Treasury bills (T-bills) are short-term debt obligations issued by the U.S. Treasury. These securities are considered a low-risk investment because they are backed by the full faith and credit of the U.S. government. Treasury bills, often referred to as T-bills, are sold at a discount from their face value and redeemed at face value upon maturity. The difference between the purchase price and the face value represents the investor's return. As of May 20, 2026, the 3-month Treasury bill rate is 3.60%. The 6-month Treasury bill auction average discount rate is 3.60%. The 1-year Treasury bill rate is 3.68%.
T-bills are issued with various maturity terms, commonly including 4, 8, 13, 17, 26, and 52 weeks, with some available for even shorter durations like a few days. Unlike Treasury notes and bonds, T-bills do not pay periodic interest; instead, the interest is paid in full when the bill matures. This structure makes them zero-coupon bonds.
The interest earned on Treasury bills is subject to federal income tax but is exempt from state and local taxes, making them particularly attractive to investors in high-tax jurisdictions.
Investment in Treasury bills offers several advantages, including their safety, liquidity, and predictability. Their short maturity periods make them suitable for investors who need access to their funds within a year, such as for a large upcoming purchase. They are also a valuable tool for portfolio diversification, helping to balance more volatile assets and reduce overall risk.
However, Treasury bills typically offer lower yields compared to longer-term investments like Treasury bonds or even some corporate bonds. This is because investors generally demand higher returns for holding longer-term securities, which carry more interest rate risk. While T-bills are considered very low-risk, there is still an "opportunity cost" if the money could have been invested in assets with higher potential returns.
In summary, Treasury bills are a secure, liquid, and short-term investment option backed by the U.S. government, ideal for conservative investors or those needing to preserve capital for a specific short-term goal.
What Are Treasury Bills?
Treasury bills (T-bills) are short-term debt securities issued by the U.S. Department of the Treasury. They are essentially a way for the government to borrow money from investors for a short period, with the promise to pay it back at a specified future date, plus a return.. The U.S. government guarantees these securities, making them one of the safest investment options available, with minimal risk of default..
T-bills are characterized by their short maturity terms, typically ranging from a few weeks to one year.. Common maturities include 4, 8, 13, 17, 26, and 52 weeks.. Unlike traditional bonds that pay periodic interest, T-bills are sold at a discount to their face value.. The investor pays less than the face value upfront and receives the full face value when the T-bill matures. The difference between the purchase price and the face value represents the investor's earnings or yield.. This structure makes them a type of zero-coupon bond..
How Treasury Bills Work
When you purchase a Treasury bill, you are essentially lending money to the U.S. government.. The government issues these bills through an auction process, and investors can participate either through competitive or non-competitive bids.. Most individuals opt for non-competitive bids, agreeing to the auction's determined discount rate..
T-bills are primarily bought through TreasuryDirect.gov, the official website for Treasury securities, or through a brokerage account.. Purchases are now exclusively in electronic form.. The minimum purchase amount is typically $100, and they are available in $100 increments..
Once purchased, the T-bill accrues value until its maturity date. At maturity, the investor receives the face value of the bill. The return is the difference between this face value and the discounted price paid at purchase.. For example, if a $1,000 T-bill is purchased for $990, the investor earns $10 upon maturity..
Treasury Bills vs. Bonds and Notes
Treasury bills, Treasury notes (T-notes), and Treasury bonds (T-bonds) are all types of marketable U.S. Treasury securities, but they differ significantly in their maturity periods and how interest is paid..
- Treasury Bills (T-bills): These are short-term securities with maturities of one year or less. They are sold at a discount and pay the full face value at maturity..
- Treasury Notes (T-notes): These have medium-term maturities, typically ranging from two to 10 years. T-notes pay interest every six months..
- Treasury Bonds (T-bonds): These are long-term securities with maturities of 20 or 30 years. Like T-notes, T-bonds pay interest every six months..
Because of their longer maturity, T-bonds generally offer higher yields than T-bills, though this can vary depending on market conditions like an inverted yield curve.. T-bills are ideal for investors seeking short-term, low-risk options, while T-notes and T-bonds are suited for those with medium- to long-term investment horizons looking for periodic income..
Benefits of Investing in Treasury Bills
Investing in Treasury bills offers several advantages, primarily centered around safety, liquidity, and tax benefits.
