Tax break
Treasury Bills
Exempt from state and local tax, still owe federal. Backed by the government, rate is locked in the moment you buy.
Money Guide
How Do Treasury Bills Work? The Beginner's Guide
Minimum to buy$100
Terms available4 to 52 weeks
How you earnBought at a discount
Federal taxYes, owed
State/local taxExempt
Backed byU.S. government
I moved a chunk of my emergency fund into Treasury bills last year instead of just letting it sit in savings. It's not complicated once you see the mechanics, but nobody explains it in plain English. So here's the plain English version.
01 · The basics
What actually happens when you buy one
No coupons, no monthly interest payments. It's simpler than that, and that's kind of the point.
1
You buy it below face value
A $1,000 bill might cost you $970. That gap is your entire return, set upfront.
A $1,000 bill might cost you $970. That gap is your entire return, set upfront.
2
You hold it
No payments show up along the way. It just sits until it matures, or you sell it early on the secondary market.
No payments show up along the way. It just sits until it matures, or you sell it early on the secondary market.
3
You get the full face value
At maturity the government pays you the full $1,000. The $30 difference is what you actually earned.
At maturity the government pays you the full $1,000. The $30 difference is what you actually earned.
02 · Pick a term
The six lengths T-bills come in
Shorter terms tie up your money for less time. Longer terms lock in whatever rate is on offer for longer. Neither is automatically better, it depends what the cash is for.
4-Week Bill
About 1 month
Shortest
Best for: money you need back almost immediately but don't want sitting idle.
8-Week Bill
About 2 months
Short
Best for: cash earmarked for a near-term expense, like a quarterly tax payment.
13-Week Bill
About 3 months
Popular pick
Best for: the most common choice for parking an emergency fund without locking it up too long.
17-Week Bill
About 4 months
Middle ground
Best for: splitting the difference between the 13-week and 26-week terms.
26-Week Bill
About 6 months
Medium
Best for: money you're confident you won't need for half a year.
52-Week Bill
About 1 year
Longest
Best for: locking in a rate the longest, if you're fine not touching the cash for a full year.
03 · Where to actually buy one
Three ways in, and they're not all the same
I use TreasuryDirect for the ones I plan to hold to maturity. A brokerage makes more sense if you want everything in one place.
TreasuryDirect.govBuy straight from the source, no fees, $100 minimum. You have to manage a separate account outside your regular brokerage.
A brokerage accountFidelity, Schwab, and similar let you buy T-bills alongside everything else. Convenient, just double check for any added markup.
A T-bill ETFA basket of bills you can buy and sell like a stock. More liquid, but the price moves slightly day to day instead of staying fixed.
04 · How it stacks up
T-bills vs. the other places to park cash
This isn't about which one wins. It's about what each one is actually good for.
Full access
High-Yield Savings
Withdraw whenever you want, no penalty. Rate can drop at any time and you owe both federal and state tax on the interest.
Fixed rate
Certificate of Deposit
Rate locked in like a T-bill, but early withdrawal usually costs you a penalty. Fully taxable at both federal and state level.
05 · Common mistakes
Where people trip up
Nothing here is complicated. It's just easy to miss if nobody points it out first.
×
Comparing the discount price to a savings APY directly
You have to annualize the return first, or you're comparing two different things.
You have to annualize the return first, or you're comparing two different things.
×
Forgetting the state tax exemption in the comparison
A slightly lower T-bill rate can still beat a savings account once you factor in what you're not paying your state.
A slightly lower T-bill rate can still beat a savings account once you factor in what you're not paying your state.
×
Letting TreasuryDirect auto-reinvest a bill you didn't mean to renew
The reinvestment option is easy to leave on by accident. Check it before you buy.
The reinvestment option is easy to leave on by accident. Check it before you buy.
×
Treating it like a CD you can't touch
You can sell early on the secondary market. The price just might be a little more or less than what you paid.
You can sell early on the secondary market. The price just might be a little more or less than what you paid.
×
Buying through a brokerage without checking for a markup
Not all of them charge one, but it's worth confirming before you assume the rate you see is the rate you get.
Not all of them charge one, but it's worth confirming before you assume the rate you see is the rate you get.
Treasury bill terms, minimums, and tax treatment reflect standard U.S. Treasury program rules and are subject to change. Confirm current details at treasurydirect.gov before buying.