Treasury Bills for Beginners: How to Buy T-Bills and What They Pay

What Are Treasury Bills, and Why Are People Suddenly Talking About Them?

If you've spent the last couple of years watching interest rates climb and wondering whether you're doing the smart thing with your savings, you've probably stumbled across the phrase "T-bills." Maybe a coworker mentioned them. Maybe you saw a Reddit thread full of people comparing 26-week yields like baseball stats. Either way, you're here, and that's a good sign.

Treasury bills — T-bills for short — are short-term debt securities issued by the U.S. federal government. When you buy one, you're essentially lending money to the government for a fixed period, anywhere from four weeks to one year. At the end of that period, you get your money back, plus your earnings. The U.S. government has never defaulted on this debt, which makes T-bills about as close to a risk-free investment as anything in the world.

For a long stretch — roughly 2009 through 2021 — T-bills paid almost nothing. A 3-month T-bill yielding 0.05% isn't worth the paperwork. So most people ignored them. But when the Federal Reserve started raising rates aggressively in 2022 to fight inflation, T-bill yields jumped. Suddenly, short-term government debt was paying competitive, sometimes better-than-competitive, returns. People who had never thought about Treasury securities before started paying close attention.

This guide is for those people. If you're a beginner trying to understand what T-bills actually are, how the pricing works, what they're paying, and how to buy them, you're in the right place. We'll keep the jargon to a minimum and focus on what actually matters for your financial decisions.

How Treasury Bills Actually Work: Discount Pricing Explained

Here's the first thing that trips people up about T-bills: you don't earn interest the way you do with a savings account or a CD. Instead, T-bills are sold at a discount and mature at face value. That gap between what you pay and what you receive is your return.

Let's make that concrete. Suppose you buy a 26-week T-bill with a face value of $1,000. You don't pay $1,000 upfront — you pay something less, say $975. Six months later, the T-bill matures and the government pays you the full $1,000. Your $25 profit is your earnings. No monthly interest statements. No compounding. Just buy low, collect full face value when it matures.

The minimum purchase is $100, and T-bills are sold in increments of $100 after that. So you could buy a $100 T-bill, a $500 T-bill, or a $10,000 T-bill — whatever fits your situation.

Understanding the Yield

When people quote a T-bill yield — say, 5.2% — they're usually referring to the annualized yield, not the total return over the bill's life. This is an important distinction. A 26-week T-bill with an annualized yield of 5.2% doesn't mean you earn 5.2% of your investment in six months. It means your earnings, when annualized, work out to 5.2% per year. For a six-month bill, you'd earn roughly half that — about 2.6% of face value over the holding period.

There are two yield figures you might encounter:

• Bank discount yield: How dealers and the Treasury quote T-bills. It's calculated based on the face value, not your actual purchase price. This understates your real return slightly.
• Investment rate (coupon equivalent yield): A more accurate annualized figure that accounts for what you actually paid. This is the number you should compare against savings account APYs and CD rates.

When you're comparing T-bill yields to other savings options, use the investment rate. It's apples to apples.

T-Bill Maturities

The Treasury currently auctions T-bills with the following terms:

Most individual investors gravitate toward the 13-week or 26-week bills. They offer a reasonable balance between yield and liquidity — you're not tying up cash for a year, but you're also not rolling over a new bill every four weeks.

The Tax Angle (It Matters)

One often-overlooked advantage of T-bills: the interest income is exempt from state and local taxes. You'll owe federal income tax on your earnings, but your state can't touch it. If you live somewhere with high state income taxes — California, New York, New Jersey — this can make T-bills meaningfully more attractive than savings accounts or CDs on an after-tax basis. Always compare yields on an after-tax basis before deciding where to park your cash.

How to Buy Treasury Bills: TreasuryDirect vs. Your Brokerage

There are two main ways to buy T-bills as an individual investor. Both are legitimate. They serve slightly different needs, and understanding the trade-offs will help you pick the right path.

Option 1: TreasuryDirect.gov

TreasuryDirect is the U.S. Department of the Treasury's official platform for buying government securities directly. No brokerage, no middleman, no fees. You open an account, link your bank, and buy T-bills straight from the source at auction.

How it works:

1. Go to TreasuryDirect.gov and open an account. You'll need a Social Security number, a U.S. address, and a checking or savings account. The process takes about 15 minutes.
2. Once your account is set up, navigate to BuyDirect and select "Bills."
3. Choose your maturity, enter your purchase amount (minimum $100), and select the auction date. You can set up a reinvestment schedule so your bill automatically rolls into a new one when it matures.
4. Submit a "noncompetitive tender," which means you agree to accept whatever yield the auction determines. This is what virtually all individual investors do — you're guaranteed to get your purchase filled, and you get the same yield as large institutional buyers.
5. On the settlement date (typically the day after the auction), the discounted purchase price is debited from your bank account. On the maturity date, the full face value is deposited back.

