How to Buy Treasury Bills (2024)

What Is a Treasury Bill (T-Bill)?

A Treasury bill (T-Bill) is a short-term U.S. government debt obligation backed by the Treasury Department. Terms range from four to 52 weeks. T-bills are issued at a discount from the par value, also known as the face value.

Treasury bills are usually sold in denominations of $1,000. However, some can reach a maximum denomination of $5 million in non-competitive bids. The Treasury Department sells T-bills during auctions using a competitive and non-competitive bidding process.

Key Takeaways

  • A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a one-year maturity or less.
  • Treasury bills are usually sold in denominations of $1,000, while some can reach a maximum denomination of $5 million.
  • T-bill rates depend on interest rate expectations.

How to Buy Treasury Bills (1)

How to Buy Treasury Bills

The U.S. government issues T-bills to fund various public projects, such as the construction of schools and highways. T-bills are generally held until the maturity date or cashed out before maturity. Investors can buy T-billsin electronic form from a brokerage firm or directly from the government:

Treasury Direct: New issues of T-bills can be purchased at auctions held by the government at treasurydirect.gov. These are priced through bidding, with bidders ranging from individual investors to hedge funds, banks, and primary dealers. These purchasers may then sell the bills to other customers in the secondary market.

Secondary Market: Investors can buy Treasury bills through a bank or a licensed broker. Once completed, the purchase of the T-bill serves as a statement from the government noting the amount invested and the bid terms.

A competitive bid sets a price at a discount from the T-bill's par value. Investors can specify the yield. Noncompetitive bid auctions allow investors to submit a bid to purchase a set dollar amount of bills. The yield investors receive is based on the average auction price from all bidders.

Maturities

The maturity timeframe for Treasury bills cited by the U.S. Treasury is four, eight, 13, 17, 26, and 52 weeks. When interest rates are expected to rise, longer maturity dates pay more than shorter dates. Conversely, if interest rates are expected to fall, longer maturity dates might have lower interest rates.

Daily Treasury Bill Rates, Coupon Equivalent Yield (as of market close 02/02/2024)
Date4-Week T-Bills8-Week T-Bills13-Week T-Bills17-Week T-Bills26-Week T-Bills52-Week T-Bills
Today5.395.405.395.375.244.82
1 Week Ago5.385.405.385.365.204.77
1 Month Ago5.395.415.385.395.264.81
1 Year Ago4.574.594.654.734.804.64
5 Years Ago2.412.412.42N/A2.492.57
10 Years Ago0.12N/A0.06N/A0.070.12

Redemptions and Interest

T-bills are issued at a discount from the par value. A $1,000 bill might cost the investor $950. When the bill matures, the investor is paid the face value—par value—of the bill they bought. If the face value exceeds the purchase price, the difference is the interest earned for the investor.

For example, a 52-week T-bill is issued by the Treasury in April and sells on May 1. If sold for $95.419667 per $100 and an investor had purchased a $1,000 52-week T-bill that day, they paid $954.19667, then received $1,000 on maturity. The gain was $45.80 in interest when the T-bill matured.

T-bills do not pay regular interest payments as with a coupon bond, but a T-bill does include interest, reflected in the amount it pays when it matures. The interest income from T-bills is exempt from state and local income taxes. However, the interest income is subject to federal income tax.

T-bills are issued at a discount from the par value, meaning the purchase price is less than the face value of the bill.

Pros and Cons

T-bills pay a fixed rate of interest, which can provide a stable income. However, if interest rates rise, existing T-bills fall out of favor since their return is less than the market. T-bills have interest rate risk, which means there is a risk that existing bondholders might lose out on higher rates in the future.

Although T-bills have zero default risk, their returns are typically lower than corporate bonds and some certificates of deposit. Since Treasury bills don't pay periodic interest payments, they're sold at a discounted price to the face value of the bond.

If sold early, there could be a gain or loss depending on where bond prices are trading at the time of the sale. The sale price of the T-bill could be lower than the original purchase price.

Pros

  • Zero default risk since T-bills have a U.S. government guarantee

  • T-bills offer a low minimum investment requirement of $100

  • Interest income is exempt from state and local income taxes but subject to federal income taxes

  • Investors can buy and sell T-bills with ease in the secondary bond market

Cons

  • T-bills offer low returns compared with other debt instruments

  • The T-bill pays no interest payments leading up to its maturity

  • T-bills can inhibit cash flow for investors who require steady income

  • T-bills have interest rate risk, so, their rate could become less attractive in a rising-rate environment

Federal Reserve Policy

T-bill prices fluctuate similarly to other debt securities. Many factors can influence prices, including macroeconomic conditions, monetary policy, and supply and demand for Treasuries.

The Federal Reserve monetary policy and the federal funds rate affect T-bills. The rate is the interest rate that banks charge each other for lending them money from their reserve balances on an overnight basis. The Fed increases or decreases this rate to contract or expand the money supply.

Fed Funds RateYields on Existing BillsInvestors
IncreasesGoes downSell Existing T-Bills
DecreasesGoes upBuy Existing T-Bill

T-bill prices tend to rise when the Fed performs expansionary monetary policy by purchasing Treasuries. Conversely, T-bill prices fall when the Fed sells its debt securities.

How Does Inflation Affect Treasury Bills?

Treasuries also have to compete with inflation, which measures the pace of rising prices. Even if T-bills are the most liquid and safest debt security in the market, fewer investors tend to buy them when the inflation rate is higher than the T-bill return. If an investor buys a T-bill with a 2% yield while inflation is at 3%, the investor would have a net loss on the investment when measured in real terms. As a result, T-bill prices tend to fall during inflationary periods as investors sell them and opt for higher-yielding investments.

