in one of two ways:

Non-competitive bid: You state how much you want to buy and accept whatever rate the auction produces. You are guaranteed to receive the bills you ask for, up to $10 million per auction. Individual investors buying through TreasuryDirect use this method.
Competitive bid: You specify the rate (yield) you are willing to accept. If your bid is at or below the rate the auction settles on, you receive bills; if your bid asks for more than that rate, you may receive nothing. Competitive bidding is generally done through a bank or broker, and a single bidder’s competitive award is capped at a share of the offering.

The Treasury fills non-competitive bids first, then accepts competitive bids starting from the lowest rate until the full offering is sold. The highest accepted rate becomes the rate for everyone who bought in that auction, including non-competitive bidders.

Maturity and redemption

On the maturity date, the Treasury pays the face value to the account where the bill is held: your linked bank account for TreasuryDirect, or your brokerage cash balance. In TreasuryDirect you can also choose to reinvest the proceeds automatically into a new bill of the same term.

You do not have to hold a bill until it matures. T-bills trade actively in the secondary market, so an investor holding them at a broker can sell before maturity. The sale price depends on prevailing rates at that moment, so selling early can produce a gain or a loss relative to the original purchase price. Bills held in TreasuryDirect cannot be sold there directly; they must first be transferred to a broker or bank, and TreasuryDirect requires that a security be held at least 45 days before it can be transferred out.

Interpreting Treasury bill rates

T-bill rates are quoted in two ways, and mixing them up is a common source of confusion.

Bank discount rate. This is the traditional quote. It measures the discount as a share of face value and annualizes it over a 360-day year:

Discount rate = (Face value − Price) ÷ Face value × (360 ÷ Days to maturity)

Investment rate (coupon-equivalent yield). This measures the return as a share of the price you actually paid and annualizes it over a 365-day year:

Investment rate = (Face value − Price) ÷ Price × (365 ÷ Days to maturity)

The investment rate is always higher than the discount rate for the same bill, because it divides by the smaller purchase price and uses a longer year. It is also the better figure for comparing a T-bill with a CD, a savings account or a coupon-paying bond, since those are quoted on the amount invested.

Rates differ across maturities. When investors expect rates to rise, longer bills usually yield more than shorter ones, since buyers want compensation for locking in. When rates are expected to fall, longer bills can yield less, so a 3-month bill does not always pay less than a 1-year bill.

Example of Treasury Bills

Hypothetical example 1: a 52-week bill. Suppose a 52-week bill (364 days) is auctioned at a price of $95.419667 per $100 of face value, and you buy $1,000 of face value.

Price paid: $1,000 × 0.95419667 = $954.20 (rounded).
Amount received at maturity: $1,000.
Interest earned: $1,000 − $954.20 = $45.80.
Discount rate: $45.80 ÷ $1,000 × (360 ÷ 364) ≈ 4.53%.
Investment rate: $45.80 ÷ $954.20 × (365 ÷ 364) ≈ 4.81%.

The same bill and cash flows produce two rates nearly 0.3 percentage points apart. Compared with a CD advertising 4.75%, the investment rate (4.81%) is the like-for-like figure. Your simple return on investment over the year is $45.80 ÷ $954.20, or about 4.80%.

Hypothetical example 2: a 13-week bill. Suppose a 13-week bill (91 days) sells for $98.75 per $100, and you buy $10,000 of face value.

Price paid: $9,875. Amount received: $10,000. Interest: $125.
Discount rate: $125 ÷ $10,000 × (360 ÷ 91) ≈ 4.95%.
Investment rate: $125 ÷ $9,875 × (365 ÷ 91) ≈ 5.08%.

The annualized investment rate assumes you could reinvest at the same rate for the rest of the year, which is not guaranteed when the bill matures and you buy the next one.

How to Buy Treasury Bills

Through TreasuryDirect

TreasuryDirect is the Treasury’s own platform for selling securities to individuals, with no purchase fee. The process looks like this:

Gather your details: a Social Security number or taxpayer identification number, a U.S. address, and the routing and account number of a checking or savings account.
Open an account at TreasuryDirect, choosing the account type (individual, or an entity type such as a trust, estate or business).
Enter your personal and bank information and create your login credentials.
Complete verification, then log in.
Choose BuyDirect, select Bills, and pick the term (for example 13-week or 26-week).
Enter the amount in $100 increments and decide whether to reinvest automatically at maturity.
Review and submit. Your purchase is placed as a non-competitive bid in the next auction for that term.

