What Are Treasury Bills (T-Bills)? How They Work and How to Buy Them
T-Bills are short-term loans to the U.S. government. Learn how they pay, today's 3-month T-Bill rate, how they're taxed, and how to buy them.
A Treasury bill (T-Bill) is a short-term loan you make to the U.S. government. You buy it for less than its face value, and when it matures, usually within a few weeks to a year, the government pays you the full face value. The difference is your interest.
The 3-month T-Bill rate is currently 4.09% (discount basis, as of October 13, 2026).
T-Bills are one of the safest places to keep cash, which is why investors, businesses and even banks use them to park money.
How T-Bills work
T-Bills don’t pay interest in the usual way. Instead, they’re sold at a discount:
- You buy a $1,000 T-Bill that matures in 13 weeks for, say, $990.
- You hold it until maturity.
- The government pays you $1,000. Your $10 gain is the interest.
The price you pay is set at a government auction. Treasury holds auctions every week for the most common terms, and bills are available with maturities ranging from 4 weeks to 52 weeks.
Key features at a glance
| Feature | Details |
|---|---|
| Issuer | U.S. Department of the Treasury |
| Terms | From 4 weeks up to 52 weeks |
| Minimum purchase | $100 (in $100 increments) |
| How you earn | Bought at a discount, repaid at face value |
| Federal income tax | Yes |
| State and local income tax | No, exempt |
| Safety | Backed by the full faith and credit of the U.S. government |
Why people buy T-Bills
- Safety. They’re considered among the lowest-risk investments in the world.
- Competitive yields. T-Bill yields closely track the Federal Reserve’s policy rate. The effective federal funds rate is 3.88% right now.
- State tax savings. Interest is exempt from state and local income taxes, a real advantage if you live in a high-tax state.
- Locked-in rate. Once you buy, your yield is fixed until maturity, even if rates fall.
The trade-offs
- Less flexible than a savings account. Your money is committed until the bill matures. You can sell early through a brokerage, but the price depends on current market rates.
- Rates reset when you roll over. When a bill matures and you buy a new one, you get whatever the current rate is, which might be lower.
- Discount rate vs. real yield. The commonly quoted “discount rate” slightly understates what you actually earn. The investment yield (also called bond-equivalent yield) is the better number to compare with a savings account’s APY.
How to buy T-Bills
There are two main ways:
1. TreasuryDirect.gov. Buy directly from the government with no fees. You place a “noncompetitive” bid, which means you accept the rate set at auction. The downside: the website is basic, and if you need your money before maturity, you generally have to transfer the bill to a brokerage first to sell it.
2. A brokerage account. Most major brokerages let you buy T-Bills at auction or on the secondary market, often with no commission. It’s easier to sell early, and you can set up automatic rollovers.
Some people also use Treasury money market funds or T-Bill ETFs, which hold many T-Bills and let you buy and sell any trading day. These charge a small annual fee and their yields move daily.
How T-Bills are taxed
Your interest, the difference between what you paid and the face value, is reported on Form 1099-INT and taxed as ordinary income at the federal level in the year the bill matures. It is not taxed by states or localities. Whether that makes T-Bills better than a savings account depends on your tax rates. The calculator below works it out for you.
Key takeaway: T-Bills offer government-backed safety, a locked-in rate and a state tax break. They’re a strong option for cash you won’t need for a few months.
Sources
This content is for educational purposes only and isn't financial, tax or investment advice. Rates change daily; confirm current terms with your bank, broker or TreasuryDirect before making decisions. See our full disclaimer.