Are Treasury Bills the Only Debt Security Issued by the U.S. Treasury?

Treasury bills are one of several types of debt issued by the U.S. Department of the Treasury. Treasury bonds and Treasury notes also represent fixed-term debt. Treasury bills are short-term obligations. Treasury notes are medium-term securities with terms from two to 10 years. Treasury bonds have the longest lifetime and mature in 30 years.

What Type of Interest Payments Are Earned on a Treasury Bill?

The only interest paid will be when the bill matures. At that time, you are given the full face value. T-bills are zero-coupon bonds usually sold at a discount, and the difference between the purchase price and the par amount is your accrued interest.

The Bottom Line

Treasury Bills, or T-bills, represent short-term debt obligations by the Treasury. Because the U.S. government backs them, they are considered extremely low-risk, although they also have relatively low returns.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

  1. TreasuryDirect. "How Treasury Auctions Work."

  2. TreasuryDirect. "Auctions."

  3. TreasuryDirect. "Treasury Bills: Rates & Terms."

  4. U.S. Department of the Treasury. "Daily Treasury Bill Rates."

  5. TreasuryDirect. "Treasury Bills: FAQs."

  6. TreasuryDirect. "Auction Query."

  7. TreasuryDirect. "Treasury Bills in Depth."

  8. TreasuryDirect. "Treasury Bills."

  9. Federal Reserve Bank of San Francisco. "What Is the Fed: Monetary Policy."

  10. Federal Reserve Bank of San Francisco. "What Makes Treasury Bill Rates Rise and Fall? What Effect Does the Economy Have on T-Bill Rates?"

  11. Treasury Direct. "Treasury Bills."

How to Buy Treasury Bills (2024)

FAQs

How to Buy Treasury Bills? ›

For newly issued T-bills, the minimum purchase is $100 and the securities are sold in increments of $100. New issues are sold at auction, and to participate, you must sign up with your broker or at TreasuryDirect.gov. Auctions happen every four weeks for 52-week T-bills and weekly for shorter-term T-bills.

What is the best way to buy Treasury bills? ›

Where to buy Treasury bonds, notes or bills. While you can buy Treasurys like T-bonds directly from the source — the U.S. government — one of the most common ways people add them to their portfolio is by investing in Treasury exchange-traded funds or mutual funds through bank, brokerage or retirement accounts.

How much does a $1000 T bill cost? ›

To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.

How to make money on T-bills? ›

You buy bills at a discount — a price below par — and profit from the difference at the end of the term. While T-bills don't pay interest like other Treasurys, the difference between your discounted price and the par value is essentially the "interest" earned.

How to buy Treasury bills for dummies? ›

You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov). The most common maturity dates are four weeks, eight weeks, 13 weeks, 26 weeks and 52 weeks.

Why not to buy Treasury bills? ›

Taxes: Treasury bills are exempt from state and local taxes but still subject to federal income taxes. That makes them less attractive holdings for taxable accounts. Investors in higher tax brackets might want to consider short-term municipal securities instead.

Are T-bills better than CDs? ›

T-bills have a key advantage over CDs: They're exempt from state income taxes. The same is true with Treasury notes and Treasury bonds. If you live in a state with income taxes, and rates are similar for CDs and T-bills, then it makes sense to go with a T-bill.

How much does a $10,000 treasury bill cost? ›

They are sold at a discount to face value, and the difference between the discounted price and face value is your return on investment. For example, if you buy a 12-week T-bill with a face value of $10,000 for $9,800, the difference of $200 is your return for holding the security for 12 weeks.

How much will I make on a 3 month treasury bill? ›

3 Month Treasury Bill Rate is at 5.25%, compared to 5.25% the previous market day and 5.10% last year. This is higher than the long term average of 4.19%.

Do banks charge to buy T-bills? ›

When you buy T-bills through your bank, it may charge you additional fees and expenses such as sales commissions or transaction charges. These extra costs can add up over time and eat into your returns on your investment.

What is the disadvantage of investing in Treasury bills? ›

The following are the disadvantages of T-bills: The returns on T-bills are generally lower than other investments, such as stocks or bonds. This means that investors looking for high returns may not find T-bills attractive.

How do T-bills work for dummies? ›

Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.

How much money do you make on a 6 month T-Bill? ›

6 Month Treasury Rate is at 5.43%, compared to 5.40% the previous market day and 5.06% last year. This is higher than the long term average of 2.83%. The 6 Month Treasury Bill Rate is the yield received for investing in a US government issued treasury security that has a maturity of 6 months.

What happens when a T-Bill matures? ›

The only interest payment to you occurs when your bill matures. At that time, you are paid the par amount (also called face value) of the bill. (Bills are typically sold at a discount from the par amount, and the difference between the purchase price and the par amount is your interest.)

Do I need a broker to buy T-bills? ›

Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer. With a bank, broker, or dealer, you may bid for Treasury marketable securities non-competitively or competitively, but not both, for the same auction.

How to buy Treasury bills with no fees? ›

Open a Treasury direct account

The benefit of purchasing T-bills through TreasuryDirect is that the platform does not charge fees or commissions. Once your account is set up and you've connected a bank account, you are ready for the next step.

Is it better to buy Treasury bills at auction or on secondary market? ›

There are several ways to buy Treasuries. For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs).

How to safely buy Treasury bills? ›

To buy, you must have a TreasuryDirect account. In TreasuryDirect, you may open an account and buy Treasury marketable securities for yourself (an individual registration). With an individual registration, you may also link your account to an account for a child under the age of 18.

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