How to use Treasury Bills to Protect your Money

Everyone wants a no risk investment with guaranteed return. Unfortunately they don't exist. But there is something that gets you close.

Treasury Bills (T-bills) from the US government tick the boxes of safety and return. The key is to understand them and know when to use them.

This post will explain T-bills and then give you an example of how to put them into action. 


What Are T-bills

A Treasury Bill ( or T-bill ) is a security issued by the US government to fund government operations. When you buy a T-Bill you are loaning money to the US government for 1 year or less. Like an IOU. In return, you receive your cash back and an interest payment on the maturity date of your T-bill.

Since the US government is issuing and backing the T-bill, it has “risk free” status. As long as the US government is able to pay its debts, your money coming back plus interest is a guarantee. This “risk free” status is so important, even banks place their short term money in T-bills.

How T-bills Work

T-bills are a discount or zero coupon bond. That means when they are sold they are bought at a price below the maturity or face value. The interest you earn is the difference between the face value and the price paid at purchase.


$1,000 face value bill sells at auction for $950 with a maturity of 6 months 

Assuming you hold the T-bill for the full 6 months, you will get $50 per bill

$1,000 face value - $950 buy price = $50 interest earned

Note: If T-bills are in high demand, they can have an auction price of full face value. i.e. auctioned at $1,000 price equal to $1,000 face value. Investors earn no interest in this case. The focus is on the US government guarantee, as this is amongst the safest places to “store” money for the short term

Benefits of T-bills

Various Maturity Dates

T-bills come in a variety of maturity dates with a consistent auction schedule for investor purchase.

4-week, 8-week, 13-week, 26-week T-bills auction weekly. The 52-week bill auctions every 4 weeks.

You can see the upcoming auction schedule and see previous auction results here.

Note: US government securities with maturities above 1 year are called notes and bonds.


Because of the US government backing behind Treasury Bills, they are considered by many to be risk free. This makes them more secure than keeping your cash in a bank checking / savings account, bank certificate of deposit or a money market account / fund.

To learn about an additional risk of leaving your money in the bank. Read our blog post “What is the real cost of sitting in cash?”. We also discuss the safety aspects of  money market funds here.


The US Treasury securities market transacts over $500 billion dollars a day. The T-bill secondary market is a significant part of that $500 billion.

That means if you decide to sell your T-bill before maturity, there should always be a willing buyer. This transaction liquidity is very attractive. Plus the money will be available in your account the very next day!


Thanks to the set maturity dates and discount purchase price of T-bills. You can know how much and when you are going to get paid. This gives you the option of creating a consistent and definitive income stream.

A simple way to build an income stream with T-bills is with a bond ladder. We discussed bond ladders in a previous blog post which you can read here.


Interest earned on T-bills is exempt from state and local taxes though, you will have to pay federal tax. If you live in a city or state with high local and state taxes. T-bills may be able to offer you a better return than taxable securities. Bank CDs for example.

To determine that, you have to calculate the T-bill state taxable equivalent yield. Here is an example taxable equivalent yield calculator from CalcXML.

Note: consult with your tax professional as every person / entity is different.   

How to Buy T-bills

Auction Process

T-bills sell via auction on a set schedule. At each auction you can purchase bills with a non-competitive or competitive bid directly from the US Treasury.

Non-Competitive Bid

Most investors prefer to buy T-bills with a non-competitive bid. The benefit of a non-competitive bid is that you have a guarantee to buy up to $5M of T-bills at the final auction price.

Competitive Bid

With a competitive bid, you state the minimum rate you are willing to earn for the new issue T-bill. If the auction closes at or above your minimum rate you get bills. The downside to a competitive bid is that you run the risk of buying nothing. This is because you wanted such a high interest rate, the buyers with lower expectations bought before you.

Secondary Market

The size of the T-bill market is in the billions! And it grows each year as the US government issues new bonds to run the country. This means there is an active and liquid secondary market for previously issued T-bills. You can buy and sell T-bills through your bank or broker. Just like you do with stocks.

If you want to geek out on US Treasury Securities statistics - check out this SIFMA page.

Basic (Sample) Investor Plan

Let’s look at how you can use T-bills. This example could be relevant for an individual or corporation.


$1,000,000 total to invest - focus is on safety but do want some interest


$250,000 max in FDIC insured account

$750,000 for T-bill ladder

Remember, all bank accounts only have $250k of FDIC protection. Any dollar above $250k in a bank account is at risk. That means you need 4 bank accounts, at 4 different banks, to have FDIC protection on $1,000,000 of cash!

T-bills fix the FDIC limit problem because of the US government guarantee. You could keep $250k in a bank account for expenses and FDIC protection. Then put the remaining $750k into a T-bill ladder.

The $750k for the T-bill ladder is spread over different maturities up to 52 weeks. Each time a T-bill matures you would get paid interest. Then rebuy new T-bills with a maturity date in the future.

In the event your expenses spiked above the $$250k in the bank account. You would sell a T-bill in the liquid market. Cash would be in your account in 1 day.

While this example is very basic. It highlights the safety (US government backing), liquidity (secondary market), and defined interest (discount to face) T-bills give investors.

Wrap Up

There is no perfect investment.

However, investors focused on maximum safety over returns have an option in US T-bills. US T-bills are near “risk-less” thanks to the government backed guarantee. They can be liquid with cash coming back to you in 1 day. Plus you receive interest when the bill matures. 

Sounds like you CAN have your cake and eat it too!

Shoot us an email if you have questions. 

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