Treasury bills for individual investors

A Treasury bill (T-bill) is a short-term loan to the US government. You buy it at a discount, hold it for a fixed term (4 weeks to 52 weeks), and receive the full face value at maturity. The difference is your interest. T-bills are considered the safest investment on earth — the US government has never failed to pay one back. Until recently, buying them was a headache. Now, it's easy, and in high-rate environments they often beat every other ultra-safe option.

Why T-bills are attractive

• Backed by the full faith and credit of the US Treasury. Safer than any bank.
• State and local tax-free. Federal tax still applies, but the state exemption makes them more attractive than HYSAs for residents of high-tax states.
• Can pay more than savings accounts when short-term rates are high.
• No dollar limit like FDIC insurance ($250k). You can hold millions in Treasuries with no counterparty concentration risk.

How to buy them

• TreasuryDirect.gov: the government's own portal. Slightly dated UI, but direct and free. Buy in $100 increments at weekly auctions.
• Your brokerage: Fidelity, Schwab, Vanguard, and most brokers let you buy Treasuries directly. More convenient if your money is already at a brokerage.
• T-bill ETFs: funds like SGOV and BIL that hold rolling T-bills. Simpler than laddering, instantly liquid, pays monthly distributions. Small expense ratio (~0.1%) but worth it for most people.

How the discount actually works

T-bills don't pay interest along the way — you buy below face value and get paid the full face value at maturity. Buy a 26-week bill with a $10,000 face value at auction when yields are around 4.8%, and you'll pay roughly $9,766 today; twenty-six weeks later, $10,000 arrives. The $234 difference is your return. Nothing to reinvest mid-term, nothing to track — one purchase, one payday. The quoted 'investment rate' at auction annualizes that return so you can compare it directly with savings-account APYs.

The state-tax edge, in real dollars

The exemption from state and local income tax is the quiet reason T-bills beat savings accounts for millions of people even when headline rates look identical. Consider $50,000 in cash for a saver in a 9.3% California bracket. An HYSA paying 4.4% yields $2,200, but after state tax the keep is about $1,995. A T-bill paying the same 4.4% yields the same $2,200 — and California can't touch it. To match the T-bill after-tax, the savings account would have to pay roughly 4.85%. In a zero-income-tax state, the edge vanishes and the comparison is purely on rate and convenience.

Ladders, rolls, and the set-and-forget version

Just like CDs, T-bills ladder beautifully — and the government does most of the work. A simple pattern for, say, $30,000 of medium-term cash: split it into three $10,000 pieces across 13-, 26-, and 52-week bills, and turn on automatic reinvestment. Every few months a rung matures and rolls at the newest auction rate, so your yield tracks the market with a lag instead of being locked to one moment's rate. If even that feels like too many moving parts, the ETF version compresses the whole machine into one ticker: a fund like SGOV holds a rotating portfolio of 0–3 month bills, distributes the interest monthly, and can be sold any market day. The trade-offs are a small expense ratio and the loss of the hold-to-maturity guarantee — for most people parking cash, both are worth the simplicity.

Buying your first T-bill, step by step

1. 1
   Pick the venue

   TreasuryDirect if you want direct-from-government simplicity and don't mind a dated interface; your brokerage if the cash already lives there or you might want to sell before maturity (TreasuryDirect holdings must transfer out to be sold early).

2. 2
   Choose a term that matches the money's job

   4, 8, 13, 17, 26, or 52 weeks. Money for a tax bill due in five months goes in a 17- or 26-week bill; money with no deadline usually does better in a rolling ETF like SGOV.

3. 3
   Place a noncompetitive bid

   This is the default for individuals: you accept the auction's resulting yield and are guaranteed your full amount. Competitive bidding is for institutions; ignore it.

4. 4
   Set reinvestment on or off

   Both TreasuryDirect and most brokerages can auto-roll a maturing bill into the next auction — a one-click T-bill ladder. Turn it on for ongoing cash, off for money with a spend date.

5. 5
   Expect the tax form from the right place

   Interest shows up on a 1099-INT (TreasuryDirect) or your broker's consolidated 1099. When filing state taxes, make sure the Treasury interest is subtracted — tax software handles it, but only if the income is coded correctly.

Common mistakes

• Putting the entire emergency fund in individual bills. A 26-week bill can be sold early only via a brokerage, at market price, with a day or two of settlement. Keep the first month of emergency money instantly liquid.
• Buying at a bank-like 'Treasury rate' through a middleman product with fees layered on. The auction is free at TreasuryDirect and free or nearly free at major brokerages; anyone charging 1% to 'manage' T-bills is selling you your own safety back.
• Forgetting that T-bill ETF share prices wiggle by pennies. SGOV drifts up all month and drops when it distributes; sell mid-cycle and the 'loss' people panic about is just the dividend timing.
• Ignoring reinvestment risk. A 52-week bill at 5% is great — until it matures into a 3% world. If you're locking money in because rates look good, longer terms (or CDs, or notes) lock longer.
• Confusing bills with bonds in tax treatment of gains: hold to maturity and it's all interest income; sell early at a profit through a broker and part may be capital gain. Simple, but it surprises first-timers at filing time.

The bottom line

One honest caveat before the summary: T-bill yields are a moving target. The rates that make bills a clear winner over savings accounts exist when the Federal Reserve holds short-term rates high; when the Fed cuts aggressively, bill yields fall within weeks and the comparison narrows or flips. The structural advantages — absolute safety, state-tax exemption, no insurance cap — are permanent, but the yield edge is cyclical, which is why the right habit is checking the current 13- and 26-week auction results against your savings APY once or twice a year rather than assuming either side always wins.

T-bills are the rare financial product with no catch: government-guaranteed, state-tax-exempt, available in $100 pieces, and purchasable in ten minutes. Use individual bills when the money has a date, an ETF when it doesn't, and the state-tax math when deciding whether they beat your savings account. For safe money in a high-tax state, they usually do — quietly, by a few hundred dollars a year, forever.