What is a Treasury bill (T-bill)?
In one line: A Treasury bill, or T-bill, is a short-term US government loan lasting up to 52 weeks, bought below its face value and repaid in full.
A simple example
T-bills don't pay interest every few months like most Bonds. You buy them for less than their face value. When they end, you get the full face value. The gap is your interest.
Say you buy a 26-week T-bill with a $1,000 face value for $980.
- In 26 weeks, the Treasury pays you $1,000.
- Your interest is $1,000 − $980 = $20.
- That's about 2% for half a year, a bit over 4% a year.
Numbers are an illustration. Real T-bill rates change with every auction.
The basics
From TreasuryDirect, the US Treasury's own site:
- Terms: 4, 6, 8, 13, 17, 26 and 52 weeks.
- Minimum: $100, in steps of $100.
- How to buy: at auction through TreasuryDirect, or through a bank or broker.
- Taxes: the interest is subject to federal income tax but not state or local income tax.
Why it matters for traders
T-bill rates track the Federal Reserve's Fed funds rate closely. When the Fed raises or cuts, T-bill rates usually follow. They're a quick read on where short-term rates are.
They're also the "risk-free" yardstick. Any riskier investment has to justify itself against what a T-bill pays. Our guide on how interest rates affect stocks shows why that matters.
A common mistake
Comparing a T-bill's discount to a yearly rate. In the example, the $20 discount is about 2% of the price, but that's for 26 weeks. Turn it into a yearly figure before comparing with savings rates or other bonds.
If you sell a T-bill before it ends, its price can be slightly higher or lower than you paid, depending on rates. Held to the end, you get face value.
Questions
Are T-bills risk-free?
They're backed by the US government and seen as having very low default risk. Your return can still trail Inflation.
What's the difference between a T-bill, T-note and T-bond?
Length. Bills last up to 52 weeks. Notes last 2 to 10 years. Bonds last 20 or 30 years. Notes and bonds pay interest every six months.
How do I buy a T-bill?
Through TreasuryDirect, or through a bank or brokerage account.
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