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How To Invest in Treasury Bills

Knowing how to invest in U.S. Treasury bills could be the finest decision an investor in the United States can make right now. There are no safer investment options than those that have government backing, such as T-bills.

U.S. Treasury bill investments are popular due to their perceived stability and liquidity, despite their lower returns. With all of the benefits that a Treasury bill provides, you won’t be able to comprehend it unless you first understand what it is and how it works.

What are Treasury bills, exactly, and how do they work? Let’s find out in this article and also how to invest in them.

What Are Treasury Bills?

Treasury bills are money market items issued by the government and operate as promissory bills that promise returns at a later date. Treasury bills are short-term, one-year or less, national debt securities.

They are priced based on the bill’s value in auctions. These bills are by their very nature one of the safest financial assets on the market and are supported by the Federal Government.

How Do Treasury Bills Work?

To demonstrate how a US Treasury bill operates, let’s say a US Treasury bill with a par value (or face value) of $15,000 was up for sale at $14,500. With the government’s proposal to pay the entire face value at the maturity date stated.

The government pays the investor $15,000 at maturity, resulting in a profit of $500. The interest earned on the T-bill is equal to the profit earned from the payment. As a result, the discount rate is 5% of the face value, this is the difference between the face value and the Treasury bill’s selling price.

An investor who purchases a Treasury bill is essentially lending money to the government. T-bills are issued by the United States government to support different public projects such as the construction of schools and roadways. They pay off debt and cover ongoing costs like salaries and military equipment.

Are Treasury Bills a Good Investment?

T-bills are one of the safest and most reliable investments. T-bills are great for investors who are preparing for retirement or are edging close to retirement.

U.S. Treasury bills are a good investment option too for those who aren’t looking to have their money tied up for long periods of time. The biggest benefit though of T-bills, is that there is virtually no risk attached.

While the returns may seem low, the incredibly low risk factor associated with this investment is something to take into consideration. Also even though the returns are low, remember that interest on a treasury bill is still greater than the interest on fixed deposits by the bank.

How Much Does a Treasury Bill Cost?

The price of a T-bill fluctuates in relation to the supply and demand of T-bills at auction. You can purchase T-bills directly from the U.S. Treasury’s auction site, treasurydirect.gov, or through a broker, bank, or dealer.

Treasury bills are sold at a discount rate, discounted from the face value of the security. For example, if the face value of a T-bill is $100,000 and is being sold at a discount rate of 1.5%; you would purchase the security for $98,500 and be paid $100,000 at the end of the bill’s maturity.

This implies you buy T-bills for a lower price than their par (face) value, and the government pays you the difference when they mature.

How Much Interest Can You Earn From a Treasury Bill?

Interest rates on T-bills range from 0.04 percent to 0.17 percent, with maturities ranging from 4 to 52 weeks. The difference between the security’s purchase price and the amount you get at maturity is used to calculate your interest.

For example, a 52 week, $100,000 T-bill with a 1.5% discount would cost $98,500 and will make 1.5% in interest.

Can You Lose Money on Treasury Bills?

Treasury bills are risk-free investments, meaning that the investor’s principal is not at risk. In other words, investors who hold the bills until it matures will receive their initial investment or principal back as guaranteed by the full faith and credit clause of the U.S. government.

Unless you sell your T-bill before it hits maturity, you will almost positively not lose any money on your investment.

What Influences Treasury Bill Prices?

Interest rates, inflation, and economic growth are all factors that influence US Treasury yields. All of these variables tend to influence one another as well.

T-bills’ price and return on investment, like other types of debt securities, are affected by a variety of factors, including macroeconomic conditions, investor risk tolerance, inflation, monetary policy, and specifically supply and demand conditions for T-bills.

Factors to Consider with Treasury Bills

T-bills are the shortest-term debt instruments issued by the U.S. government, having a one-year or shorter maturity. The value of a Treasury bill (T-bill) is impacted by a variety of factors and varies based on time and situation.

Several factors to consider include:

Rates & Terms

T-bill interest rates are influenced by market demand. Treasury bills come in 5 different lengths: four, eight, thirteen, twenty-six, and fifty-two weeks.

The duration of maturity is directly related to the T-bill price and interest rate. Typically, T-bills with longer maturities will have higher interest rates and vice versa.


The investor is paid the face value (par value) of the bill they purchased when it matures. The maturity of your T-bill’s investment is referred to as redemption.

