How Do Treasury Bills Work?
T-bills are sold at auction at a discount. For example, you might pay $9,800 for a $10,000 T-bill maturing in 26 weeks. At maturity, you receive the full $10,000, earning $200 in interest. T-bills are available in maturities of 4, 8, 13, 17, 26, and 52 weeks, purchased directly through TreasuryDirect.gov or through a brokerage account.
Why Are T-Bills So Popular?
T-bills are backed by the U.S. government and considered virtually risk-free. They are highly liquid and can be sold on the secondary market before maturity. Like savings bonds, T-bill interest is exempt from state and local taxes. When T-bill yields exceed [high-yield savings account](/glossary/high-yield-savings-account) rates, investors often move cash into T-bills for better returns.
How Do T-Bill Yields Compare to Bank Accounts?
T-bill yields fluctuate with the federal funds rate and broader market conditions. In high-rate environments, T-bills often out-yield savings accounts and CDs. In low-rate environments, the gap narrows. T-bills lack FDIC insurance but carry effectively zero credit risk since they are direct obligations of the U.S. Treasury.
Frequently asked questions
Are Treasury bills better than savings accounts?
It depends on current rates and your needs. T-bills often offer higher yields and state tax exemption, but they lock up your money until maturity and lack FDIC insurance. Savings accounts provide immediate liquidity. Many people use both strategically.
What is the minimum investment for a T-bill?
The minimum purchase is $100 through TreasuryDirect.gov, making T-bills accessible to virtually any investor. Through brokerages, minimums may vary but are generally similarly low.