Treasury Bill
A Treasury bill (T-bill) is a short-term debt security issued by the U.S. government with maturities of one year or less. T-bills are sold at a discount to face value and mature at par, with the difference representing the interest earned. They're considered one of the safest investments because the
Treasury Bill Definition
A Treasury bill (T-bill) is a short-term debt security issued by the U.S. government with maturities of one year or less. T-bills are sold at a discount to face value and mature at par, with the difference representing the interest earned. They're considered one of the safest investments because they're backed by the full faith and credit of the U.S. government.
Treasury Bill in Practice — Example
Your business has $100,000 in cash reserves that you won't need for six months. Instead of leaving it in a low-yield savings account, you purchase a 6-month Treasury bill for $97,500. When the T-bill matures, you receive the full $100,000 face value. The $2,500 difference is your interest — equivalent to about a 5.1% annual yield. You earned a guaranteed return with zero risk of loss.
Why Treasury Bill Matters for Your Business
Treasury bills offer the perfect combination of safety, liquidity, and return for short-term cash management. If your business maintains cash reserves for taxes, upcoming purchases, or emergency funds, T-bills can earn meaningful returns without risking principal loss.
Unlike bank CDs, T-bills can be sold before maturity in the secondary market if you need cash unexpectedly. This liquidity makes them ideal for businesses that want to earn more than savings account rates but need flexibility to access funds.
T-bills are also exempt from state and local income taxes (though subject to federal tax), which can boost after-tax returns for businesses in high-tax states. For businesses managing large cash balances, this tax advantage adds up.
How Treasury Bills Work
| Maturity | Typical Yields | Minimum Purchase |
|---|---|---|
| 4-week (1 month) | Market rate | $100 |
| 13-week (3 months) | Market rate | $100 |
| 26-week (6 months) | Market rate | $100 |
| 52-week (1 year) | Market rate | $100 |
How to buy T-bills:
Tax treatment: Interest is taxable as ordinary income for federal taxes but exempt from state and local taxes.
Treasury Bill vs Money Market Account
T-bills typically offer higher yields than money market accounts, especially when rates are rising. Money market accounts provide instant liquidity and FDIC insurance; T-bills require holding to maturity for guaranteed return (though they can be sold early). T-bills are backed by the U.S. government; money market accounts are backed by FDIC insurance up to $250,000.
FAQ
Q: Are Treasury bills FDIC insured?
A: No, but they don't need to be. T-bills are backed by the full faith and credit of the U.S. government, which is considered even safer than FDIC insurance. There's virtually no risk of loss if held to maturity.
Q: Can I lose money on Treasury bills?
A: If held to maturity, no — you'll receive the full face value. If sold before maturity, the value can fluctuate with interest rates. If rates rise after purchase, the value may drop; if rates fall, the value may increase.
Related Terms
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Related Terms
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