A simple explanation of Treasury bills: what they are, why they are considered the safest investment, and how to buy them.
- government failing to pay its bills is considered negligible by virtually all serious financial analysts.
- But as a place to park money that you need to keep safe, whether it is an emergency fund, a down payment you are accumulating, or cash you plan to invest later, T-bills provide a secure return that savings accounts sometimes cannot match.
- While principal is safe, purchasing power may not keep pace with inflation over long periods.
Treasury bills (T-bills) are short-term government securities backed by the full faith and credit of the United States government. They are widely considered the safest investment available, carrying essentially zero credit risk. When investors and financial professionals talk about a “risk-free rate,” they are referring to the yield on Treasury bills. For investors who want to earn a return on cash without exposing it to market risk, T-bills are the gold standard.
How T-Bills Work
T-bills are sold at a discount to their face value and mature at face value. The difference between the purchase price and the face value is your return. If you buy a $10,000 T-bill for $9,850, you receive $10,000 at maturity, earning $150. There are no coupon payments during the holding period; you simply buy at a discount and receive the full face value when the bill matures.
T-bills are issued in maturities of 4, 8, 13, 17, 26, and 52 weeks. The shorter the maturity, the less your money is locked up, but also the lower the yield typically. Most investors buying T-bills directly choose 4-week or 13-week maturities for maximum flexibility, though 26-week and 52-week bills sometimes offer slightly better yields.
Why They Are So Safe
T-bills are backed by the U.S. government’s ability to tax and print currency. In the history of the United States, the government has never defaulted on its Treasury obligations. While Congress occasionally comes close to the debt ceiling in political brinkmanship, the actual risk of the U.S. government failing to pay its bills is considered negligible by virtually all serious financial analysts.
This safety makes T-bills the benchmark against which all other investments are measured. The yield on a T-bill represents the return you can earn with zero credit risk. Any investment offering a higher yield than T-bills is compensating you for taking on some form of risk: credit risk, market risk, liquidity risk, or some combination.
How to Buy T-Bills
You can buy T-bills directly from the U.S. Treasury through TreasuryDirect.gov, with no fees and no middleman. You create an account, link your bank, and purchase T-bills at auction. Minimum purchase is $100, and you can set up automatic reinvestment so maturing bills are automatically rolled into new ones.
You can also buy T-bills through your brokerage account, either at auction or on the secondary market. Some brokerages charge a small commission for Treasury purchases; others offer them commission-free. Treasury bill ETFs and money market funds that hold T-bills provide another option, offering daily liquidity and the convenience of trading like a stock, though they charge a small expense ratio.
T-Bills vs Savings Accounts
T-bill yields and high-yield savings account rates often track each other closely since both are influenced by the Federal Reserve’s interest rate policy. The choice between them depends on your priorities. T-bills offer a state and local tax exemption (T-bill interest is exempt from state and local income taxes, though federal taxes still apply), which gives them an edge in high-tax states. Savings accounts offer immediate liquidity (you can withdraw at any time) and FDIC insurance.
For emergency fund money that needs instant access, a high-yield savings account is more appropriate. For cash reserves that can be locked up for 4 to 52 weeks, T-bills may offer a slightly better after-tax yield, particularly if you live in a state with high income taxes.
T-Bills in a Portfolio
T-bills serve as a cash alternative and a safe haven during periods of market uncertainty. They are not a long-term wealth-building tool; their returns barely outpace inflation over extended periods. But as a place to park money that you need to keep safe, whether it is an emergency fund, a down payment you are accumulating, or cash you plan to invest later, T-bills provide a secure return that savings accounts sometimes cannot match.
T-bill yields fluctuate with interest rate changes. While principal is safe, purchasing power may not keep pace with inflation over long periods. See our financial disclaimer for important disclosures.
A worked example
Imagine investing $500/month for 30 years at an average 8% annual return. Total contributions: $180,000. Final balance: roughly $745,000. The first $180,000 is yours; the other $565,000 is compounded growth. Now imagine starting 10 years later - same $500/month for 20 years at 8%: contributions $120,000, balance $295,000. The 10 years cost you about $450,000 in foregone growth. Time in the market beats timing the market by an enormous margin.
Common mistakes to avoid
- Trying to time the market. Studies consistently show that missing just the 10 best market days over 20 years cuts returns roughly in half. You can't reliably know which days those will be.
- Picking individual stocks based on news or tips. By the time it's news, the price already reflects it. Index funds aren't exciting but they outperform most retail stock-picking by a wide margin.
- Panic-selling in a downturn. Selling locks in losses. Markets have always recovered. The investors who do worst are the ones who sell low and re-buy high.
Frequently asked questions
How much money do I need to start investing?
Less than you think. Most major brokerages (Fidelity, Schwab, Vanguard) have no minimum balance. Fractional shares mean you can buy a $1 slice of any stock or ETF. Realistically, $50-100/month into a low-cost index fund is enough to start building real wealth over decades.
Is it too late to start investing at 40, 50, or 60?
No - but the strategy changes. At 40 you still have 25 years of compounding ahead. At 50 the focus shifts to maximizing 401(k) contributions (you can contribute extra after age 50). At 60 it's about preserving what you have and shifting to a more conservative allocation. The worst day to start was 20 years ago; the second-best is today.
Should I invest in individual stocks or index funds?
Index funds for nearly everyone. Over 20-year periods, 80%+ of professional fund managers fail to beat the index - and they have PhD analysts and millions in research budgets. A target-date retirement fund or a total-market index ETF will outperform what almost any retail investor can do picking individual stocks.
What is the safest investment?
FDIC-insured savings accounts and CDs (up to $250,000 per bank per ownership type) and US Treasury bills/bonds are the safest. They won't make you rich but they won't lose principal. For real (inflation-adjusted) safety, TIPS and I-Bonds protect against inflation, which traditional bonds don't.
How much should I have in stocks vs bonds?
A starting heuristic is 'your age in bonds' - so a 30-year-old holds 70% stocks / 30% bonds. Many financial planners now suggest something more aggressive given longer lifespans: 110 or 120 minus your age in stocks. Target-date funds do this automatically based on your retirement year.
Where this guide fits in
This article is part of the Chase The Dollar editorial library of practical money guides. We update guides as rules and rates change. If you spot a mistake or want us to cover a topic, the contact form is the fastest way to reach us.