Treasury bills - what are they and how to buy them
In the world of investing, there's a constant search for the right balance of risk and reward. While many investors are drawn to the potential for high returns in the stock market, others seek stability and capital preservation. This is where Treasury Bills, or T-bills, come in. They are often considered one of the safest investments available, making them a cornerstone of many conservative portfolios.
CATEGORY:
Bonds
DATE:
September 3, 2025
What are Treasury Bills?
A Treasury Bill is a short-term debt obligation issued by the U.S. Department of the Treasury to fund the government's spending. T-bills are part of a family of "Treasury securities" that also includes Treasury Notes and Treasury Bonds, but they are distinguished by their short maturity periods, which range from four to 52 weeks.
Unlike a typical bond that pays out regular interest payments, T-bills do not. Instead, they are what's known as "zero-coupon" securities. This means you buy them at a discount from their face value and, when the T-bill matures, you receive the full face value. The difference between the discounted purchase price and the face value is the interest you earn.
For example, you might buy a 52-week T-bill with a face value of $1,000 for a discounted price of $950. When the year is up, the government pays you back the full $1,000. Your profit of $50 represents the interest you earned on your investment.
Key Benefits of T-Bills
Low Risk: T-bills are backed by the "full faith and credit" of the U.S. government, which means they are considered virtually free of default risk. This makes them a great option for investors who prioritize the safety of their principal.
Liquidity: Their short-term nature means your money is not tied up for a long period. This high liquidity makes T-bills an excellent place to park cash for short-term goals, like saving for a down payment on a house.
Tax Advantages: A significant benefit of T-bills is that the interest earned is exempt from state and local income taxes. However, it is subject to federal income tax.
How to Buy Treasury Bills
There are three primary ways for individual investors to purchase Treasury Bills:
Directly from the U.S. Government: The most common method is to use the government's official website, TreasuryDirect.gov. This platform allows you to buy and hold securities directly from the Treasury. You can open an account, link it to your bank account, and place "non-competitive" bids in auctions. A non-competitive bid guarantees you will receive the T-bill at the determined auction price, eliminating the guesswork of bidding.
Through a Brokerage Account: Most major brokerage firms allow you to buy T-bills directly through their platforms. This can be more convenient if you already have a brokerage account and want to keep all your investments in one place. Brokerages also offer access to the "secondary market," where you can buy previously issued T-bills.
Via ETFs and Mutual Funds: For those who prefer a more diversified and hands-off approach, you can invest in T-bills through a short-term Treasury ETF or money market fund. These funds hold a collection of T-bills, notes, and other short-term debt, providing diversification and professional management.
Conclusion
Treasury Bills offer a secure and reliable way to earn a return on your money without taking on significant risk. Whether you're a conservative investor, saving for a short-term goal, or looking to add stability to a diversified portfolio, T-bills are a valuable tool to consider.
You may find this video from NerdWallet on How to Buy a Treasury Bill for Beginners helpful. The video explains the process of buying treasury bills.