If you have a bill in U.S. Treasury Direct that is about to mature, you can use the funds to buy another bill with the same term. Treasury bills have a one-year or shorter maturity and do not pay interest until the maturity term ends.

T-bills, unlike coupon bonds, do not pay interest monthly, but they do include interest in the amount full amount when the security is fully mature.

Tax Considerations

In both state and municipal authorities, T-bill interest is tax-free. Investors can refer to the TreasuryDirect website’s research division for more tax information.

Treasury Bill Advantages

Advantages of treasury bills include:

  • T-bills essentially eliminate the chance of losing your initial investment.
  • It is available at a cheaper cost than many other investments.
  • A longer maturity time may offer a higher return; even if you choose a shorter term, you can still earn interest.
  • Good tax treatment and security.
  • Furthermore, it is a liquid instrument; it is only used for a short period.

Treasury Bill Disadvantages

Because T-bills are less risky than money market funds or CDs, their rates of return are lower, and cashing out a T-bill before it expires may result in you not getting all of your money back. Because they mature so quickly, you must constantly convert them into fresh assets. 

This is definitely something to consider before investing in T-bills however, the advantage of virtually zero risk may be a fair trade off for lower rates of return.

How To Start Investing

The first step for any prospective investor should be to learn how to invest in Treasury bills. Treasury bills are a safe investment option because they are backed by the government. They aid in the funding of government capital to meet the economy’s immediate demands.

This type of security may be used by individuals looking for short-term investments. Short-term investors can benefit by purchasing government treasury bills at a discount on the asset’s face value and then profiting off of the difference.

To begin investing in Treasury bills, follow our outline below!

Step 1: Open a Brokerage Account & Set Up an Account

One of the first stages in developing your investment portfolio is opening a brokerage account. Most brokerages offer Treasuries as ETFs for purchase, such as the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL).

Treasury bills can be purchased directly from the US Treasury through Treasury Direct or a brokerage account. Some of the ideal brokerage platforms for this operation include:

  • Vanguard: There are no fees when you buy new Treasury bills from Vanguard. The minimum quantity on the order page is one, with a face value of $1,000. Vanguard Brokerage does not trade Treasury securities. If you want to sell your US Treasury securities before they mature, Vanguard Brokerage can connect you to a secondary over-the-counter market.
  • Charles Schwab: The purpose of Charles Schwab is to assist people in achieving better financial outcomes. Its smallest order size is $1,000. The Charles Schwab website is designed for ease of use, and it provides complete service and personal assistance if you get lost. Bonds, bond funds and ETFs, CDs, and preferred stock are among the fixed income instruments offered by Schwab.
  • Fidelity: Fidelity mutual funds have no minimum investment requirements. In a brokerage account, Treasury bills are sold in $1,000 increments or can be purchased in the form of an index fund. Fidelity does not charge any fees when you purchase new Treasury bills and prides itself on having no account fees and minimums for retail brokerage accounts, including IRAs. Certain proprietary mutual funds from Fidelity are free of expense ratio fees, and hundreds of additional products have no transaction costs.

Step 2: Deposit Your Funds

After you’ve chosen a broker, you’ll need to put some deposits into your account to help you buy Treasury Bills.

Step 3: Purchase It!

Now that you have credited your account, you can purchase Treasury bonds individually or as part of an asset portfolio through mutual funds or exchange-traded funds.

What is the Difference Between Treasury Bills, Bonds, & Notes?

There are certain variations to be aware of, even though they are all guaranteed by the U.S. government and can be purchased through your broker or from the U.S. Treasury directly.

The length of time it takes for them to mature is the biggest difference between them. In addition, one has a different interest payment schedule than the others.

  • T-bonds 
    • Government security with a maturity greater than 20 years
    • Fixed interest rate payments on a semi-annual timeline
  • T-notes
    • Maturity lies anywhere between 2 and 10 years
    • With bi-annual interest payments but lower yields
    • It pays interest every six months
  • T-bills 
    • Its maturities are the shortest, ranging from 4 to 52 weeks
    • Interest is paid only at the time of full maturity

Should You Invest in T-Bills?

The U.S. Treasury bill is one of the safest investment options available and a favorite of many investors. The best aspect is that it will not require a large sum of money to get started and that money won’t be tied up for long periods of time.

Even after learning how to invest in U.S. treasury bills, you should seek the guidance of a financial advisor to ensure that you are getting started with the best services and principles. Click here to learn more about U.S. Government debt securities.