Treasury Bills: Here’s What You Need to Know

What is a Treasury bill?

Treasury bills — or T-bills — are short-term U.S. debt securities issued by the federal government that mature over a time period of four weeks to one year. Since the U.S. government backs T-bills, they’re considered lower-risk investments. The shorter terms to maturity differentiate these from other Treasury-issued securities. 

T-bills are sold in increments of $100 (up to $10 million) and with a wide range of maturities. The most common terms are for four, eight, 13, 17, 26 and 52 weeks. 

How Treasury bills work 

Treasury bills are assigned a par value (or face value), which is what the bill is worth if held to maturity. You buy bills at a discount — a price below par — and profit from the difference at the end of the term. The difference between your discounted price and the par value is essentially the “interest” earned. It’s as simple as that — you gave the government a short-term loan by buying T-bills, and they paid you back with “interest” at the end of the term. 

How to buy Treasury bills 

You can buy Treasury bills directly from the government at or through a brokerage account. Treasury direct is straightforward and accessible to anyone with internet access, a taxpayer identification number or Social Security number, a U.S. address, and a checking or savings account to link for payment. 

Through a brokerage account, you can (and investors often do) buy T-bills through exchange-traded funds (ETFs) and mutual funds. Buying bundles of T-bill investments with different maturities can further diversify your portfolio and reduce risk.

Treasury bills vs. Treasury notes vs. Treasury bonds

Treasury bills, notes and bonds are three types of U.S. debt securities that mainly differ in the length of maturity (shortest to longest). Treasury notes are intermediate-term investments that mature in two, three, five, seven and 10 years. Treasury bonds mature in 20 or 30 years. Unlike T-bills, Treasury notes and Treasury bonds pay interest every six months.   

Are Treasury bills a good investment?

Ultimately, whether Treasury bills are a good fit for your portfolio depends on your risk tolerance, time horizon and financial goals. 

T-bills are known to be low-risk short-term investments when held to maturity since the U.S. government guarantees them. Investors owe federal taxes on any income earned but no state or local tax. 

However, Treasury bills also earn lower returns than other debt securities and even some certificates of deposit. As a result, Treasury bills may be most advantageous to conservative investors who are less willing to take risks but still want to earn a little interest.

What causes Treasury bill rates to fall?

Keep in mind that economic growth or decline, interest rates and inflation can affect Treasury bill rates. Here’s how it works. 

Demand for T-bills often drops during inflationary periods if the discount rate offered doesn’t keep pace with the inflation rate.  

The Federal Reserve sets lending rates between banks. It can lower the rate to encourage lending or raise the rate to contract the amount of money in the economy. When interest rates are high, as in 2023, investors tend to look toward higher-yield investment options and away from lower-yield Treasury bills.

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