Treasury bills (T-bills) are short-term IOUs issued by the U.S. government. They’re among the safest investments available—backed by the full faith and credit of the U.S. government.
T-bills compete with savings accounts for emergency funds and short-term cash. Understanding how they work reveals an often-overlooked option for conservative savers.
1. How T-Bills Work
The agreement: You loan money to the U.S. government for a fixed period (4 weeks to 52 weeks). The government agrees to return your full principal + interest at maturity.
Purchase mechanics: T-bills are sold at a discount to face value. You don’t buy them at “face value”—you buy them cheaper.
Example:
- Face value: $10,000
- Purchase price: $9,980 (0.2% discount)
- Hold period: 4 weeks
- Maturity: Receive $10,000
- Your profit: $20 (0.2%)
Interest rate (yield): Expressed as annualized percentage, but you only hold for the short term.
Example calculation (4-week T-bill):
- Purchase price: $9,980
- Face value: $10,000
- Profit: $20
- Annual equivalent: $20 × (52 weeks / 4 weeks) = $260/year
- APY: $260 / $9,980 = 2.6% APY (approximately)
2. T-Bill Terms and Current Rates (May 2026)
Available terms:
- 4-week T-bill: ~4.8% APY (typical)
- 8-week T-bill: ~4.7% APY
- 13-week T-bill: ~4.6% APY (3-month)
- 26-week T-bill: ~4.5% APY (6-month)
- 52-week T-bill: ~4.4% APY (1-year)
Rate comparison to alternatives (May 2026):
- T-bills (52-week): 4.4% APY
- Online savings: 4.0-4.3% APY
- High-yield CD (1-year): 4.4% APY
- Money market account: 4.0-4.2% APY
T-bills competitiveness: T-bills often offer rates competitive with or slightly higher than savings accounts, with added safety (government backed) but reduced liquidity (can’t access for 4-52 weeks).
3. Purchasing T-Bills
Method 1: TreasuryDirect (Direct Purchase)
- Go to TreasuryDirect.gov
- Open an account (free)
- Buy T-bills directly from the U.S. government
- No fees
- Minimum: $100
- Maximum: $5 million per auction
Method 2: Broker (E*TRADE, Fidelity, Charles Schwab)
- Buy through brokerage account
- Typically charges a fee ($1-5 per transaction)
- Minimum: Often $1,000
- More convenient if you already have a brokerage account
Method 3: Money market fund with T-bills
- Invest in money market fund that holds T-bills
- Immediate diversification (fund holds many T-bills, not one)
- Fee: 0.05-0.30% annually
- Higher liquidity (sell anytime during trading day)
Recommendation for most people: TreasuryDirect is easiest and cheapest (no fees, $100 minimum).
4. T-Bill Auction Process
How auctions work:
- U.S. government announces T-bill auction on Monday/Tuesday
- Bidders (individuals, institutions) submit bids
- Results announced Wednesday
- Settlement (funds transferred) Friday
Timing:
- Auction to settlement: 3-4 days
- You can’t buy T-bills immediately—only during auction windows
- Auctions happen weekly (4-week bills) or monthly (13-week, 26-week, 52-week)
Practical implication: If you need funds immediately, T-bills won’t work. For funds needed in 4+ weeks, T-bills become available.
5. T-Bill Safety and FDIC Insurance Comparison
T-Bills are backed by: U.S. government full faith and credit Risk level: Virtually zero (U.S. default is considered impossible in near term) No FDIC insurance needed: T-bills don’t carry FDIC insurance because government backing is superior
Comparison:
- FDIC insurance: Protects bank failures up to $250,000
- T-bills: Government backed (essentially zero risk, no limit on amount)
Practical safety: T-bills are safer than FDIC-insured accounts because U.S. government backing is stronger than bank backing.
Edge case: If U.S. government defaults on T-bills, the financial system has already collapsed (doomsday scenario). For practical purposes, T-bills are risk-free.
