Treasury Bills: How to Invest in T-Bills and Earn Risk-Free Returns

How T-Bill Auctions Work

The US Treasury holds regular auctions for T-bills. 4-week and 8-week bills are auctioned every week. 13-week and 26-week bills are auctioned weekly. 17-week bills are auctioned every four weeks. 52-week bills are auctioned every four weeks. The auctions use a single-price (uniform) format, meaning all successful bidders pay the same price — the clearing price determined by the auction. There are two types of bids: competitive bids (institutional investors specify the yield they will accept) and non-competitive bids (individual investors agree to accept whatever yield is determined by the auction). Non-competitive bidders are guaranteed to receive their order in full. You can place non-competitive bids up to $10 million per auction through TreasuryDirect. This makes it simple for individual investors to buy T-bills at auction without worrying about getting the best price.

How to Calculate T-Bill Yields

There are two common ways to express T-bill yields. The discount yield is the annualized return based on the discount from face value, using a 360-day year. The formula: Discount Yield = (Discount / Face Value) x (360 / Days to Maturity). For a 13-week (91-day) T-bill where you pay $987.10 for $1,000: Discount = $12.90. Discount Yield = ($12.90 / $1,000) x (360 / 91) = 5.10%. The investment yield (also called the bond equivalent yield) uses a 365-day year and is more comparable to other bond yields: Investment Yield = (Discount / Purchase Price) x (365 / Days to Maturity) = ($12.90 / $987.10) x (365 / 91) = 5.24%. For most investors, the investment yield is more useful because it reflects your actual return on your invested money. Many online T-bill calculators do this math automatically. Learn more about bond yield calculations.

Real example: On a recent 26-week (182-day) T-bill auction, the price was $97.436 per $100 of face value. A $10,000 investment buys T-bills with $10,000 / $97.436 x $100 = approximately $10,263 of face value. At maturity, you receive $10,263. Your interest is $263 over 182 days. The investment yield is ($263 / $10,000) x (365 / 182) = 5.27%. This is a risk-free 5.27% annualized return — significantly higher than most high-yield savings accounts.

How to Buy T-Bills: TreasuryDirect vs Broker

There are two main ways to buy T-bills. TreasuryDirect.gov: Create an account linked to your bank account. You can place non-competitive bids at auction with no fees. The Treasury automatically debits your bank account on auction settlement date and credits the proceeds at maturity. This is the simplest approach for buy-and-hold investors. You can set up reinvesting (your maturing T-bill automatically buys a new one). Through a broker: Fidelity, Schwab, Vanguard, and other major brokers allow you to buy T-bills at auction or on the secondary market. Buying at auction through a broker is similar to TreasuryDirect but your T-bills sit in your brokerage account alongside your other investments. Buying on the secondary market lets you choose specific maturity dates and may offer better prices. Most brokers charge no commission for Treasury trades. For most investors who already have a brokerage account, buying T-bills through the broker is more convenient. Find the best broker for T-bill investing.

T-Bill ETFs: The Simplest Way to Invest

For investors who want T-bill exposure without managing individual auctions and maturity dates, T-bill ETFs are the simplest option. The most popular are BIL (SPDR Bloomberg 1-3 Month T-Bill ETF), SGOV (iShares 0-3 Month Treasury Bond ETF), and TBIL (US Treasury 3 Month Bill ETF). These ETFs hold a rolling portfolio of short-term T-bills, maintaining a constant maturity of 1-3 months. They pay monthly dividends that reflect the current T-bill yield, net of the ETF's expense ratio (typically 0.07-0.13%). The net yield is usually within 0.10-0.20% of direct T-bill yields — a small cost for the convenience of daily liquidity, automatic reinvestment, and no need to manage auctions. T-bill ETFs are an excellent choice for emergency funds, cash holdings, or any short-term savings where you want T-bill yields without the administrative hassle. Emergency funds should be held in T-bills or T-bill ETFs.

T-Bills vs High-Yield Savings Accounts

T-bills and high-yield savings accounts (HYSAs) serve similar purposes — safe, liquid places to hold cash — but they differ in several important ways. T-bills typically offer higher yields. As of 2026, 4-week T-bills yield around 4.2% while HYSAs pay 3.5-4.0%. T-bill yields are exempt from state and local taxes, which can add 0.3-0.8% to the after-tax yield depending on your state. However, T-bills lock your money for the term; if you need it before maturity, you must sell on the secondary market, and you could get slightly less if rates have risen. HYSAs offer instant liquidity — you can withdraw at any time without penalty. HYSAs are also simpler — no auctions, no maturity dates, no secondary market. For short-term emergency funds (3-6 months of expenses), a HYSA is usually better because of the instant access. For larger cash reserves where you can accept slight illiquidity, T-bills pay more. Compare current rates on high-yield savings accounts.

Are T-bills really risk-free?

T-bills are considered risk-free in terms of default risk — the US government has never defaulted on its debt, and the full faith and credit of the United States backs every T-bill. However, they are not completely risk-free. You face reinvestment risk: when your T-bill matures, you may have to reinvest at a lower yield if rates have fallen. You also face inflation risk: if inflation is running at 3% and your T-bill yields 4.2%, your real (inflation-adjusted) return is only 1.2%. T-bills are also subject to interest rate risk in the secondary market — if you sell before maturity and rates have risen, you may receive slightly less than you paid. If you hold to maturity, you always receive the full face value.

What is the minimum amount to buy T-bills?

The minimum purchase for T-bills through TreasuryDirect is $100. Through a broker, you can typically buy one T-bill with a face value of $100, so the minimum is also $100. For T-bill ETFs, you can buy as little as one share, which trades at approximately $100-101 per share. This makes T-bills accessible to any investor, regardless of account size. You can build a T-bill ladder — buying T-bills of different maturities to create a stream of monthly income — with as little as a few thousand dollars.

How are T-bills taxed?

T-bill interest is subject to federal income tax but exempt from state and local income taxes. This is a significant advantage for investors in high-tax states. The interest is reported on Form 1099-INT from your broker or TreasuryDirect. You report it on your federal tax return as ordinary interest income. Unlike long-term capital gains, T-bill interest is taxed at your marginal ordinary income rate, not the lower capital gains rate. For investors in the 37% federal bracket living in California (13.3% state rate), the state tax exemption makes a 5.0% T-bill yield equivalent to a 5.7% taxable bond yield. Always factor in tax treatment when comparing T-bills to other short-term investments.

Can I lose money on T-bills?

If you hold a T-bill to maturity, you cannot lose money — you will always receive the full face value. This makes T-bills unique among investments: the return is known in advance. If you sell before maturity on the secondary market, you could receive slightly less than you paid if interest rates have risen since you bought the bill. However, because T-bills are very short-term (under one year), the price fluctuation is small. A 1% rate increase on a 6-month T-bill causes only about a 0.5% price decline. For most investors who buy T-bills and hold to maturity, price fluctuations in the secondary market are irrelevant.

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