Start your online business · Business basics · 2 min read
Are Treasury Bills a Good Investment? Risk and Return Explained
Short answer
Treasury bills are short-term US government debt with maturities from four weeks to one year. They are considered among the lowest-risk investments, their interest is exempt from state and local income tax, and they suit cash you need to keep safe and accessible. They are not designed for long-term growth.
This is general information, not financial advice. For decisions about your money, talk to a qualified adviser.
Business owners often hold cash for taxes, inventory or emergencies. Treasury bills are one way to earn interest on that cash with very low risk.
What a Treasury bill is
A Treasury bill (T-bill) is a short-term loan to the US government. The Treasury sells bills with terms of 4, 6, 8, 13, 17, 26 and 52 weeks, and sometimes offers cash management bills with other terms.
How you earn
T-bills are usually sold at a discount. For example, you might pay a little less than $1,000 for a bill that pays $1,000 at maturity. The difference is your interest. The rate is set at auction and moves with market interest rates.
Risk
- Credit risk: backed by the US government, generally regarded as very low.
- Interest rate risk: small, because terms are short. Selling before maturity can produce a small gain or loss.
- Inflation risk: returns may not keep up with inflation over time.
- Reinvestment risk: when a bill matures, rates may be lower.
Taxes
Interest is subject to federal income tax but exempt from state and local income taxes, which helps in high-tax states.
How to buy
- TreasuryDirect.gov: buy directly at auction in $100 increments.
- Brokerage account: buy at auction or on the secondary market, often with easier selling.
- Treasury ETFs and money market funds: hold bills for you, with fund fees.
T-bills vs alternatives
| Option | Access | Risk | Notes |
|---|---|---|---|
| T-bills | At maturity or sell via broker | Very low | State tax exempt |
| High-yield savings | Anytime | Very low (FDIC insured up to limits) | Rate can change any time |
| Certificates of deposit | At maturity | Very low (insured up to limits) | Early withdrawal penalties |
| Money market funds | Usually daily | Low | Not FDIC insured |
Building a simple T-bill ladder
A ladder spreads money across several maturities so some cash becomes available regularly:
| Portion | Term |
|---|---|
| 25% | 4-week bills |
| 25% | 8-week bills |
| 25% | 13-week bills |
| 25% | 26-week bills |
As each bill matures, you can reinvest it at the longest rung or keep the cash if the business needs it. TreasuryDirect also offers automatic reinvestment for some terms.
Practical considerations for businesses
- Business accounts: TreasuryDirect supports entity accounts, and many business brokerage accounts can hold Treasuries.
- Liquidity needs: keep enough in checking for payroll, suppliers and taxes due before your bills mature.
- Record keeping: interest income needs to be reported; keep statements for your accountant.
- Rates change: yields move with Federal Reserve policy and market conditions, so returns on new bills can rise or fall.
Talk to an accountant about how T-bill interest fits your business tax situation.
When T-bills make sense for a business
- Cash set aside for quarterly taxes.
- Reserves for seasonal inventory purchases.
- Emergency funds above what you need in checking.
They are less suitable for money you will need tomorrow or money meant for long-term growth.
For other ways to think about business money, read does passive income exist and craft an ecommerce business plan.
Frequently asked questions
How do Treasury bills pay interest?
T-bills are usually sold at a discount to face value. When the bill matures, you receive the full face value, and the difference is your interest.
What is the minimum to buy a T-bill?
On TreasuryDirect, bills are sold in increments of $100.
Can I lose money on Treasury bills?
If you hold to maturity, you receive face value. If you sell early through a broker, the price could be lower than you paid if rates have risen.
Sources and further reading
Platform features, prices and policies change. Check the official help pages linked above before you act on a detail that matters to your store.