When interest rates move higher or markets feel shaky, Treasury bills tend to show up everywhere. You hear about them in financial news, from advisors, and in conversations about where to park cash safely. That attention is not random. Treasury bills sit at the intersection of safety, short timelines, and predictable returns.
A Treasury bill is a short-term loan you make to the U.S. government in exchange for a guaranteed payout at maturity. There are no monthly payments and no complicated math.
In this guide, you will learn exactly how Treasury bills work, how they compare to other low-risk options, and whether they make sense for your money right now. By the end, you should know if Treasury bills belong in your cash plan or if another option fits better.
What a Treasury Bill Is
A Treasury bill is issued by the U.S. Department of the Treasury to raise short-term funding. It is considered one of the safest investments available because it is backed by the full faith and credit of the U.S. government.
Treasury bills are short-term government debt securities with maturities of one year or less. They do not pay interest in the traditional sense and do not send periodic payments.
How Treasury Bills Make Money
Instead of paying interest, Treasury bills are sold for less than their face value. The return comes from what you receive at maturity.
Here is how that plays out in real terms:
- Discount Purchase: You buy the Treasury bill for less than its face value.
- No Interest Payments: You do not receive monthly or quarterly payments.
- Maturity Payout: At maturity, the government pays you the full face value.
The difference between what you paid and what you receive is your profit.
Treasury Bill Terms and Maturities
Treasury bills are defined by how long your money stays locked in. Shorter terms offer faster access to cash, while longer terms often provide higher yields.
The U.S. Treasury currently issues bills with the following maturities:
- 4-week: Very short-term option often used for cash parking.
- 8-week: Slightly longer holding period with similar liquidity.
- 13-week: Common three-month option with competitive yields.
- 26-week: Six-month term that balances yield and flexibility.
- 52-week: One-year Treasury bill with the longest lockup.
Maturity length matters because it affects both access to funds and exposure to interest rate changes. A longer term locks in today’s rate, while a shorter term allows faster reinvestment if rates rise.
Face value refers to the amount the Treasury pays at maturity. If you buy a $1,000 Treasury bill for $970, the face value remains $1,000, and the $30 difference represents your return.
Treasury Bills vs. Other Treasury Securities
Treasury bills are only one part of the U.S. Treasury lineup. Notes, bonds, and inflation-protected securities serve different purposes and timelines.
Treasury Bills vs. Treasury Notes
Treasury notes have longer maturities and a different income structure. Bills are designed for short-term cash, while notes target medium-term investing.
Key differences include:
- Time Horizon: Treasury bills mature in one year or less, while Treasury notes run from two to ten years.
- Income Structure: Treasury bills pay no interest, while Treasury notes pay interest every six months.
- Common Use: Treasury bills suit short-term cash needs, while Treasury notes fit longer planning windows.
Treasury Bills vs. Treasury Bonds
Treasury bonds extend even further on the timeline and carry more exposure to rate changes.
Important contrasts include:
- Length: Treasury bonds mature in 20 or 30 years.
- Rate Sensitivity: Treasury bonds fluctuate more when interest rates change.
- Cash Use: Treasury bills appeal to short-term cash holders who want stability.
Treasury Bills vs. Treasury Inflation-Protected Securities
Treasury Inflation-Protected Securities focus on inflation protection rather than simplicity.
Differences worth noting include:
- Inflation Adjustment: Treasury Inflation-Protected Securities adjust principal with inflation.
- Predictability: Treasury bills offer a fixed payout at maturity.
- Trade-Off: Inflation protection adds complexity and longer holding periods.
Treasury Bills vs. Savings Accounts and Money Market Funds
Treasury bills often compete with savings accounts and money market funds as low-risk places to hold cash. Each option works differently once you look past the headline yield.
Treasury Bills vs. High-Yield Savings Accounts
High-yield savings accounts offer flexibility, while Treasury bills offer certainty.
Here is how they compare:
- Yield Structure: Treasury bills lock in a rate for the full term, while savings account rates can change at any time.
- Access: Savings accounts allow withdrawals on demand, while Treasury bills require waiting until maturity or selling early.
