Treasury Bills Explained (2026): How They Work and When They Win

Treasury note vs MYGA, after tax

What $100,000 earns in 5 years: treasury note vs MYGA, after tax

AmountYears3 years5 years7 yearsTreasury note rate (%)Federal bracket10%12%22%24%32%35%37%State tax (%)

Rates used: Treasury note 5.06%, the 5-year Treasury par yield (U.S. Treasury, October 2, 2026); Treasury interest is free of state tax; change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).

Treasury note, interest taxed every year	$121,354
MYGA, tax-deferred, before tax	$133,507
MYGA after paying tax on all the interest at withdrawal	$126,136
Tax deferral alone adds about	$674
MYGA ahead of the treasury note, after tax	$4,781

Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. Treasury interest is free of state tax, so state tax applies to the MYGA only. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. A MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.

What a Treasury bill actually is

A Treasury bill (or "T-bill") is a short-term debt instrument issued by the U.S. Department of the Treasury. Unlike a coupon bond, T-bills pay no interim interest. You buy them at a discount to face value and at maturity you receive the full face value. The difference is your interest. If you buy a 52-week bill for about $9,569 and receive $10,000 at maturity, you've earned $431, roughly 4.5% on your money, in line with the 52-week bill's 4.46% coupon-equivalent yield on October 2, 2026.

T-bills come in seven standard maturities: 4-week, 6-week, 8-week, 13-week (3 months), 17-week, 26-week (6 months), and 52-week (1 year). The 4, 6, 8, 13, 17 and 26-week bills are auctioned weekly. The 52-week is auctioned every four weeks. Cash management bills (extra-short bills of a few days to a few weeks) are issued ad-hoc when the Treasury needs to bridge funding gaps.

How the auction works

The Treasury runs a single-price (Dutch) auction. Institutional buyers submit competitive bids stating the yield they'll accept. Retail buyers (you, on TreasuryDirect or through a brokerage) submit non-competitive bids, agreeing to accept whatever yield clears the auction. Non-competitive bids are guaranteed to be filled up to $10 million per auction per investor. Competitive bids above the clearing yield get filled at the clearing yield (the lowest accepted bid wins on price, highest on yield).

For retail investors, this means you never compete. You submit the order, you get the auction clearing yield, and the trade settles a few days later. No bid-ask spread, no markup. This is the cleanest way to buy U.S. Treasury paper at zero cost.

Discounting math: how T-bill yields are quoted

Two yields commonly appear on TreasuryDirect and brokerage screens, and they differ:

• Discount yield (the "rate"): (Face minus Price) / Face × (360 / Days to maturity). Always slightly lower than investment yield because it uses face value as denominator and a 360-day year.
• Investment yield (the "APY"): (Face minus Price) / Price × (365 / Days to maturity). The number that's actually comparable to a CD APY or a Treasury bond coupon yield.

Always compare CDs and bills using the investment yield, not the discount rate. The two can differ by 5-15 basis points on a 26-week bill. That matters when you're comparing a 4.29% bill against a 4.35% CD.

Worked example: the October 5, 2026 26-week bill, from price to yield

Real auction, real numbers. On October 5, 2026 the Treasury sold 182-day bills, CUSIP 912797WU7, issued October 8, 2026 and maturing April 8, 2027. The auction cleared at a high discount rate of 4.165%, a price of 97.894361 per $100, and an investment rate of 4.314% (Treasury auction results, 182-day bill, October 5, 2026; same figures in Fiscal Data, Treasury Securities Auctions Data). Every non-competitive bid, which is what you place at TreasuryDirect or a broker, was accepted in full at that price.

Three things this shows. First, the gap between the two quotes on this bill was 14.9 basis points (4.314% vs 4.165%), so a "4.17%" bill screen is really a 4.31% CD-equivalent. Second, you earn on the price you paid, not on $10,000; that is why the investment rate is higher. Third, the $2,105.64 is federal income for 2027, the year the bill matures, not 2026 when you bought it (TreasuryDirect, Interest Income Reporting for Marketable Treasury Securities).

State tax exemption, the underappreciated advantage

Interest on every Treasury security is exempt from state and local income tax under 31 U.S.C. §3124. This is federal statute. States cannot override it. For a California resident in the 10.3% bracket, this is worth roughly 44 basis points of after-tax yield on a 4.29% bill (the 26-week on October 2, 2026). For a New York City resident in the combined ~14.78% state + local bracket, it's worth roughly 63 basis points. T-bills frequently beat HYSAs and short CDs on after-tax yield in high-tax states even when the headline number looks lower.

T-bills vs the alternatives

Where the MYGA beats the T-bill

T-bills win for 4-week to 12-month money. MYGAs win for 3-10 year money. An A-rated 5-year MYGA at about 5.50-6.05% (public carrier rate sheets, October 14, 2026) beats a strip of rolling 52-week T-bills at 4.46% (October 2, 2026) by roughly 135-155 basis points per year if bill yields stayed flat. The MYGA rate is guaranteed for the term and backed by the claims-paying ability of the issuing insurer. And the MYGA defers all interest until withdrawal, while T-bill interest is 1099-INT'd annually. On $250K, that's roughly $3,350-$3,850 of extra interest a year plus the tax-deferral value.

The trade-off: MYGAs lock you in. You get 10% per year of free withdrawal, but the surrender schedule beyond that is real. T-bills give you weekly liquidity. Use T-bills for cash you might need; use MYGAs for cash you're confident you can leave for 3-10 years.

T-bill rates by term (October 2, 2026)

Source: U.S. Treasury, Daily Treasury Bill Rates, October 2, 2026. Compare CDs and savings with the coupon-equivalent column.

Where are T-bill rates heading?

