What Are Treasury Bills? Complete Beginner Guide
What Are Treasury Bills? A Simple Starting Point for Beginners
Treasury bills, commonly called T-bills, are short-term debt securities issued by the U.S. government. Unlike Treasury notes and bonds, newly issued T-bills generally do not pay periodic coupon interest. Instead, they are typically sold for less than their face value and pay the face value at maturity when held to maturity.
For example, you might pay less than $1,000 for a T-bill with a $1,000 face value. The difference between the purchase price and the amount received at maturity is the bill’s return. The annualized yield is a separate calculation, which is why the purchase discount should not simply be treated as the T-bill’s annual interest rate.
How this guide fits with our main T-bill guide
This article focuses on the basic question of
what Treasury bills are.
For the broader picture—including T-bill rates, taxes, buying options, risks and comparisons—see our
complete Treasury Bills explained guide
.
The goal is simple: by the end of this guide, you should understand what a T-bill represents, why its purchase price is usually below face value, how its maturity affects the investment and how it differs from other Treasury securities. That foundation makes the later discussion about rates, taxes and buying options much easier to follow.
What You’ll Learn
What Treasury bills are and where they fit within the U.S. Treasury family.
How face value, purchase price and maturity work together.
Why T-bills are generally issued below face value instead of paying a regular coupon.
The common T-bill maturity periods and how they can affect your timeline.
How Treasury bills compare with savings accounts, CDs and other short-term choices.
Treasury Bills: Quick Answer & Key Takeaways
Quick Answer
Treasury bills, or T-bills, are short-term U.S. government debt securities with maturities of one year or less. Newly issued T-bills are generally sold for less than their face value instead of making regular coupon payments. When a bill reaches maturity, it is redeemed for its face value. The difference between the purchase price and the amount received at maturity is the investor’s return before taxes.
Key Takeaways
- T-bills have short maturities, generally ranging from a few weeks to one year or less.
- A newly issued T-bill is generally purchased below its face value and redeemed for face value at maturity.
- T-bills generally do not make periodic coupon payments during their term.
- The amount of the purchase discount is not automatically the same as the bill’s annualized yield.
- T-bills can generally be purchased through TreasuryDirect and through participating banks or brokerage firms.
- Treasury interest is generally subject to federal income tax but exempt from state and local income taxes.
Bottom Line
The basic idea is straightforward: you generally pay less than the bill’s face value, hold it until maturity, and receive the face value. The details that deserve closer attention are the purchase price, yield, maturity date and tax treatment.
Table of Contents
Treasury Bills at a Glance: Quick Facts, Best For & Key Numbers
Before getting into auctions, pricing and yield calculations, it helps to see the basic T-bill structure in one place. These details give you a quick sense of how Treasury bills are structured and where they may fit into a short-term investment plan.
| Quick Fact | What It Means |
|---|---|
| Investment type | Short-term U.S. government debt security |
| Maturity | Common terms include 4, 8, 13, 17, 26 and 52 weeks |
| Purchase structure | Generally issued below face value and redeemed at face value at maturity |
| Face-value increments | Generally $100 and multiples of $100 |
| Coupon payments | No regular coupon payments during the bill’s term |
| Tax treatment | Generally subject to federal income tax and exempt from state and local income taxes |
Who Are Treasury Bills Best For?
T-bills may suit investors who have money set aside for a defined short-term goal and do not need it for everyday spending. They can also be useful for people who want short-term exposure to U.S. government debt and may value the state and local income-tax treatment.
Look beyond the headline number
The number you see quoted for a T-bill may represent a particular rate or yield measure, so it should not be confused with the dollar amount of the purchase discount. When comparing bills, consider the purchase price, annualized yield, maturity date and tax treatment together.
Complete Beginner Guide: What Are Treasury Bills?
Treasury bills, commonly called T-bills, are short-term debt securities issued by the U.S. Department of the Treasury. They mature in one year or less and are designed to provide a relatively short-term way to invest in a direct obligation of the federal government. Unlike Treasury notes and bonds, T-bills do not make regular coupon payments during their term.
Instead, a newly issued T-bill is generally purchased for less than its face value. When the bill reaches maturity, the Treasury pays its face value. That difference between the purchase price and the amount received at maturity is the basic source of the investor’s return.
A simple example
Imagine a T-bill with a $1,000 face value. If its purchase price is $990, you pay $990 and receive $1,000 when the bill matures, assuming you hold it to maturity. The $10 difference is the basic return before taxes. The actual purchase price and annualized yield vary with the bill and the auction or market conditions at the time.
How T-Bills Fit Into the Treasury Family
T-bills are the shortest-term marketable Treasury securities. Treasury notes generally mature in more than one year and up to 10 years, while Treasury bonds generally have maturities longer than 10 years. Notes and bonds generally pay interest every six months; T-bills instead provide their return through the difference between the purchase price and the amount paid at maturity.
