# How do Treasury bills work, and how do you buy them?

> A T-bill is a 4 to 52 week government loan you buy at a discount and get back at full face value.

Source: https://www.walletprep.com/learn/treasury-bills/ · Updated 2026-10-04 · Saving

A Treasury bill (T-bill) is a short loan to the US government that lasts 4 to 52 weeks. You buy it for less than its face value, get the full face value back when it matures, and the difference is your interest, which is free of state and local income tax.

## Key facts
- **Backed by the US government.** Treasury bills are debts of the US government. They are not FDIC insured, because they are not bank deposits, but they are backed by the government that issues them.
- **Bought at a discount.** Bills are sold at a discount to face value, or sometimes at face value. You don't get interest payments along the way. You get the face value when the bill matures.
- **Rates are set at each auction.** There is no fixed T-bill rate. Each auction sets a new price, so the rate changes week to week with short-term interest rates. TreasuryDirect posts results for every auction.
- **Taxed federally only.** T-bill interest is subject to federal income tax but exempt from state and local income taxes. It is generally reported for the year the bill matures or you sell it.

## How a T-bill earns interest
With a savings account, the bank adds interest to your balance. A T-bill works the other way around. You pay less than the face value at the start, and the government pays you the full face value at the end. A $10,000 bill bought for $9,810 pays $10,000 at maturity, so you earned $190.
The price is set at auction from a discount rate, using a formula TreasuryDirect publishes. You don't need to do the math yourself. When you place a bid you won't know the exact rate, but after the auction you'll see the price you paid per $100 of face value.

## Terms and how often they're sold
Bills come in seven terms: 4, 6, 8, 13, 17, 26 and 52 weeks. The shorter terms are auctioned every week, and 52-week bills every 4 weeks. The minimum purchase is $100, and you can buy more in $100 steps, up to $10 million in a single auction with a noncompetitive bid.
If you want to hold bills for longer than a year, you can line up several terms or choose reinvestment so one bill rolls into the next. Each new bill gets the rate from its own auction, which may be higher or lower.

## Buying on TreasuryDirect
TreasuryDirect is the Treasury's own website. You open a free account, link a bank account and place a noncompetitive bid for the term and amount you want. The money comes out of your bank account on the issue date, and the face value lands back in your bank account when the bill matures.
The catch is selling early. Bills bought on TreasuryDirect must be held at least 45 calendar days before you can transfer them. To sell before maturity, you transfer the bill to a bank or broker and sell it there. Plan to hold TreasuryDirect bills to the end.

## Buying through a brokerage
Most brokerage accounts also let you buy T-bills, either at auction or from other investors. Buying at auction there works much like TreasuryDirect. A brokerage also lets you sell a bill before it matures, at whatever price the market pays that day.
That price can be more or less than you paid plus the interest earned so far. It tends to be lower if rates have risen since you bought. Ask your brokerage whether it charges any fee for buying or selling Treasuries.

## T-bills vs CDs and savings
All three are very safe homes for cash. Savings lets you withdraw any day. A CD and a T-bill both lock a rate for a term, but a CD usually charges a penalty to break it, while a T-bill can be sold at a market price.
The tax break is the main reason to pick T-bills. In a state with a 5% income tax, $190 of CD interest loses about $10 to state tax, while $190 of T-bill interest keeps it. In a state with no income tax, compare the rates directly.

## A worked example: a 26-week bill
Marcus has $9,810 for a tuition bill due in 7 months. He buys a $10,000 26-week T-bill at an example auction price of $98.10 per $100. His state income tax is 5%.

- Price paid at auction: $9,810
- Interest at maturity: $190
- Face value paid back: = $10,000
- Same interest from a CD: $190
- 5% state income tax: −$10
- CD interest after state tax: = $180

1. $98.10 per $100 on a $10,000 bill is $10,000 × 0.981 = $9,810. At maturity he gets $10,000, so he earns $10,000 − $9,810 = $190.
2. That is $190 ÷ $9,810 = 1.937% for 182 days. Times 365 ÷ 182, that is about 3.88% a year.
3. A CD paying the same $190 would owe $190 × 5% = $9.50, about $10, in state tax. Both owe federal tax.

## Common mistakes
- **Needing the money before maturity.** A bill on TreasuryDirect can't be sold for 45 days, and selling later means moving it to a broker first. If your date isn't firm, keep the money in savings or pick a shorter term.
- **Comparing the discount to a savings APY.** The discount rate understates what you earn, and a 26-week bill only pays for half a year. Divide the interest by the price you paid, then compare yearly rates.
- **Forgetting federal tax.** T-bill interest skips state and local income tax, but it is still federal income. Set some aside, or check your withholding if you hold a large amount.

## Questions people ask
### What is the T-bill rate right now?
It changes with every auction, usually every week. TreasuryDirect posts the results of each auction, including the price per $100 and the yearly rate. Check the latest results for the term you want before you buy.

### Are T-bills safer than a high-yield savings account?
Both are very safe. T-bills are backed by the US government. Insured savings is covered by the FDIC or NCUA up to $250,000 per depositor, per institution, per ownership category. The bigger difference for most people is access, since savings can be withdrawn any day.

### What happens when a T-bill matures?
The face value is paid to the bank account you linked, or into your brokerage account. If you chose reinvestment, the money buys a new bill of the same term at the next auction instead.

### Can you lose money on a T-bill?
If you hold it to maturity, you get the full face value back. If you sell early through a broker, the price could be lower than what you paid plus the interest earned so far, especially after rates rise.

## Do this today
Pick one savings goal with a firm date in the next year. Look up the latest auction result on TreasuryDirect for the term that ends just before that date, and compare its rate, after your state tax, with your savings APY.

## Sources
- [TreasuryDirect: Treasury bills](https://www.treasurydirect.gov/marketable-securities/treasury-bills/)
- [TreasuryDirect: Buying a marketable security](https://www.treasurydirect.gov/marketable-securities/buying-a-marketable-security/)
- [TreasuryDirect: Understanding pricing and interest rates](https://www.treasurydirect.gov/marketable-securities/understanding-pricing/)
- [TreasuryDirect: Auction announcements, data and results](https://www.treasurydirect.gov/auctions/announcements-data-results/)
- [IRS: Topic 403, interest received](https://www.irs.gov/taxtopics/tc403)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._