Treasury Bills Explained: How T-Bills Work
Short-term government debt in plain English.
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How they work
A Treasury bill is short-term debt from the U.S. government. You buy it at a discount, or sometimes at face value, and get the full face value at maturity. The difference is your interest.
- Terms: 4, 6, 8, 13, 17, 26 and 52 weeks.
- Minimum: $100, in $100 increments.
- Where: TreasuryDirect, or a bank or broker.
- Taxes: federal income tax applies. State and local income tax does not.
T-bills vs CDs
T-bills are backed by the U.S. government; bank CDs are FDIC-insured up to limits. Compare with best online CDs and FDIC insurance explained.
How a bill’s price is set
TreasuryDirect explains that a bill is sold at a discount, or sometimes at par, and pays its full face value at maturity. The difference is your interest. TreasuryDirect gives the price formula as:
Price = Face value × (1 − (discount rate × days to maturity ÷ 360))
TreasuryDirect’s worked example: a 26-week bill with a $1,000 face value and a 0.145% discount rate sells for about $999.27. The buyer gets $1,000 at maturity, so the interest is about $0.73. The rate in that example is only an illustration. The auction sets the rate every time.
Terms and auction schedule
| Item | What TreasuryDirect says |
|---|---|
| Terms | 4, 6, 8, 13, 17, 26 and 52 weeks |
| Auction frequency | Every 4 weeks for the 52-week bill; weekly for the others |
| Minimum purchase | $100, in $100 increments |
| Form | Electronic only |
| STRIPS | Not available for bills |
| Cash Management Bills | Not regular; available only through a bank, broker or dealer |
Two ways to bid
- Non-competitive bid. You agree to take whatever rate the auction sets, and you are guaranteed the bill in the amount you want. You can bid this way in TreasuryDirect or through a bank or broker. The non-competitive limit is $10 million per auction.
- Competitive bid. You name the discount rate you will accept. Your bid may be accepted in full, in part or not at all. Competitive bids go only through a bank, broker or dealer, not TreasuryDirect.
After the auction closes, results are posted on TreasuryDirect’s auction pages, usually after 5 PM Eastern on auction day.
Holding, reinvesting and selling
In TreasuryDirect you can schedule reinvestments so a maturing bill rolls into a new bill of the same term. TreasuryDirect says a bill bought there must be held for at least 45 days before it can be transferred to a bank or broker. You cannot sell it directly from TreasuryDirect, so a bill you may need to sell early is often easier to hold at a brokerage.
Bills vs. a bank savings account
T-bills are backed by the U.S. government. They are not bank deposits, and the FDIC lists Treasury securities as not covered by deposit insurance. A savings account rate can change at any time. A bill’s discount is fixed at purchase until maturity. See how APY works and the best online CDs for other fixed-term options.
Frequently asked questions
How long are T-bill terms?
TreasuryDirect lists terms from 4 weeks to 52 weeks.
What is the minimum purchase?
$100, in $100 increments.
