· Listen
A Treasury bill is a short-term loan you make to the U.S. government. Common terms are 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. They are considered the safest dollar-denominated investment in the world because they are backed by the U.S. government.
How they actually work
T-bills are sold at a discount to their face value. If a 26-week T-bill has a face value of $1,000 and you buy it for $980, you collect the full $1,000 when it matures. The $20 difference is your interest.
Where to buy them
- TreasuryDirect.gov: the U.S. government's own platform. No fees, but the interface is dated.
- Most major brokerages (Fidelity, Schwab, Vanguard). Easier interface, no fees on Treasury auctions.
- Treasury ETFs: funds like SGOV or BIL that hold short-term Treasuries. Easiest if you want one-click exposure.
Tax treatment
Interest from Treasuries is taxable at the federal level but exempt from state and local income tax. In high-tax states like California, New York, and New Jersey, this can make T-bills meaningfully better than a CD or HYSA paying the same headline rate.
If you live in a state with income tax, run the numbers including the state-tax exemption before choosing between T-bills, CDs, and HYSAs. The winner is sometimes different than the headline rate suggests.
What this lesson is NOT
Treasury bills are a short-term, safe place to park dollars, not a growth investment and not a long-term hedge against inflation. This lesson explains how they work and where to buy them; it does not compare them to every other safe option.
Quick check on this lesson
Answer each question and we’ll show you why the right answer is right, and why the others aren’t.
- 1.
What are Treasury bills (T-bills)?
- 2.
How do T-bills technically pay you?
- 3.
What TAX advantage do T-bills have, especially for high-tax-state residents?
0 of 3 answered