If you are comparing T-bills with bank deposits, our guide to
Treasury bills vs. CDs
looks at the major differences. You can also return to our
complete Treasury Bills explained guide
for the broader topic.
The beginner takeaway
The basic idea is simple: you buy a short-term Treasury security, generally at a price below its face value, and receive the face value when it matures. The next piece is understanding how Treasury auctions determine the price, how the discount rate differs from the investment yield, and what happens when the bill matures.
How Treasury Bills Work: Purchase Price, Discount, Yield, Auctions & Maturity
The easiest way to understand how Treasury bills work is to follow the transaction from auction to maturity. A T-bill is generally issued at a price below its face value. You pay the purchase price upfront, and if you hold the bill until maturity, the U.S. Treasury pays the full face value. The difference between those amounts is the bill’s discount and forms the basic return before taxes.
Purchase Price and Discount
Treasury bill prices are quoted per $100 of face value. For example, an illustrative price of $98.50 per $100 would mean a $1,000 face-value bill costs $985. If held to maturity, the Treasury would pay $1,000. The $15 difference is the discount amount and represents the investor’s return before taxes.
Discount Rate vs. Investment Rate
These two figures describe the same T-bill from different perspectives. The discount rate is calculated using the bill’s face value and a 360-day basis. The investment rate is based on the purchase price and uses a 365-day basis, or 366 days when applicable. Because the investment rate is based on the amount actually invested, TreasuryDirect says it can be used to compare a T-bill’s return with other investments.
How the Treasury Auction Works
Newly issued T-bills are generally sold through Treasury auctions. Individual investors using TreasuryDirect normally submit noncompetitive bids, which means they agree to accept the auction’s resulting rate. Competitive bidders specify the rate they are willing to accept. Treasury first accepts noncompetitive bids and then awards competitive bids starting with the lowest accepted rate until the announced offering amount is filled.
What Happens at Maturity?
At maturity, the bill becomes due and the Treasury pays its face value. There is no separate periodic coupon payment during the term. If you decide to sell a T-bill before maturity through the secondary market, the price may be higher or lower than your original purchase price because market conditions can change.
The key idea to remember
A T-bill’s purchase price, discount rate and investment rate are connected, but they are not the same thing. Start with the amount you pay, compare it with the face value you receive at maturity, and then use the investment rate when comparing annualized returns with other investments.
Treasury Bill Benefits & Drawbacks: Pros, Cons & Key Trade-Offs
Quick Answer
Treasury bills can be attractive for investors who want short-term exposure to U.S. government securities without committing money for several years. Their main advantages are short maturities, a straightforward discount-to-face-value structure and federal government backing. The trade-offs include no regular coupon payments, the possibility of a different rate when you reinvest after maturity, and potential price changes if you sell before maturity.
Key Benefits of Treasury Bills
- Short-term flexibility: T-bills have maturities of one year or less, with regular terms ranging from 4 to 52 weeks.
- U.S. government obligation: T-bills are direct obligations of the U.S. government and are backed by its full faith and credit.
- Simple structure: You generally buy a bill below face value and receive its face value when it matures.
- State and local tax advantage: Treasury bill interest is subject to federal income tax but is exempt from state and local income taxes.
Key Drawbacks to Consider
- No regular coupon payments: T-bills do not provide periodic interest checks during the term; the interest is paid when the bill matures.
- Reinvestment risk: When a T-bill matures, the rate available on a new bill may be higher or lower than the rate on your original investment.
- Early-sale price risk: If you sell before maturity, the market price can be different from your original purchase price.
- Not a bank deposit: T-bills are Treasury securities, not FDIC-insured bank deposits, so they should be compared with the right type of alternative.
Bottom Line
T-bills can work well for money you expect to need within a relatively short period and for investors who value U.S. government securities and state and local tax exemption. Their biggest trade-offs are the lack of periodic cash payments, changing reinvestment rates and possible price fluctuations if you sell before maturity.
Treasury Bills Comparison Table: T-Bills vs. Savings Accounts, HYSA, Money Market Accounts & CDs
Quick Answer
Treasury bills are different from savings accounts, high-yield savings accounts, money market accounts and CDs because a T-bill is a U.S. Treasury security rather than a bank deposit. Savings and money market accounts are built for easier access to cash, while CDs and T-bills are generally better suited to money you can leave invested for a defined period.
| Option | Access to Money | How You Earn | Protection |
|---|---|---|---|
| T-Bills | Receive face value at maturity; can generally be sold before maturity through the secondary market | Generally bought below face value | Direct U.S. government obligation; not FDIC-insured |
| Savings Account | Generally easy access, subject to account terms | Bank pays interest | FDIC insurance may apply at an insured bank, subject to limits and rules |
| High-Yield Savings | Generally easy access, subject to account terms | Bank pays interest | FDIC insurance may apply at an insured bank, subject to limits and rules |
| Money Market Account | Generally accessible, with features and restrictions varying by account | Bank pays interest | FDIC insurance may apply at an insured bank, subject to limits and rules |
| CD | Usually intended to remain invested until maturity; early withdrawal may involve a penalty | Bank pays interest under the CD terms | FDIC insurance may apply at an insured bank, subject to limits and rules |
Which Difference Matters Most?