- Taxes: Treasury bill earnings avoid state and local income taxes, while savings account interest does not.
Treasury Bills vs. Money Market Funds
Money market funds pool investor money into short-term debt, including Treasury securities.
Key distinctions include:
- Ownership: Treasury bills are owned directly, while money market funds hold assets on your behalf.
- Stability: Treasury bills hold their value until maturity, while fund values can fluctuate slightly.
- Costs: Money market funds may charge expense ratios, while Treasury bills do not.
How Treasury Bills Are Bought
You can buy Treasury bills in two main ways. Both routes lead to the same type of investment, but the process and flexibility differ.
Some people prefer buying directly from the government, while others choose the convenience of a brokerage account. The right choice depends on how hands-on you want to be and how you plan to manage your cash.
Buying Treasury Bills Directly From the Government
The U.S. Department of the Treasury sells Treasury bills through its own platform. This method gives you direct access with no middleman.
Here is how it works in practice:
- TreasuryDirect Account: You open an account directly with the U.S. Treasury.
- Auction Process: You place a noncompetitive bid and accept the rate set at auction.
- Minimum Purchase: Treasury bills are sold in increments starting at $100.
This approach works well for people who want simplicity and plan to hold Treasury bills until maturity.
Buying Treasury Bills Through a Brokerage
Most major brokerages allow you to buy Treasury bills either at auction or on the secondary market.
This option offers more flexibility:
- Secondary Market Access: You can buy or sell Treasury bills before maturity.
- Pricing Transparency: Prices reflect current market conditions.
- Portfolio Integration: Treasury bills appear alongside your other investments.
Brokerages work better for people who actively manage cash or want the option to sell early.
Risks and Downsides to Know About
Treasury bills are considered low risk, but no investment is completely risk-free. Knowing the limits helps set realistic expectations.
Here are the main trade-offs:
- Interest Rate Changes: Selling before maturity can result in a gain or loss if rates move.
- Liquidity Timing: Cash is locked in until maturity unless you sell early.
- Reinvestment Risk: When a bill matures, future rates may be lower.
- Opportunity Cost: Long-term investments may offer higher growth over time.
Treasury bills aim for stability, not maximum return.
Tax Treatment of Treasury Bills
Taxes play a meaningful role in the real return you keep. Treasury bills have a tax structure that many cash investors find appealing.
Earnings from Treasury bills are subject to federal income tax. They are exempt from state and local income taxes.
This exemption can improve after-tax results, especially for people in higher-tax states. The tax benefit becomes more noticeable as yields rise.
Who Treasury Bills Are Best Suited For
Treasury bills work best when safety and timing matter more than growth. They often fit specific money goals rather than long-term investing plans.
Treasury bills tend to make sense for:
- Short-Term Cash Storage: Money needed within the next year.
- Emergency Fund Parking: Funds that must stay stable and accessible.
- Conservative Investors: People who value predictability over growth.
- Waiting Capital: Cash set aside for a future purchase or investment.
They are less about returns and more about control.
When Treasury Bills May Not Be the Right Choice
Treasury bills are not a universal solution. Some goals call for different tools.
They may fall short if you want:
- Long-Term Growth: Stocks and longer-term assets aim higher.
- Ongoing Income: Treasury bills do not send regular payments.
- Instant Access: Selling early can add friction and price risk.
Matching the tool to the goal matters more than chasing yield.
Treasury Bills in a Real-World Portfolio
Treasury bills often play a supporting role rather than a leading one. They sit between cash and longer-term investments.
Many people use Treasury bills to stabilize part of a portfolio, reduce short-term risk, or stage money before deploying it elsewhere.
Some investors stagger maturities to create rolling access to cash. This approach spreads timing risk and keeps funds available at regular intervals.
Conclusion
Treasury bills are short-term loans to the U.S. government that offer predictable returns and strong safety. They pay no interest and instead deliver profit through a discount purchase and full payout at maturity.
They work well for short timelines, conservative goals, and tax-aware cash management. They are less suitable for growth or income-focused plans.
If your priority is protecting cash while earning a known return, Treasury bills deserve a close look.