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How Much Does It Cost to Buy a Treasury Bill?
Did you know the US government uses instruments to borrow money from the public? Treasury bills, or T-bills, are one such method. They are short-term securities the US Department of the Treasury issues. Many view them as safe investments, being backed by the US government. You buy T-bills at a discount - they mature at their face value. In this guide, we'll explain how to purchase a T-bill and the costs you'll meet.
Understanding Treasury Bills
What are Treasury Bills?
Treasury bills represent debt securities. Their maturities range from weeks to a year. The government issues them to finance operations, also to manage cash flow. The Treasury Department regularly auctions T-bills, typically weekly for 4-week, 13-week, in addition to 26-week bills, yet monthly for 52-week bills.
How Do Treasury Bills Work?
When you buy a T-bill, you're lending funds to the US government. You pay less than the face value. Then, at maturity, you get the full amount. The difference? It is your earnings, effectively interest.
Buying a Treasury Bill
Where to Buy T-Bills
You can get T-bills directly from the Treasury via TreasuryDirect, a protected online platform. This system allows security purchase, management, redemption online.
Minimum Purchase Amount
The lowest you can purchase is $100 for T-bills. They are sold in $100 increments, providing access for various investors.
Cost of Buying a T-Bill
The cost involves the discounted price. For instance, you get a $1,000 T-bill, discounting it at 5%, paying $950. Upon maturity, you will receive $1,000.
Calculating the Cost
Let's explore costs using this example:
- Purchase Price - Say you purchased a $1,000 T-bill for $982.73. That is $982.73 to you for a security valued at $1,000 upon maturity.
- Earnings - Earnings represent the variance. You get $1,000 - $982.73 = $17.27.
- Annualized Rate - If a T-bill matures in 17 weeks, calculate annualized return. It lets you know earnings should you reinvest into similar T-bills spanning a year.
Current Rates
Recently, T-bills had around 4% interest, however, rates can change. They are subject to market forces. The rates derive from auctions, with investor bids for securities. The highest accepted bid determines the auction discount rate.
Auction Process
How Auctions Work
T-bills are sold through auctions. Investors place either competitive or non-competitive bids. A competitive bid states your rate, accepting the auction's high rate in a non-competitive bid.
Auction Frequency
T-bill auctions recur frequently, with specific terms depending on maturity. 4-week, 13-week, i.e. 26-week T-bills get auctioned weekly. Then, 52-week T-bills see monthly auctions.
Risks and Benefits
Risks
T-bills are considered risk-free held until maturity. Though, consider these aspects:
- Inflation Risk - Rising inflation diminishes your purchasing power.
- Liquidity Risk - Selling your T-bill before it matures may result in loss if market conditions changed.
Benefits
- Safety - Government-backed T-bills are secure.
- Liquidity - You can sell T-bills before maturity if needed.
- Low Minimums - The low minimum purchase attracts many investors.
Conclusion
Buying Treasury bills means buying a security cheaper, yet getting face value at maturity. Your cost is the price paid - earnings are price difference. T-bills are safe, liquid, also are popular with investors seeking low-risk options. It's important to consider aspects such as inflation, additional liquidity risks, during investment choices.
FAQ
What happens if I need the money before the T-bill matures?
You have the option to sell your T-bill before its maturity date. Selling it is possible on the secondary market, even though the return you receive may vary depending on the prevailing interest rates at that time.
Are T-bill earnings subject to taxes?
Yes, the earnings from T-bills are subject to federal income tax. But they are exempt from state and local taxes.
How are T-bill rates determined?
T-bill rates are the outcome of an auction process. Here, investors bid on the securities. The discount rate then aligns with the highest accepted bid.
Resources & References:
- https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2025
- https://treasurydirect.gov/marketable-securities/treasury-notes/
- https://public.com/bonds/treasury/united-states/ust-0.0-05-15-2025-912797lb1
- https://treasurydirect.gov/marketable-securities/treasury-bonds/
- https://www.nerdwallet.com/article/investing/treasury-bills