Pros of TreasuryDirect:

• Zero fees
• Direct relationship with the Treasury
• Easy automatic reinvestment
• Good for set-it-and-forget-it buyers

Cons of TreasuryDirect:

• The website is... not modern. It works, but the UX is dated and occasionally clunky.
• You can't sell a T-bill before it matures on TreasuryDirect. If you need your money early, you have to transfer the bill to a brokerage first, which takes time.
• Account access and password recovery can be frustrating — the security system is old-school.

Option 2: Your Brokerage Account

Most major brokerages — Fidelity, Schwab, Vanguard, TD Ameritrade, and others — let you buy T-bills directly through your existing account. You can purchase them at auction (same noncompetitive tender process as TreasuryDirect) or on the secondary market.

How it works at most brokerages:

1. Log into your brokerage account and navigate to the fixed income or bonds section.
2. Search for Treasury bills. You can filter by maturity date.
3. Place your order at auction (for new issues) or on the secondary market (for bills that are already outstanding). For beginners, buying at auction is simpler.
4. Most brokerages charge no commission on Treasury securities purchased at auction. Secondary market trades may have a small markup, but it's usually minimal.

Pros of buying through a brokerage:

• Better interface — especially if you already use a brokerage you like
• You can sell before maturity on the secondary market if you need liquidity
• Everything in one place with your other investments
• Easier to compare T-bills against other fixed income options

Cons of buying through a brokerage:

• Secondary market sales before maturity mean your actual yield might differ from what was quoted at auction
• Slightly more complexity if you're new to the interface

Which Should You Choose?

If you're buying T-bills as a set-and-forget savings strategy — rolling them over every 13 or 26 weeks with no need to access the cash — TreasuryDirect is perfectly fine and costs nothing. If you want flexibility, prefer a cleaner interface, or already have investments at a brokerage, buy through your brokerage. Either way, you're getting the same underlying asset at the same yield.

One practical note: if you're buying meaningful amounts (say, $10,000 or more), consider using a brokerage just for the flexibility. Life happens. Being locked out of your cash for 26 weeks because TreasuryDirect doesn't allow early redemptions is an unnecessary constraint.

What Are T-Bills Paying Right Now?

T-bill yields are not fixed — they move with market interest rates and Federal Reserve policy. Understanding the context matters, because the "right" decision about T-bills in a low-rate environment is very different from the right decision in a high-rate environment.

After more than a decade of near-zero rates, the Fed began an aggressive hiking cycle in March 2022 to combat inflation. By mid-2023, the federal funds rate had reached its highest level in over two decades. T-bill yields followed closely, with 3-month and 6-month bills routinely offering yields in the 5% range — returns that hadn't been available since before the 2008 financial crisis.

As of early 2026, the Fed has begun easing rates from their peak, but yields on short-term Treasuries remain historically attractive compared to the 2010s. The exact yield changes weekly with each auction, but you can always check current rates at TreasuryDirect's T-bill page or through your brokerage's fixed income section.

A key concept to understand: the yield curve. Normally, longer-term bonds pay more than shorter-term ones because investors demand a premium for locking up money longer. For much of 2022–2024, the yield curve was inverted — meaning short-term T-bills were paying more than longer-term Treasury notes and bonds. This made T-bills particularly attractive compared to longer-duration fixed income. As the Fed eases, the curve tends to normalize, meaning the relative advantage of short-term T-bills may shift over time.

The practical takeaway: check current yields before making any decision. The numbers matter, and they change. Use the comparison in the next section to evaluate what you're being offered relative to your alternatives.

T-Bills vs. High-Yield Savings Accounts vs. CDs: A Real Comparison

This is the comparison most people actually need. You've got cash sitting somewhere — maybe a traditional savings account earning next to nothing, maybe a high-yield savings account (HYSA) already doing decent work. Should you move it to T-bills? The answer depends on a few variables.

When T-Bills Win

High state income taxes. If your state has a 6%, 8%, or 10% income tax, the state-tax exemption on T-bill interest can meaningfully increase your after-tax yield. A T-bill yielding 5.0% might beat an HYSA at 5.2% once you factor in taxes.

Rate stability concerns. HYSAs are variable rate. Banks can — and do — lower rates with little notice. When the Fed starts cutting, HYSA rates tend to follow quickly. T-bills lock in a rate at purchase, so if you buy a 26-week bill at 5.0%, you're getting 5.0% for six months even if rates drop tomorrow.

Large cash balances above FDIC limits. The FDIC insures up to $250,000 per depositor per institution. T-bills are backed by the full faith and credit of the U.S. government — no insurance cap needed. For people with large cash reserves, this is a real consideration.

When T-Bills Lose

You might need the money. If there's any meaningful chance you'll need to access this cash before the bill matures, a T-bill creates complications. HYSAs give you the money on demand. Your emergency fund absolutely should not be in T-bills (or CDs, for that matter). Keep your liquid emergency reserves somewhere you can access them immediately.

The yield gap is small. If a T-bill is yielding 4.7% and your HYSA is at 4.6%, the friction of setting up TreasuryDirect and managing the purchase-and-rollover cycle probably isn't worth it for small balances. The math changes as balances grow.

You're in a low or no state income tax state. If you live in Texas, Florida, Nevada, or another state with no income tax, the state-tax exemption advantage disappears entirely. You're comparing on yield alone.