6. T-Bills vs Savings Accounts for Emergency Funds
T-bill advantages:
- Slightly higher rates (often 0.2-0.4% better)
- Government backed (safer than bank)
- No FDIC limit ($250k); can hold unlimited
- Simple; no fees (via TreasuryDirect)
T-bill disadvantages:
- Liquidity constraint (can’t access until maturity)
- Auction timing (can’t buy immediately)
- More complex to understand
Savings account advantages:
- Immediate access (ACH transfer in 1-3 days)
- No timing constraints (buy/deposit anytime)
- Simpler (straightforward)
Savings account disadvantages:
- Slightly lower rates
- FDIC limit ($250,000 per bank)
Strategy: Use savings account for immediate emergency funds (6 weeks), T-bills for longer-term but stable savings (6 weeks - 1 year).
7. T-Bill Laddering Strategy
Similar to CD laddering: Buy T-bills on different schedules for staggered maturity.
Example: $20,000 T-bill ladder
| Purchase | Term | Amount | Maturity | Rate |
|---|---|---|---|---|
| Week 1 | 4-week | $5,000 | Week 5 | 4.8% |
| Week 1 | 13-week | $5,000 | Week 14 | 4.6% |
| Week 1 | 26-week | $5,000 | Week 27 | 4.5% |
| Week 1 | 52-week | $5,000 | Week 53 | 4.4% |
Annual maturity schedule:
- Week 5: $5,000 matures; reinvest in new T-bill
- Week 14: $5,000 matures; reinvest
- Week 27: $5,000 matures; reinvest
- Week 53: $5,000 matures; reinvest
Benefit: Staggered access; rate locking; efficient use of capital.
Compared to all-in-savings:
- All savings (4.0%): $20,000 × 4% = $800/year
- T-bill ladder (4.3% average): $20,000 × 4.3% = $860/year
- Difference: $60/year more + access every few weeks
8. Tax Treatment of T-Bills
Federal taxes: Interest on T-bills is subject to federal income tax (ordinary income rates).
State taxes: Interest is exempt from state income tax (unique advantage vs. savings accounts).
Example (California resident, 26-week T-bill):
- Interest earned: $100
- Federal tax (22% bracket): $22
- State tax: $0 (exempt)
- After-tax income: $78
Compared to savings account:
- Interest: $100
- Federal tax: $22
- State tax (California 9.3%): $9.30
- After-tax income: $68.70
Benefit of T-bills: $9.30 more after-tax (for California example; higher in high-tax states).
9. T-Bill Rates and Fed Policy
T-bill rates track: Federal Funds Rate set by the Federal Reserve.
Historical pattern:
- When Fed raises rates: T-bill rates rise within weeks
- When Fed cuts rates: T-bill rates fall within weeks
- Current rate environment: Responsive to Fed policy
Implication: If you expect Fed rate cuts, buy longer T-bills now to lock in current rates. If you expect rate increases, buy shorter T-bills to reinvest at higher rates soon.
10. Building a Conservative Savings Portfolio
Tiered approach:
- Emergency fund (1 month): Checking account (instant access)
- Emergency fund (1-6 months): Savings account (high-yield)
- Additional savings (6 weeks - 1 year): T-bill ladder
- Long-term savings (1+ year): CD ladder or Treasury bonds
Example ($50,000 conservative saver):
- $5,000: Checking (paycheck buffer, bills)
- $15,000: Savings account (emergency 3 months)
- $20,000: T-bill ladder ($5k each 4-week, 13-week, 26-week, 52-week)
- $10,000: CD ladder (1-year and 3-year CDs)
11. Risks and Limitations
Inflation risk: 4.4% T-bill rate doesn’t keep pace if inflation rises above 4%.
Opportunity cost: Money in T-bills can’t be invested in growth assets (stocks, real estate).
Liquidity risk: Can’t access funds before maturity (unlike savings).
Rate risk: Current high rates (4.4-4.8%) may decline if Fed cuts rates.
Auction timing: Can’t purchase on demand (auctions have fixed schedules).
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