What Are Treasury Bills?
Treasury bills, or T-bills, are short-term loans to the US government that last one year or less. They are one of the safest investments in the world.
How T-bills work
You buy a T-bill below its face value and get the full value when it matures. Buy a $1,000 bill for $975, get $1,000 later, and the $25 is your interest.
T-bills vs notes vs bonds
- Bills: one year or less.
- Notes: 2 to 10 years.
- Bonds: 20 or 30 years.
Longer ones pay interest twice a year. All are backed by the US government.
Why people buy them
For safety and a return that follows short-term interest rates. In the US, the interest is free from state and local income tax. Many money market funds are built mostly from T-bills.