Treasury bills are short-term loans you make to the U.S. government, and they work by selling at a discount: you pay less than the bill's face value, then collect the full face value when it matures. The gap between the two is your interest. The Treasury issues bills for terms from four weeks up to 52 weeks, and the minimum purchase is $100.

As of November 5, 2026, the secondary-market rate on a 3-month Treasury bill was about 4.00 percent, with 4-week bills near 3.89 percent and 1-year bills near 4.09 percent, according to Federal Reserve data. Here is how the mechanics work and what to weigh before using them.

How the discount actually works

Unlike a bond that pays interest twice a year, a Treasury bill pays nothing along the way. The return is built into the purchase price. TreasuryDirect explains it plainly: for bills, the interest is the difference between what you paid and the face value you get when the bill matures.

The Treasury's own worked example shows the scale. On a 182-day bill priced at a discount rate of 0.145 percent, the formula gives a price of $999.27 on a $1,000 face value, a discount of 73 cents. At today's higher rates the discount is far larger, but the idea is identical: buy below face value, get face value back, keep the difference.

The terms and the minimum

The Treasury sells bills that mature in 4, 6, 8, 13, 17, 26 and 52 weeks. You can buy them in increments of $100, starting at a $100 minimum, directly through a TreasuryDirect account, or through a bank or broker. A non-competitive bid, which is what most individuals use, accepts whatever rate the auction sets, and caps you at $10 million per auction.

Because the terms are short, bills are the part of the market that tracks the Federal Reserve's policy rate most closely. After the Fed's October 28, 2026 decision, the federal funds target range sits at 3.75 to 4.00 percent, and bill yields cluster around that level. When you compare a bill's yield to a bank product, it is the same comparison you would make against how do CDs work: term, yield, and what happens if you need the money early.

The taxes are different, and that can matter

Interest on Treasury bills is subject to federal income tax, but it is exempt from state and local income tax. For a saver in a high-tax state, that exemption can make a bill's after-tax yield beat a bank account quoting the same headline rate. The comparison that counts is the after-tax yield, not the number on the page. The yield itself is the same concept covered in what is a bond yield: the return expressed as an annual percentage.

Are they really risk-free?

Treasury bills are backed by the full faith and credit of the U.S. government, which is why they are treated as the benchmark for a safe short-term place to hold cash. But two real risks remain, and they are easy to miss.

The first is reinvestment risk. A bill matures quickly, and when it does you have to reinvest at whatever rate then prevails. If short-term rates are lower by then, your next bill earns less. The second is opportunity cost: locking into a fixed discount means you do not benefit if yields move higher during the term. Selling a bill before maturity is possible in the secondary market, but the price you get depends on rates at that moment and can be below what you paid.

How bills fit next to other short-term options

A Treasury bill, a high-yield savings account and a short CD all aim at the same job: a safe home for cash you will need before long. The bill's edge is the state-tax exemption and the direct government backing. Its drawback is that you manage the maturity yourself and reinvest when it ends. A savings account stays liquid but can cut its rate any day. A CD locks a rate but charges a penalty for early withdrawal.

None of these is the right answer for everyone, and this is not a recommendation to use one over another. The point is to compare them on the same terms: the after-tax yield, the term, the liquidity, and what it costs you to get out early.

What to watch

Watch the term you pick against when you actually need the cash, so you are not forced to sell early. Watch the after-tax yield rather than the headline rate, because the state-tax exemption changes the real comparison. And watch the direction of short-term rates: because bills mature fast, your return resets often, which helps when rates are steady or rising and works against you when they fall. The instrument is simple, but the choice of term and the reinvestment decision are where the real thinking lives.