How T-Bills Work — A Complete Guide

Last updated: June 11, 2026

What Is a Treasury Bill?

A Treasury bill (T-bill) is a short-term debt obligation issued by the U.S. Department of the Treasury. T-bills mature in one year or less. Unlike Treasury notes and bonds, T-bills do not pay periodic interest (coupons). Instead, they are sold at a discount from face value and redeemed at full face value at maturity — the difference is your return.

T-bills are considered among the safest investments in the world because they are backed by the full faith and credit of the U.S. government. They are widely used by individuals, money-market funds, and institutions as short-term cash-equivalent holdings.

Available Terms

The U.S. Treasury currently issues T-bills in six standard maturities:

• 4-week (28 days) — auctioned weekly
• 8-week (56 days) — auctioned weekly
• 13-week (91 days) — auctioned weekly
• 17-week (119 days) — auctioned weekly
• 26-week (182 days) — auctioned weekly
• 52-week (364 days) — auctioned every four weeks

How T-Bill Pricing Works

You never pay face value for a T-bill. You pay a discounted price, and at maturity you receive the full face value. For example, a 26-week $10,000 T-bill at a 3.5% discount rate would cost approximately $9,823.33. At maturity you receive $10,000. Your $176.67 profit is your return.

The purchase price from a discount rate is calculated as:

Price = Face Value × (1 − Discount Rate × Days/360)

Two Ways to Measure T-Bill Yield

Two different yield conventions apply to T-bills. Both are important to understand.

1. Discount Yield (bank discount rate)

This is the rate quoted at Treasury auctions and in most financial news. It uses face value as the base and a 360-day year:

d = (FV − P) ÷ FV × (360 ÷ t)

Because it uses face value (rather than the price you paid) and a shorter year, the discount yield understates your actual return relative to what you'd see on a CD or bond.

2. Investment Yield / Bond-Equivalent Yield (BEY)

BEY uses the purchase price as the base and a 365-day year, making it directly comparable to CD APY or bond coupon yields:

BEY = (FV − P) ÷ P × (365 ÷ t)

For the same T-bill, BEY will always be slightly higher than the discount yield. When comparing a T-bill to a CD, use BEY — not the discount rate.

Use the T-Bill Calculator or the Treasury Bill Yield Calculator to compute both yields instantly.

Tax Treatment

T-bill interest (the difference between purchase price and face value) is:

• Subject to federal income tax in the year the bill matures.
• Exempt from state and local income tax — this is a meaningful advantage for investors in high-tax states.

There is no withholding on T-bill interest unless you are subject to backup withholding. You will receive a 1099-INT from TreasuryDirect or your brokerage at tax time.

See the T-Bill vs CD calculator to compare after-tax returns once you factor in state tax exemption.

How to Buy T-Bills

There are two main ways to buy T-bills:

• TreasuryDirect.gov — Buy directly from the U.S. Treasury at auction with no fees or commissions. Minimum purchase is $100. Visit TreasuryDirect.
• Brokerage accounts — Most online brokerages allow you to bid at auction (competitive or non-competitive) or buy T-bills on the secondary market. Secondary-market prices may differ from face value depending on current rates.

T-Bills vs Other Short-Term Options

Compare T-bills with the T-Bill vs CD Calculator or the I Bond Calculator to see which fits your situation. Key differences at a glance:

• T-bills vs CDs: T-bills are state-tax exempt; CDs are FDIC-insured. CDs typically offer more term flexibility. Both carry low risk.
• T-bills vs I bonds: I bonds adjust for inflation and can be held for up to 30 years, but have a $10,000 annual purchase limit and cannot be redeemed in the first 12 months.
• T-bills vs money-market funds: Many money-market funds hold T-bills as their primary asset. Buying T-bills directly eliminates the fund's management fee.