What Are Treasury Bills (T-Bills)? Complete Guide 2026 (Returns, Taxes & How to Buy)

Last updated: April 2026  ·  10 min read  ·  Beginner friendly

A T-Bill is one of the simplest investments you can make. You lend money to the U.S. government for weeks or months. When the time is up, the government pays you back more than you lent. That extra amount is your profit — and it is guaranteed.

💡 T-Bills are one of the safest ways to earn steady returns — and in many cases, they outperform savings accounts after taxes.

This guide covers everything — how T-Bills work, what they actually pay, how taxes work, and exactly how to buy one today.

What Are Treasury Bills?

Think of a T-Bill as a short-term IOU from the U.S. government. You hand over money today — say $9,747 — and in 6 months the government hands back $10,000. The $253 difference is your profit. The government has never missed this payment in history.

Unlike a savings account that pays interest every month, T-Bills pay everything at once when they mature. You pay slightly less than face value upfront, and receive the full face value at the end. Simple as that.

How Do T-Bills Work?

The process is simple. Here is exactly what happens from start to finish:

1. You choose a face value and duration — for example, $10,000 for 26 weeks (182 days).
2. You pay slightly less than face value — at a 5% rate, you pay $9,747 instead of $10,000. That $253 difference is what you earn.
3. You hold the T-Bill until maturity — no action needed. The T-Bill sits in your TreasuryDirect or brokerage account.
4. You receive the full face value — at maturity, $10,000 is deposited into your linked bank account automatically.

How to Calculate T-Bill Returns (Step-by-Step)

• Start with the face value (amount you receive at maturity)
• Apply the discount rate based on a 360-day year
• Calculate the purchase price (face value minus discount)
• Convert earnings into an annualized yield

This guide shows the process — but you can use our calculator to get instant results.

Types of T-Bills by Duration

The U.S. Treasury offers T-Bills in six standard durations. Each has its own auction schedule and typical yield profile. The right duration depends on when you need your money back and the current interest rate environment.

Choosing between these durations involves more than just picking the longest one. Rate direction, your liquidity needs, and your reinvestment plan all affect which duration works best for your situation.

How Much Return Do T-Bills Give?

T-Bill rates are set at weekly auctions — they go up or down based on market conditions, not a bank's decision. In 2023–2024 rates hit 4.5–5.5%, the highest in decades. As of 2026 they have come down but remain competitive with savings accounts and CDs.

The table below shows what different amounts actually earn at a 5% rate:

The annual return is always slightly above the stated rate because it is calculated on what you actually paid, not the full face value.

How T-Bill Auctions Work

You do not negotiate the rate — the Treasury holds a weekly auction and you accept whatever rate comes out. Here is how that works in plain terms:

Two Types of Bids — You Want the First One

• Non-competitive bid — You say "I want $10,000 at whatever rate the auction gives." You are guaranteed your full amount at the going rate. This is what individual investors use on TreasuryDirect.
• Competitive bid — You name your own rate. If the auction rate is lower, your bid gets rejected. Used by banks and institutions — not something you need to worry about.

How the Rate Is Set

The Treasury collects all bids and fills them from lowest to highest discount rate until the full issue amount is sold. The highest accepted rate becomes the stop-out rate — the rate all non-competitive bidders receive.

Auction Schedule

4-week and 8-week T-Bills are auctioned every Tuesday. 13-week and 26-week T-Bills are auctioned every Monday. 17-week T-Bills are auctioned every Wednesday. 52-week T-Bills are auctioned every four weeks. Results are published on TreasuryDirect.gov the same day.

Are Treasury Bills Safe?

T-Bills are about as safe as investing gets. The U.S. government has never missed a T-Bill payment — not during the Great Depression, not during the 2008 financial crisis, not once.

• No default risk — the U.S. government guarantees full repayment at maturity
• No market risk — if held to maturity, you receive exactly what was promised
• No FDIC limit — unlike bank accounts, there is no $250,000 insurance cap on T-Bills
• Globally trusted — central banks and governments worldwide hold U.S. T-Bills as reserves

How Are T-Bills Taxed?

Here is the tax advantage most people miss: T-Bills skip state tax entirely. CDs and savings accounts do not. In a high-tax state, this alone can make a lower-rate T-Bill worth more than a higher-rate CD.

This exemption from state tax is especially valuable in high-tax states like California (13.3%), New York (10.9%), and New Jersey (10.75%). In these states, a T-Bill at 5% can easily beat a CD at 5.5% after all taxes are accounted for.

When Do You Pay Tax on T-Bills?

T-Bill interest is reported on IRS Form 1099-INT and is taxable in the year the T-Bill matures — not when you buy it. You report it on your federal income tax return. Your brokerage or TreasuryDirect will send you a 1099-INT after year-end.

What Happens When a T-Bill Matures?

When your T-Bill reaches its maturity date, one of two things happens automatically:

Option 1 — Cash is deposited to your bank account

If you set up your T-Bill to mature to cash, the full face value is transferred to your linked bank account within one business day of maturity. No action is required on your part.

Option 2 — Automatic reinvestment (rollover)

On TreasuryDirect, you can schedule your T-Bill to automatically reinvest into a new T-Bill of the same duration at the next available auction. This is called rolling over and is how most T-Bill investors manage their holdings with minimal effort.

