How To Buy Treasury Bills (T-Bills)

Quick answer

• Treasury Bills (T-Bills) are short-term U.S. government debt securities with maturities of one year or less.
• They are considered one of the safest investments, backed by the full faith and credit of the U.S. government.
• You can buy T-Bills directly from the U.S. Treasury via TreasuryDirect or through a brokerage account.
• T-Bills are sold at a discount and mature at face value, with the difference representing your interest.
• They are exempt from state and local income taxes, but not federal income tax.
• Buying T-Bills can be a good option for short-term savings goals or as a safe place to park cash.

Who this is for

• Individuals looking for a safe, short-term place to invest their savings.
• Investors who want to preserve capital and earn a modest return with minimal risk.
• People who need access to their funds within a year and want to avoid market volatility.

What to check first (before you act)

• Goal and timeline: What are you saving for, and when will you need the money? T-Bills are best for goals within a year. If your timeline is longer, other investments might be more suitable.
• Current cash flow: Do you have enough stable income to cover your expenses and savings goals? T-Bills are for surplus cash, not for covering essential living costs.
• Emergency fund or safety buffer: Do you have 3-6 months of living expenses saved in an easily accessible account? This should be your first priority before investing in T-Bills.
• Debt and interest rates: Do you have high-interest debt (like credit cards)? Paying off high-interest debt often provides a better guaranteed return than T-Bills. Check the interest rates on your debts.
• Credit impact: Buying T-Bills directly does not impact your credit score. However, if you plan to use a brokerage, ensure your account is in good standing.

Step-by-step (simple workflow)

1. Define your investment amount: Decide how much money you want to invest in T-Bills.

• What “good” looks like: You have a clear, specific dollar amount identified for investment.
• Common mistake: Investing money you might need unexpectedly.
• How to avoid it: Ensure this money is truly surplus after funding your emergency fund and covering essential expenses.

2. Choose your purchase method: Decide whether to buy directly from TreasuryDirect or through a broker.

• What “good” looks like: You’ve researched both options and understand the pros and cons for your situation.
• Common mistake: Not comparing options and choosing the first one you see.
• How to avoid it: Spend a few minutes understanding the interface and minimums for both TreasuryDirect and a few reputable brokerage firms.

3. Open an account (if needed): If using TreasuryDirect, you’ll need to set up an account. If using a broker, you’ll use your existing brokerage account or open a new one.

• What “good” looks like: Your account is successfully opened and verified.
• Common mistake: Providing incomplete or incorrect personal information.
• How to avoid it: Double-check all fields for accuracy before submitting your application.

4. Select T-Bill maturity: Choose the T-Bill maturity date that aligns with your timeline (e.g., 4 weeks, 8 weeks, 13 weeks, 17 weeks, 26 weeks, or 52 weeks).

• What “good” looks like: The maturity date matches when you anticipate needing the funds.
• Common mistake: Picking a maturity that’s too short or too long for your needs.
• How to avoid it: Revisit your financial goals and timeline from Step 1.

5. Place your order: Submit your bid for the chosen T-Bill maturity and amount.

• What “good” looks like: Your order is successfully placed and confirmed.
• Common mistake: Bidding too high or too low at auction.
• How to avoid it: For TreasuryDirect, you typically enter a non-competitive bid, which guarantees you get accepted at the auction’s average yield. For brokers, follow their specific bidding instructions.

6. Funds are debited: The purchase amount will be debited from your linked bank account or brokerage cash balance.

• What “good” looks like: The correct amount is withdrawn, and you have a confirmation of your purchase.
• Common mistake: Not having sufficient funds in the linked account.
• How to avoid it: Ensure the funds are available before the auction settlement date.

7. Hold until maturity: The T-Bill is held until its maturity date.

• What “good” looks like: You have peace of mind knowing your investment is safe.
• Common mistake: Trying to sell T-Bills before maturity if you don’t need to.
• How to avoid it: Stick to your original plan; T-Bills are designed to be held to maturity for guaranteed returns.

8. Receive your principal: At maturity, the face value of the T-Bill is deposited back into your account, along with the interest earned (which was effectively the difference between the purchase price and face value).