Start with the purpose of the money. A savings account or high-yield savings account can be more convenient when you need frequent access. A money market account may combine interest earnings with certain transaction features. A CD can lock in a rate for a chosen term, while a T-bill gives you a short-term Treasury security with a maturity date. T-bill interest also receives different state and local tax treatment from ordinary bank-deposit interest.
For a closer look at one of these alternatives, compare
Treasury bills vs. CDs
or review our guides to
money market accounts vs. Treasury bills
.
Bottom Line
There is no single winner for every short-term cash need. T-bills offer Treasury exposure, while bank accounts emphasize accessibility and CDs emphasize a defined deposit term. Compare the expected return, access to your money, maturity, taxes and applicable insurance or government backing before choosing.
Treasury Bill Costs, Taxes, Risks & Expert Tips
Quick Answer
Treasury bills generally have no TreasuryDirect purchase fee, although a broker or other financial institution may charge for its services. The bigger considerations are taxes, what happens if you sell before maturity, and the rate available when you reinvest after a bill matures. Those details can affect the return you actually keep and how well a T-bill fits your cash needs.
Key Costs, Taxes & Risks to Know
- Purchase costs: TreasuryDirect does not charge a fee to open an account or buy Treasury securities. Brokerage firms may charge fees or apply their own pricing.
- Federal taxes: Interest from Treasury bills is generally subject to federal income tax but exempt from state and local income taxes.
- Early-sale risk: If you sell a T-bill before maturity, its market price may be higher or lower than your purchase price, which can change your actual gain or loss.
- Reinvestment risk: When the bill matures, the rate available on a new T-bill may be different from the rate on your original investment.
- Tax reporting: Treasury interest is generally reported on Form 1099-INT, with Treasury bills included in Box 3. Tax reporting can differ when a bill is sold before maturity.
Expert Tip
Match the T-bill’s maturity to the date you expect to need the money. Then compare the purchase price, investment rate, maturity date and tax treatment. If there is a reasonable chance you will need the money early, remember that selling before maturity exposes you to market-price changes.
Bottom Line
T-bill costs are not limited to the amount you pay at purchase. Taxes, possible selling costs, market prices before maturity and future reinvestment rates can all affect the outcome. For a short-term goal, choosing the right maturity and understanding the tax treatment may matter more than simply selecting the highest quoted rate.
Common Treasury Bill Mistakes + Illustrative Example
Quick Answer
T-bill mistakes often happen when investors focus only on the quoted rate and overlook the purchase price, maturity date, tax treatment or what happens if they sell early. A T-bill is also not the same as a savings account or CD, so comparing the products requires more than looking at the headline yield.
Key Takeaways
- Don’t confuse rates: The discount rate and investment rate use different calculation methods and should not be treated as the same number.
- Check the maturity date: A bill that matures later than your planned cash need may not fit your timeline.
- Know the tax treatment: Treasury bill interest is generally subject to federal income tax but exempt from state and local income taxes.
- Don’t assume early access is guaranteed at face value: Selling before maturity means accepting the market price available at that time.
- Plan for reinvestment: The rate available when your T-bill matures may be different from the rate on your original bill.
Illustrative Example
Suppose an investor buys a T-bill with a $10,000 face value for an illustrative $9,850 and holds it until maturity. The investor would receive $10,000 at maturity, creating a $150 difference before taxes. This is only an example—the actual purchase price, discount and annualized investment rate depend on the specific bill and its auction or market conditions.
Bottom Line
The safest way to evaluate a T-bill is to look beyond the quoted rate. Check what you pay, when the bill matures, how the return is calculated and what happens if your plans change before maturity. Those details can prevent a simple short-term investment from becoming an unexpected cash-flow problem.
Who Should Consider Treasury Bills? — Beginners, Retirees, Emergency Funds & Large Balances
QUICK ANSWER
Treasury bills may suit investors who have cash set aside for a specific short-term goal and know when they are likely to need it. They can be useful for beginners, retirees and people holding larger cash balances. The key is choosing a maturity that fits the timing of the goal.
Key Takeaways
- Beginners can use T-bills to learn how short-term U.S. government securities work.
- Retirees may consider T-bills for cash that has a defined short-term purpose.
- Investors with larger cash balances can spread maturities through a T-bill ladder.
- Emergency funds should keep enough money readily accessible for unexpected expenses.