How to Buy Treasury Bills — Step by Step

There are two ways to buy T-Bills — both are free. Pick whichever fits how you already manage money:

Method 1 — TreasuryDirect.gov (Direct from Government)

1. Go to TreasuryDirect.gov and create a free account.
2. Link your U.S. bank account for funding and receiving payments.
3. Click "BuyDirect" and select Treasury Bills.
4. Choose your desired duration (4-week, 8-week, 13-week, 17-week, 26-week, or 52-week).
5. Enter your purchase amount (minimum $100, in $100 increments).
6. Submit a non-competitive bid — you accept the auction rate.
7. Funds are debited from your bank on the auction settlement date.
8. At maturity, the full face value is deposited back to your bank.

Method 2 — Through a Brokerage (Fidelity, Schwab, Vanguard)

1. Log into your existing brokerage account (Fidelity, Schwab, Vanguard, etc.).
2. Search for "Treasury Bills" under Fixed Income or Bonds.
3. Filter by duration — select the maturity date closest to your goal.
4. Enter the face value amount you want to purchase.
5. Place the order — most brokerages charge $0 commission on new-issue T-Bills.
6. The T-Bill appears in your account. At maturity, cash is credited automatically.

What is a T-Bill Ladder?

A T-Bill ladder is a strategy where you split your money across multiple T-Bills with different maturity dates so that one comes due every few weeks. This gives you regular access to cash while the rest of your money keeps earning T-Bill yields.

Example of a simple 4-rung ladder with $40,000:

• $10,000 in a 4-week T-Bill — available again in 28 days
• $10,000 in a 13-week T-Bill — available again in 91 days
• $10,000 in a 26-week T-Bill — available again in 182 days
• $10,000 in a 52-week T-Bill — available again in 364 days

As each T-Bill matures, you reinvest into a new T-Bill of your chosen target duration. Over time, you build a portfolio where one T-Bill matures regularly — giving you liquidity without sacrificing yield on the rest of your money.

For a full breakdown of ladder strategies, timing, dollar projections, and how to build one step by step, see our dedicated guide: T-Bill Ladder Strategy — Full Guide →

T-Bills vs CDs vs Savings Accounts vs Money Market

*Money market funds that hold T-Bills may pass through the state tax exemption — check your fund's prospectus.

Are T-Bills Safe in a Recession?

Yes. When stock markets fall, people rush into T-Bills — not away from them. Here is why:

• Government guarantee: T-Bills are backed by the U.S. government, which can print dollars to repay its obligations. There is no realistic default scenario for short-term U.S. debt.
• Flight to safety: During recessions, investors move money out of stocks into T-Bills. This increased demand actually pushes T-Bill prices up (yields down), meaning T-Bill holders see their value preserved or increase.
• Short duration: Because T-Bills mature in less than a year, you are never locked in for long. Even in rapidly changing rate environments, your exposure is limited.
• No correlation with stocks: T-Bills do not fall when stock markets crash — they often rise as a safe haven.

Pros and Cons of Treasury Bills

Should You Invest in T-Bills?

T-Bills probably make sense for you if:

• Have cash sitting idle that you won't need for weeks or months
• Want the absolute safest option with predictable returns
• Are in a high state-tax bracket and want to reduce your tax bill
• Have more than $250,000 in cash (exceeds FDIC limits at banks)
• Want to park an emergency fund while still earning a competitive yield

T-Bills are probably not the right fit if:

• Need instant access to your money at any time
• Are investing for long-term growth (stocks outperform over decades)
• Live in a state with no income tax — the tax advantage disappears
• Want a fixed rate locked in for more than 1 year (consider I-Bonds or T-Notes)

Once you decide T-Bills are right for you, the next step is choosing the right duration. That decision depends on your timeline, whether rates are rising or falling, and how often you want to reinvest: Best T-Bill Duration 2026 — Which Should You Choose? →

Frequently Asked Questions (FAQ)

What is a Treasury Bill (T-Bill)?

A Treasury Bill is a short-term loan to the U.S. government that pays a fixed return. You buy it at a discount and receive the full face value at maturity.

How do T-Bills make money?

T-Bills make money by being sold at a discount and paying full value at maturity. The difference between what you pay and what you receive is your profit.

Are T-Bills safe?

Yes, T-Bills are extremely safe because they are backed by the U.S. government. If held to maturity, they guarantee full repayment with no credit risk.

Can you lose money in T-Bills?

No, you cannot lose money in T-Bills if held to maturity. You receive the full face value regardless of market conditions.

How are T-Bills taxed?

T-Bill earnings are taxed at the federal level but are exempt from state and local taxes. This makes them more tax-efficient than many alternatives.

What is the difference between discount rate and yield?

The discount rate is based on the face value using a 360-day year, while yield is based on the purchase price using a 365-day year. Yield is always slightly higher than the discount rate.

How long do T-Bills last?

T-Bills last from 4 weeks to 52 weeks depending on the duration you choose. Common options include 4-week, 13-week, 26-week, and 52-week bills.

How do you buy T-Bills?

You can buy T-Bills through TreasuryDirect or a brokerage account. Most investors use TreasuryDirect for direct purchases from the government.

Are T-Bills better than savings accounts?

T-Bills are often better than savings accounts after taxes because they are exempt from state tax and lock in a fixed rate. Savings accounts offer more flexibility but have variable rates.

What is a T-Bill ladder?

A T-Bill ladder is a strategy where you invest in multiple T-Bills with different maturity dates. This provides regular access to cash while maintaining consistent returns.