• What “good” looks like: The full principal amount is credited to your account.
• Common mistake: Forgetting what you invested in or where the money will go.
• How to avoid it: Note down your T-Bill purchases and ensure your bank or brokerage account is set up to receive the funds.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Investing emergency funds	You could face significant financial hardship if an unexpected expense arises and your money is tied up.	Prioritize building a fully funded emergency fund in a liquid savings account before investing in T-Bills.
Not understanding maturity dates	You might need your money before the T-Bill matures, forcing you to sell on the secondary market at a loss.	Carefully match the T-Bill maturity to your known need date for the funds.
Ignoring high-interest debt	You’re paying more in interest on debt than you’re earning on T-Bills, losing money overall.	Aggressively pay down high-interest debt before considering T-Bill investments.
Not checking current yields	You might invest when T-Bill yields are very low, earning minimal return.	Monitor current T-Bill yields and compare them to other safe options like high-yield savings accounts or money market funds.
Forgetting about taxes	You might be surprised by the federal income tax liability on your T-Bill earnings.	Understand that T-Bill interest is taxable at the federal level, though exempt from state and local taxes. Factor this into your returns.
Over-investing in short-term securities	You might miss out on potentially higher long-term returns if your goals are actually longer than a year.	Re-evaluate your investment horizon and consider other asset classes for longer-term goals.
Not diversifying cash holdings	If you have a large amount of cash, putting it all in one T-Bill maturity might not be optimal.	Consider spreading cash across different short-term instruments or T-Bill maturities if the amount is substantial.
Bidding competitively at auction	If you bid a specific rate and market rates rise, your T-Bill might yield less than newer issues.	For most retail investors, non-competitive bidding is simpler and guarantees you receive the auction’s average yield.
Not having a brokerage account ready	If you choose a broker, delays in account opening can mean missing an auction.	Open and fund your brokerage account well in advance of when you intend to purchase T-Bills.

Decision rules (simple if/then)

• If your goal is to preserve capital and you need the money within one year, then buy T-Bills because they are backed by the U.S. government and have short maturities.
• If you have credit card debt with an interest rate above 15%, then pay down that debt first because the guaranteed return of eliminating that interest is likely higher than any T-Bill yield.
• If you have less than three months of living expenses saved, then build your emergency fund before buying T-Bills because this is your primary financial safety net.
• If you are looking for tax-advantaged growth, then T-Bills are not the best option because their interest is taxable at the federal level.
• If you prefer a hands-off approach and already have a brokerage account, then buying T-Bills through your broker might be simpler because it consolidates your investments.
• If you want direct ownership and are comfortable with a separate online portal, then buying directly through TreasuryDirect is a good option because it bypasses intermediaries.
• If you are unsure about the current economic outlook and want maximum safety for your cash, then T-Bills are a strong choice because they are considered risk-free from a default perspective.
• If you need your money in exactly 13 weeks, then buy a 13-week T-Bill because its maturity date will align perfectly with your need.
• If you are comfortable with slightly more yield potential and a bit more complexity, then consider Treasury Notes (T-Notes) or Bonds (T-Bonds) for longer terms, but understand they carry more interest rate risk.
• If you are seeking liquidity and easy access to your cash, then a high-yield savings account might be a better fit than T-Bills, as T-Bills are locked in until maturity.
• If you are concerned about inflation eroding your purchasing power, then T-Bills may offer a modest return, but consider if the yield is sufficient to outpace inflation for your goals.

FAQ

What is a Treasury Bill (T-Bill)?

A T-Bill is a short-term debt security issued by the U.S. Department of the Treasury. They are sold at a discount to their face value and mature at par, with the difference representing the investor’s interest.

How safe are T-Bills?

T-Bills are considered among the safest investments available because they are backed by the full faith and credit of the U.S. government. The risk of default is extremely low.

What are the typical maturities for T-Bills?

T-Bills are issued with maturities of 4, 8, 13, 17, 26, and 52 weeks (one year).

How do I buy T-Bills?

You can purchase T-Bills directly from the U.S. Treasury through its TreasuryDirect website or through a brokerage firm that offers Treasury securities.

Are T-Bills taxable?

Interest earned on T-Bills is subject to federal income tax but is exempt from state and local income taxes.

What is the difference between a T-Bill and a T-Note or T-Bond?

T-Bills have maturities of one year or less, while Treasury Notes (T-Notes) mature in 2 to 10 years, and Treasury Bonds (T-Bonds) mature in more than 10 years. T-Notes and T-Bonds pay interest semi-annually.

Can I sell a T-Bill before it matures?

Yes, you can sell T-Bills on the secondary market before their maturity date. However, the price you receive may be more or less than what you paid, depending on prevailing interest rates.

What is a non-competitive bid?

A non-competitive bid is an order placed for T-Bills where the investor agrees to accept the yield determined by the auction. This ensures the investor receives the T-Bills they bid for.

What this page does NOT cover (and where to go next)

• Detailed comparison of brokerage firms for buying Treasuries.
• Next: Research and compare different brokerage account offerings.
• Advanced strategies for managing a large portfolio of Treasury securities.
• Next: Explore investment management resources for sophisticated investors.
• The impact of specific economic indicators on Treasury yields.
• Next: Learn about macroeconomic factors influencing bond markets.
• Tax implications for investors in higher tax brackets or specific business structures.
• Next: Consult with a tax professional for personalized advice.
• Investing in other types of U.S. Treasury securities like TIPS (Treasury Inflation-Protected Securities).
• Next: Research Treasury Inflation-Protected Securities.