The Practical Approach: Use Both

Many people find the cleanest approach is to keep one to three months of expenses in a high-yield savings account for immediate liquidity, then put longer-term cash reserves (money they're confident they won't need for six months to a year) into T-bills. You get the yield advantage where it matters while keeping a liquid buffer for real life.

If you want to model out how different yields and time horizons affect your actual returns, the investment return calculator at PocketWise makes it easy to compare scenarios side by side.

Building a T-Bill Ladder: Making Your Cash Work Smarter

Once you're comfortable with how T-bills work, a ladder strategy is worth knowing about. Instead of putting all your cash into a single T-bill at one maturity, you split it across multiple maturities. As each bill matures, you reinvest in a new one at the long end of the ladder.

Here's a simple example with $12,000:

• $3,000 in a 4-week T-bill
• $3,000 in a 13-week T-bill
• $3,000 in a 26-week T-bill
• $3,000 in a 52-week T-bill

Every four weeks, a bill matures and you have $3,000 in cash. If you don't need it, roll it into a new 52-week bill to maintain the ladder. If you need it, you've got cash available without breaking any single position early.

Ladders give you a blend of liquidity and yield. You're not as locked up as if you'd put everything into a 52-week bill, and you're capturing a broader range of the yield curve over time. For people building a savings reserve beyond their immediate emergency fund, it's a sensible structure.

To figure out how much of your savings should be in liquid reserves versus invested, the emergency fund guide at PocketWise walks through the math.

Common Questions About T-Bills

Are T-bills safe?

They're about as safe as it gets. T-bills are backed by the U.S. government's obligation to repay its debt. There's no market risk — you're not exposed to price fluctuations the way you'd be with stocks or long-term bonds. If you hold to maturity, you get exactly what was promised. The theoretical risk is a U.S. government default, which has never happened and is treated as essentially impossible by global financial markets.

Do I owe taxes on T-bill earnings?

Yes, at the federal level. Your T-bill earnings are ordinary income for federal tax purposes. You'll receive a 1099-INT from TreasuryDirect or your brokerage. As noted above, the earnings are exempt from state and local income tax — you report it at the federal level only.

What happens if I need my money before the T-bill matures?

If you bought through a brokerage, you can sell on the secondary market at the current market price. Depending on where rates have moved since you bought, you might get slightly more or less than the discounted price you paid — usually not dramatically different for short-term bills. If you bought through TreasuryDirect, you'll need to transfer the bill to a brokerage first before you can sell, which adds a few business days of friction.

Can I buy T-bills in a Roth IRA or traditional IRA?

Yes — through a brokerage. Most major brokerages allow T-bill purchases within IRAs. This can make sense in certain situations, though the state-tax exemption advantage disappears inside a tax-advantaged account. For taxable accounts, the state-tax benefit is real; for IRAs, you're just holding a very safe short-term instrument.

How do I know when to lock in a rate versus stay in a variable savings account?

This comes down to your view on where rates are heading. If you believe the Fed will cut rates significantly over the next 6–12 months, locking in a T-bill rate today makes sense. If you think rates will stay high or rise, a variable-rate HYSA might keep up with or beat a locked-in T-bill yield. Nobody gets this perfectly right, which is why many people split their cash between the two.

Getting Started: A Simple Action Plan

If you've read this far and want to put some of your cash into T-bills, here's the shortest path to actually doing it:

1. Confirm your emergency fund is handled first. Before buying any T-bill, make sure you have at least 3–6 months of expenses in a liquid, accessible account. T-bills are for cash beyond that floor. If you're not sure how much you need, read through the PocketWise guide on emergency fund sizing.
2. Check current yields. Go to TreasuryDirect or your brokerage and look at current T-bill auction rates. Compare the 13-week and 26-week investment rates against the best HYSA rate you can find. Do the after-tax math if your state has meaningful income tax.
3. Choose your platform. TreasuryDirect for simplicity and zero friction if you're confident you won't need early access. Your brokerage if you want flexibility or already have accounts there.
4. Start with one bill. Buy a 13-week or 26-week T-bill with an amount you're comfortable setting aside. See how the process works. Reinvest when it matures. Build from there.
5. Decide on a ladder approach if you have more substantial cash reserves. Split across two or three maturities for a blend of liquidity and yield.

T-bills aren't complicated once you understand the discount pricing model and the two-path buying process. They're a sensible, low-stress option for cash you want to put to work without taking on meaningful risk. And in a rate environment where short-term government debt is paying competitive yields, ignoring them just because they seem unfamiliar means leaving money on the table.

If you're weighing T-bills as part of a broader savings strategy, it helps to see the full picture of where your cash should live. The PocketWise guide on where to keep your emergency fund covers the decision framework in detail, including how to think about HYSAs, money markets, and T-bills together. You can also explore the comparison between high-yield savings vs. money market accounts to round out the picture.

The goal isn't to optimize every dollar to death. It's to make sure your cash is working reasonably hard without taking on risk you don't need — and to understand your options well enough to make a decision you're confident in.