- People seeking long-term growth generally need investments beyond short-term T-bills.
- Before buying, check the maturity date and make sure the money can remain invested until then.
BOTTOM LINE
Treasury bills can be a practical choice for short-term cash when the maturity matches the investor’s timeline. They are not a substitute for money that must remain immediately accessible, and they are not designed to provide the long-term growth potential of stocks. Match the bill’s maturity to the job the cash needs to do.
Treasury Bills FAQs: 8 Common Questions Beginners Ask
QUICK ANSWER
Treasury bills are short-term U.S. government securities with maturities of one year or less. They generally do not make periodic coupon payments. Instead, newly issued T-bills are typically sold at a discount or at par, and the investor receives the bill’s face value at maturity.
Frequently Asked Questions
1. What are Treasury bills?
Treasury bills, or T-bills, are short-term debt securities issued by the U.S. Treasury. They have maturities of one year or less.
2. Do Treasury bills pay monthly interest?
No. T-bills generally do not pay periodic coupon interest. For a bill purchased below face value, the return generally comes from the difference between the purchase price and face value at maturity.
3. What are the common Treasury bill maturities?
Regular Treasury bill terms include 4, 6, 8, 13, 17, 26 and 52 weeks, although issuance can vary according to the Treasury’s schedule.
4. Where can I buy Treasury bills?
You can generally buy newly issued T-bills through TreasuryDirect or through participating banks and brokers. Brokerage fees and available services can vary.
5. Are Treasury bills FDIC insured?
No. T-bills are not bank deposits, so FDIC deposit insurance does not apply. They are obligations of the U.S. government.
6. How are Treasury bills taxed?
Interest from Treasury bills is generally subject to federal income tax but exempt from state and local income taxes. Individual tax circumstances can affect the final after-tax result.
7. Can I sell a Treasury bill before maturity?
Yes. Marketable T-bills can generally be sold before maturity through a broker or applicable market channel. The market price at the time of sale may be above or below the purchase price.
8. What happens when a Treasury bill matures?
At maturity, the Treasury pays the bill’s face value. For a bill purchased at a discount, the difference between the purchase price and face value is generally the investor’s return before applicable taxes.
BOTTOM LINE
Treasury bill questions usually come down to the purchase price, maturity, return calculation, access before maturity and taxes. Once those pieces are clear, it becomes easier to judge whether a T-bill fits a particular short-term cash goal.
Treasury Bills Final Verdict: Are T-Bills Right for You?
QUICK ANSWER
Treasury bills can be a useful choice for short-term money when you know roughly when you will need the cash. Their simple structure, short maturities and U.S. government backing make them worth considering, but they are not designed to replace an accessible emergency reserve or long-term growth investments.
Key Takeaways
- T-bills are short-term U.S. government debt securities with maturities of one year or less.
- Newly issued T-bills are generally purchased at a discount or at par and redeemed at face value at maturity.
- They can work well for defined short-term cash goals and investors who can match the maturity to their timeline.
- T-bills are not FDIC-insured bank deposits, and selling before maturity exposes the investment to market-price changes.
- Interest is generally subject to federal income tax but exempt from state and local income taxes.
- For long-term wealth building, T-bills are usually better viewed as one part of a broader investment strategy rather than the entire portfolio.
BOTTOM LINE
Treasury bills make the most sense when safety of the U.S. government obligation, a short time horizon and a known maturity fit your goal. Before buying, compare the purchase price, investment rate, maturity date and tax treatment. If you need the money immediately or are investing for decades, another option may be a better fit.
Treasury Bills Resources: Related Guides & Official Sources
QUICK ANSWER
The best next step is to use a mix of practical investing guides and official sources. FinanceInvestment can help you compare T-bills with other short-term choices, while TreasuryDirect, the IRS and Investor.gov provide primary information about Treasury securities, taxes and investing basics.
Key Resources
- Complete Treasury Bills explained guide
— explore T-bill rates, buying methods, taxes and strategies in greater detail. - Treasury bills vs. CDs
— compare two common short-term fixed-income choices. - Money market accounts vs. Treasury bills
— compare accessibility, structure and account features. - TreasuryDirect: Treasury Bills
— check official information about T-bill terms, purchases, maturity and taxes. - IRS Publication 550
— review federal tax rules covering investment income and Treasury obligations. - Investor.gov: Treasury Securities
— learn the basics of Treasury securities from the SEC’s investor education resource.
BOTTOM LINE
Use the related FinanceInvestment guides for comparisons and practical explanations, then verify current Treasury and tax details with official government sources. That combination gives you both context and authoritative information before making a T-bill decision.
Have a Money Question? Keep Exploring.
Understanding Treasury bills is a good starting point. From here, compare T-bills with other short-term choices and consider how each option fits your cash needs, timeline and overall investment plan.
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