The price is set at the auction, not when you place the order. On the issue date, the discounted price is debited from your bank account; at maturity, the full face value is deposited back.

Through a broker or bank

Most brokerage firms let you buy T-bills at auction (as a non-competitive bid placed on your behalf) or on the secondary market, where existing bills trade throughout the day. Some charge a fee or embed a markup in secondary-market prices. A broker lets you sell before maturity without transferring the bill elsewhere and buy bills with odd remaining terms that do not match the auction schedule.

Through funds

Money market funds and short-term Treasury ETFs hold portfolios of T-bills and similar securities. They offer daily liquidity and no maturity dates to track, but they charge an expense ratio, and an ETF’s market price can move, unlike a bill held to maturity, which repays a known amount.

Why Are Treasury Bills Important?

A baseline for risk. Because the U.S. government backs them and their terms are short, T-bill yields are widely used as the “risk-free rate” in finance. Measures such as the Sharpe ratio subtract a T-bill rate from a portfolio’s return to show how much an investor is paid for taking risk.

A link to Federal Reserve policy. T-bill yields track the federal funds rate, the rate banks charge each other for overnight loans of reserves, because both reflect the cost of very short-term money. When the Fed raises its target, yields on new bills rise and existing lower-yield bills lose value; when it cuts, the reverse happens. Fed purchases of Treasurys tend to push bill prices up, while sales do the opposite.

A cash-management tool. Individuals use bills to park money with a known date in mind, such as a tax payment, tuition bill or home down payment. Companies and funds use them to hold reserves they may need on short notice.

A tax advantage in high-tax states. Because interest is exempt from state and local income taxes, a T-bill can deliver more after-tax income than a bank product with a slightly higher stated rate, depending on your state tax bracket.

Limitations of Treasury Bills

Lower returns than riskier assets. Over long periods, T-bills have generally returned less than stocks and corporate bonds.
Inflation risk. A bill’s return is fixed when you buy it. If you earn 2% while prices rise 3%, your purchasing power falls by roughly 1% even though you get every dollar back.
Interest rate risk if sold early. If rates rise after you buy, newer bills pay more and the market value of yours drops. Short maturities keep this risk small compared with long bonds, but a sale before maturity can still come in below your purchase price.
Reinvestment risk. When a bill matures, you reinvest at whatever rate then prevails, which may be lower. A 52-week bill locks a rate for longer than rolling a 4-week bill thirteen times.
No periodic income. Investors who need regular cash flow do not receive payments until maturity, unless they build a ladder of bills that mature on a schedule.

Treasury Bills vs. Similar Investments

Security	Typical term	How you earn	Key difference from T-bills
Treasury bills	4 to 52 weeks	Discount to face value	Benchmark short-term government debt
Treasury notes	2 to 10 years	Coupon every six months	Longer term, more price sensitivity to rates
Treasury bonds	20 or 30 years	Coupon every six months	Longest term, largest rate risk
TIPS	5, 10 or 30 years	Coupon on inflation-adjusted principal	Principal adjusts with the consumer price index
Bank CDs	Varies	Stated interest rate	FDIC insurance up to limits; early withdrawal penalties; interest is state-taxable
Money market funds	No maturity	Fund yield, paid as dividends	Pooled fund with an expense ratio; holdings may include more than T-bills

Owning a T-bill means owning a specific government obligation with a known payoff. Owning a money market fund means owning shares whose yield changes as its holdings roll over and whose tax treatment depends on what the fund holds. A government money market fund holding mostly T-bills may pass through some state tax exemption, depending on the fund and your state.

FAQs

How can T-bills produce monthly income?

Through a ladder. Because each bill pays only at maturity, an investor wanting monthly cash can buy bills timed to mature in successive months, for example by staggering auto-reinvested 13-week bills started a month apart. Each maturity returns face value to spend or roll into a new bill, and the amount varies with each auction's rate.

Do I pay tax every year on a T-bill?

For a bill held to maturity, the discount is generally taxed as federal interest income in the year the bill matures, not as it accrues. A 26-week bill bought in October that matures in April is taxed in the year of the April maturity. A bill sold before maturity is generally reported in the year of the sale.

The Bottom Line

T-bills suit savers who want to park cash for weeks or months, especially toward a known expense like a tax payment, tuition bill or home down payment. Compare them with CDs and savings accounts using the investment rate, and remember that state tax exemption can make a slightly lower rate pay more after tax. Investors seeking long-term growth or regular income will likely need other holdings alongside them.