Nobody can promise, but bills track the Fed. The Fed raised its target range 0.25 point to 3.75% to 4.00% on September 16, 2026. On October 2, 2026, the 52-week bill yielded about half a point more than the 4-week (4.46% vs 3.95%), which usually means the market expects short rates to hold at or above today’s level for a while. If you want to lock a rate for longer than a year, that is a job for a Treasury ladder, a CD or a MYGA, not a bill.

From my desk: how I use T-bills with clients

As a licensed insurance producer, I do not earn anything on Treasuries, and I still recommend them for money a client will need within a year: a tax bill, a down payment, or cash parked while we decide on a longer plan. The mistake I see is leaving that money in a bank savings account at the national average, or in a CD in a high-tax state.

Example (Treasury data, October 2, 2026): $200,000 in a 26-week bill at 4.29% earns about $4,290 over six months. For a California resident in the 9.3% bracket, the state-tax exemption saves about $399 versus the same interest from a CD. Money that can sit for 3 to 10 years is where I compare a MYGA. See T-bills vs high-yield savings, CDs vs T-bills, and the TreasuryDirect review if you plan to buy direct.

How to buy T-bills

1. TreasuryDirect.gov: open an account at treasurydirect.gov, link a bank, and submit non-competitive bids. Free, no markup, $100 minimum. Auto-reinvest available. UX is from 2005. It works but you'll grumble.
2. Brokerage: Fidelity, Schwab, Vanguard, E*Trade all offer free new-issue Treasury auction participation. $1,000 minimum (Fidelity sometimes $100). Click "Fixed Income" or "Bonds" then "Treasury Auctions." Bids submitted to brokerage by Tuesday for Thursday auction.
3. Treasury ETFs: SGOV (iShares 0-3 Month Treasury), BIL (SPDR 1-3 Month T-Bill), USFR (WisdomTree Floating Rate Treasury) hold T-bill portfolios. Expense ratio 0.07-0.15%, daily liquidity, dividends taxed as interest income (federal-only after partial state exemption). Cleaner for many investors than running the auction directly.

FAQ

How often do T-bill yields change?

Every auction. The 4-, 6-, 8-, 13-, 17- and 26-week bills auction weekly and the 52-week every four weeks (see the TreasuryDirect auction calendar for exact days). Each auction clears at whatever yield demand requires, so if Treasury supply rises or rates rise, your next reset captures it.

Is the 4-week T-bill the same as a money market fund?

Close but not identical. A government money market fund holds a portfolio of T-bills, agencies, and repo, so its yield tracks T-bill yields with a small expense-ratio drag. The advantage of MMFs: daily liquidity and no auction timing. The advantage of T-bills: zero expense ratio and full state-tax exemption (most MMFs are only partially state-exempt depending on holdings).

Can I lose money on a T-bill?

Not if you hold to maturity. You receive face value, guaranteed. If you sell on the secondary market before maturity and rates have risen, the price will be slightly below your purchase price. For 4-13 week bills, even worst-case price moves are tiny (well under 1%). For the 52-week, a sharp rate spike can cost 1-2% if you sell six months in.

What's the minimum purchase?

$100 at TreasuryDirect, in $100 increments up to $10 million per auction per investor. Most brokerages set the minimum at $1,000 in $1,000 increments. Fidelity recently lowered the minimum to $100 on new-issue auctions, matching TreasuryDirect.

Do I owe state income tax on T-bill interest?

No. T-bill interest is exempt from state and local income tax under 31 U.S.C. §3124. Your 1099-INT will report Box 3 (Treasury interest) separately so your state tax software handles it correctly. This applies even if you bought through a brokerage.

Should I use TreasuryDirect or a brokerage?

Brokerage is better for most investors. Same yield, better UX, easier to ladder, easier to sell on secondary market, consolidated 1099. TreasuryDirect makes sense if you want auto-reinvest, don't have a brokerage, or want to hold electronic I-Bonds (only available there).

Are T-bills better than HYSAs?

For high-tax-state residents over $25K, almost always yes. T-bill yields are competitive with HYSA yields on a pre-tax basis but state-tax-exempt, so after tax they win by 30-70 basis points. HYSAs win for sub-$25K balances and for anyone who wants instant ATM access.

How do auto-reinvestments work on TreasuryDirect?

When you buy a bill on TreasuryDirect you can elect to auto-reinvest the proceeds into another bill of the same term at the next auction. Up to 2 years of reinvestments per original purchase. The system handles the proceeds-into-next-auction mechanics without you having to remember.

Related reading

• T-bills vs CDs, the state-tax decision
• T-bills vs MYGA: liquidity vs yield
• T-bills vs HYSA, after-tax yield math
• TreasuryDirect.gov platform review
• Brokered Treasuries vs TreasuryDirect
• Building a Treasury ladder

Disclosure

This review reflects publicly available Treasury auction results, TreasuryDirect documentation, and approximate market yields as of the date stated above. Treasury yields change daily; current yields differ from prior auctions and may differ from those shown here. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific security or insurance product. U.S. Treasury securities are backed by the full faith and credit of the United States Government. MYGA references compare Treasury yields against approximate rates from A-rated insurance carriers as of the date stated; carrier rates change monthly. State guaranty fund coverage on annuities is provided by the state insurance department and varies by state (typically $250,000-$300,000 per owner per carrier). Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he is NOT a registered investment advisor, broker-dealer, or registered representative, and is not paid by the U.S. Treasury, TreasuryDirect, or any brokerage for this review. No compensation has been received from any third party in connection with this content. Always read the actual offering documents and consult a licensed advisor before purchasing any security or annuity. Tax discussion of 31 U.S.C. §3124 and Internal Revenue Code provisions reflects law as of 2026 and is subject to change.