Treasury Bills (T-Bills) are short-term debt obligations issued by the US Department of the Treasury with maturities ranging from 4 weeks to 52 weeks. They are considered the safest financial instruments in the world, backed by the full faith and credit of the United States government.
Why T-Bills Outperform Traditional Bank Accounts
- Exemption from State and Local Taxes: Unlike interest earned in a high-yield savings account or a standard CD, interest income earned on US Treasuries is 100% exempt from state and municipal income taxes—providing major savings for residents of high-tax states like California, New York, or New Jersey.
- Sovereign Backing: T-Bills carry the sovereign credit of the United States government, bypassing standard $250,000 FDIC deposit caps.
- Fixed Short-Term Yields: Lock in current interest rates for your desired term without taking on interest rate risk.
T-Bill Maturities & How Discount Pricing Works
T-Bills do not pay regular coupon interest payments. Instead, they are sold at a discount to their par value ($1,000) and mature at full face value.
Example: You purchase a 26-week (6-month) T-Bill at an auction price of $975. At the end of the 26 weeks, the US Treasury deposits $1,000 into your account. The $25 difference is your earned interest, equivalent to an annualized yield of over 5.1%.
Two Ways to Purchase T-Bills
- TreasuryDirect.gov: Direct federal portal. Best for non-competitive auction bidding and setting up automatic rollovers.
- Major Brokerages (Schwab, Fidelity, Vanguard): Highly recommended because you can buy at weekly Treasury auctions with zero commissions and trade them on the secondary market before maturity if you need immediate cash.
Compare T-Bills with other fixed-income structures in our guide on CD laddering strategies and learn how they fit into broader asset allocation and diversification.