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

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 $9,605 and receive $10,000 at maturity, you've earned $395 - an effective yield of about 4.11%.

T-bills come in six standard maturities: 4-week, 8-week, 13-week (3 months), 17-week, 26-week (6 months), and 52-week (1 year). The 4, 8, 13, and 17-week bills are auctioned weekly. The 26-week is 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 - 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 - 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 - meaningful when you're comparing 4.15% against 4.20%.

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 40 basis points of after-tax yield on a 4.15% bill. For a New York City resident in the combined ~14.78% state + local bracket, it's worth roughly 60 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. A 3-year MYGA at 5.30% beats a strip of rolling 52-week T-bills at 4.05% by 125 basis points per year - and the MYGA defers all interest until withdrawal, while T-bill interest is 1099-INT'd annually. On $250K over 3 years, that's $9,375 of extra interest 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.

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-week, 8-week, 13-week, and 17-week bills auction every Tuesday and Thursday. The 26-week auctions Monday. The 52-week auctions every four Tuesdays. 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

T-bills work for short money. MYGAs work for 3-10 year money. See both.

Hans Goldstein, independent licensed insurance producer.

If you're parking cash in T-bills because you don't want bank or carrier risk, that's the right call for 4-week to 12-month money. For anything past 18 months, a MYGA from an A-rated carrier currently pays 100-140 basis points more, tax-deferred. Worth seeing the after-tax math at your state bracket before you ladder for years.

Drop your info and within 24 hours you'll get a written side-by-side: the Treasury option vs. the top 3 MYGAs from A-rated carriers at the same term, end-of-term math at your actual dollar amount, and after-tax yield computed at your state bracket. No pitch, no follow-up calls unless you ask.

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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.