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Treasury bills have quietly become one of the most popular short-term investments for people who discovered during the 2022-2024 high-rate environment that keeping cash in a traditional savings account paying 0.01% was leaving real money on the table. T-bills offer yields competitive with or better than the best high-yield savings accounts, backed by the full faith and credit of the US government, with a specific tax advantage that HYSAs don't have. Here is how they actually work and how to buy them.

What Treasury Bills Are

Treasury bills are short-term debt obligations of the US federal government, issued in maturities of 4 weeks, 8 weeks, 13 weeks (3 months), 17 weeks, 26 weeks (6 months), and 52 weeks (1 year). Unlike bonds, T-bills don't pay periodic interest — they're sold at a discount to their face value and redeemed at face value at maturity. A 26-week T-bill with a face value of $1,000 might be purchased for $979 and redeemed for $1,000 at maturity, with the $21 difference representing the return.

The yield on T-bills moves with the federal funds rate and reflects current short-term interest rate expectations. When the Fed raised rates aggressively in 2022-2023, T-bill yields rose to 5%+ — the highest since 2007. As the Fed has cut rates, T-bill yields have come down, but typically remain competitive with the best HYSA rates because they're more directly tied to current Fed policy than bank deposit rates, which banks can lag in both directions.

The tax advantage T-bills have over savings accounts: T-bill interest is exempt from state and local income taxes. For residents of high-tax states like California (top marginal rate 13.3%), New York (up to 10.9%), or New Jersey (up to 10.75%), this exemption meaningfully improves the after-tax yield. A T-bill yielding 4.5% produces the same after-tax return as a savings account yielding 5%+ for a California resident in a high tax bracket. This advantage is often overlooked in straightforward yield comparisons.

How to Buy T-Bills: TreasuryDirect

TreasuryDirect.gov is the US government's website for purchasing Treasury securities directly, without a broker or intermediary. Creating an account requires your Social Security number, a US bank account for funding and receiving payments, and an email address. The process takes 15-20 minutes and is free. Once your account is established, you can purchase T-bills at the regularly scheduled Treasury auctions (held weekly for most maturities) or buy them in secondary market rollovers.

The minimum purchase amount on TreasuryDirect is $100, with purchases in $100 increments. You specify the dollar amount you want to purchase, and you'll receive the auction-determined yield (rather than a fixed rate you select). The competitive auction process determines the yield — as a non-competitive bidder (which all retail investors should select), you receive the yield set at the auction regardless of what you bid, which is always the appropriate choice for individual investors.

TreasuryDirect's limitations: the interface is functional but not elegant, transfers back to your bank account take 1-2 business days after maturity, and you can't sell T-bills before maturity on TreasuryDirect (you'd need to transfer them to a broker's account to sell early). For most people holding T-bills to maturity, these limitations are inconsequential. For people who might need early access to the funds, a brokerage account is more flexible.

Buying T-Bills Through a Brokerage

Fidelity, Schwab, and Vanguard all allow you to purchase new-issue Treasury bills at auction directly through their platforms, as well as buy T-bills on the secondary market. The experience is more user-friendly than TreasuryDirect, and the T-bills held in a brokerage account can be sold before maturity if needed (though there's a bid-ask spread, and early sale during periods of rising interest rates means receiving less than face value). T-bills purchased through a major brokerage are SIPC-insured up to $500,000 in addition to being US government obligations — effectively double-secured.

The process for purchasing new-issue T-bills at a brokerage: search for "Treasury" in the fixed income section, filter for bills at your desired maturity, select a purchase amount in the fixed income order entry, and submit. The auction-determined yield is applied to your purchase. Most brokerages don't charge commissions on new-issue Treasury purchases, making the brokerage route cost-equivalent to TreasuryDirect for most transactions.

T-Bill Laddering: The Practical Strategy

T-bill laddering involves purchasing T-bills with staggered maturities so that a portion of your holdings matures regularly — providing liquidity at intervals without needing to sell before maturity. A simple 4-week ladder with $40,000: purchase $10,000 of 4-week T-bills, $10,000 of 8-week T-bills, $10,000 of 13-week T-bills, and $10,000 of 26-week T-bills. When the 4-week T-bill matures, you receive $10,000 and can roll it into a new 26-week T-bill or use the cash. Every 4 weeks, a portion of the ladder matures, providing regular access to cash without sacrificing the higher yield of longer maturities.

The yield curve for T-bills matters for laddering decisions. When short-term rates are higher than longer-term rates (an inverted yield curve, which existed for much of 2023-2024), shorter-maturity T-bills yield more than longer-maturity ones — in this environment, concentrating in 4-week and 8-week T-bills captures the highest yields. When the yield curve is normal (longer maturities yield more), extending the ladder to 26-week and 52-week T-bills captures the term premium.

T-Bills vs. HYSAs vs. Money Market Funds

The practical comparison for short-term cash: T-bills and money market funds (particularly government money market funds that hold primarily T-bills) are largely interchangeable in terms of safety and yield. The Fidelity Government Money Market Fund (SPAXX) and Schwab Government Money Market Fund (SNVXX) hold primarily government securities and maintain a stable $1 NAV — they're effectively T-bill wrappers with daily liquidity. The convenience of money market funds (daily liquidity, automatic dividend reinvestment) versus the slight tax advantage and direct government backing of individual T-bills makes money market funds the better choice for most people's liquid cash, with individual T-bills appropriate for larger amounts where the state tax advantage and certainty of yield justify the slightly more involved purchase process.

My take: For most people's short-term cash, a government money market fund at Fidelity or Schwab provides T-bill-equivalent yields with daily liquidity and less friction. For larger amounts (over $50,000) where the state tax advantage is meaningful, purchasing individual T-bills directly at auction through a brokerage account is worth the slightly more involved process. TreasuryDirect works but the interface is dated — brokerage purchases are smoother.