Safety and Security
Treasury bills are backed by the full faith and credit of the U.S. government, making them one of the safest investments available.. This minimal credit risk means the likelihood of the government defaulting on its debt is extremely low.. Their safety makes them a cornerstone for cash management and a reliable option for preserving capital..
Liquidity
T-bills are highly liquid, meaning they can be easily and quickly converted to cash.. This liquidity is due to their short maturities and the deep secondary market where they can be traded.. This makes them suitable for investors who may need access to their funds on short notice.
Tax Advantages
The interest earned on Treasury bills is exempt from state and local income taxes.. However, it is still subject to federal income tax.. This tax exemption can result in higher after-tax returns, especially for investors in states with high income tax rates..
Predictable Returns
Because T-bills are purchased at a discount and redeemed at a fixed face value, their yield is determined at the time of purchase.. This provides a predictable return, which can be appealing to risk-averse investors.
Risks Associated with Treasury Bills
While Treasury bills are considered very low-risk, they are not entirely without potential downsides.
Lower Returns
Compared to other investments like stocks or even longer-term bonds, T-bills generally offer lower yields.. This is a trade-off for their high level of safety and short-term nature. Investors seeking substantial growth or higher returns might find T-bills less attractive..
Interest Rate Risk and Opportunity Cost
If market interest rates rise after an investor purchases a T-bill, the fixed yield on that T-bill becomes less attractive compared to newly issued securities. This is known as interest rate risk.. While the investor still receives the agreed-upon yield at maturity, they miss out on the opportunity to earn a higher rate on their money. This missed opportunity is referred to as "opportunity cost.".
Reinvestment Risk
When a T-bill matures, investors may need to reinvest the proceeds. If interest rates have fallen since the original purchase, the investor might have to reinvest at a lower rate, impacting their overall return..
How to Buy Treasury Bills
Treasury bills can be purchased in a few different ways:
- TreasuryDirect.gov: This is the U.S. Treasury's official online platform for purchasing government securities directly. It allows individuals to buy T-bills with a minimum investment of $100..
- Brokerage Account: Investors can also buy T-bills through a bank, broker, or financial advisor. This option may offer more flexibility, such as the ability to sell T-bills before maturity on the secondary market, though it may involve fees..
T-bills are sold through auctions, which are held regularly. For shorter maturities (e.g., 4-week T-bills), auctions are typically weekly, while longer maturities (e.g., 52-week T-bills) are auctioned every four weeks..
Frequently Asked Questions About Treasury Bills
What is the typical yield on a Treasury bill?
The yield on Treasury bills varies depending on current market interest rates and the maturity of the bill. As of May 20, 2026, the 3-month Treasury bill rate is 3.60%, the 6-month T-bill auction average discount rate is 3.60%, and the 1-year T-bill rate is 3.68%. These rates are subject to change.
Are Treasury bills safe to invest in?
Yes, Treasury bills are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government..
How often are Treasury bills auctioned?
Treasury bills are auctioned on a regular schedule. Shorter-term bills (like 4-week) are auctioned weekly, while longer-term bills (like 52-week) are auctioned every four weeks.. Cash management bills, which have variable terms, are not auctioned on a regular schedule..
Can I sell a Treasury bill before it matures?
Yes, T-bills purchased through a brokerage account can typically be sold on the secondary market before maturity. However, if purchased directly through TreasuryDirect, selling before maturity can be more complex or may not be possible in all cases without transferring to a brokerage account first.. If sold before maturity, the price may be at a discount or premium, potentially resulting in a gain or loss..
What is the difference between a Treasury bill, a Treasury note, and a Treasury bond?
The primary differences lie in their maturity periods and interest payment structures. T-bills have maturities of one year or less and are sold at a discount, paying face value at maturity. T-notes have maturities of 2-10 years and pay interest semi-annually. T-bonds have maturities of 20-30 years and also pay interest semi-annually..
Conclusion
Treasury bills offer a compelling option for investors seeking a low-risk, liquid, and government-backed short-term investment. Their safety, predictability, and tax advantages make them a valuable component of many portfolios, particularly for conservative investors or those with specific short-term financial goals. While they may offer lower returns than longer-term or riskier assets, their ability to preserve capital and provide a guaranteed return remains a significant advantage in uncertain economic climates. Understanding their mechanics, benefits, and potential drawbacks is crucial for making informed investment decisions.
