Treasury bills pay more than most savings accounts right now, but they lock your money away and require a minimum investment

A Treasury bill (or T-bill) is a short-term loan you make to the U.S. government. You buy it at a discount, hold it for a set period—4 weeks, 8 weeks, 13 weeks, 26 weeks, or 52 weeks—and get paid back the full face value when it matures. The difference between what you paid and what you get back is your interest.

A savings account is a deposit account at a bank or credit union where your money sits and earns interest, and you can withdraw it whenever you want. The key difference: T-bills currently offer higher interest rates than savings accounts, but your money is locked in for weeks or months, and you need at least $100 to buy one. A savings account gives you access to your cash when ready, but the interest rate is lower.

Which is better depends on whether you need the money soon. If you have cash you won't touch for three months or longer, a T-bill usually pays more. If you might need it in the next few weeks, a savings account keeps it available.

Key Takeaways

  • Treasury bills currently pay higher interest rates than savings accounts, but rates change weekly and vary by how long you hold the bill.
  • Your money in a T-bill is locked in until maturity—you cannot withdraw it early without selling it on the secondary market, which may cost you money.
  • T-bills require a minimum purchase of $100 and are bought through TreasuryDirect (the government's direct purchase system) or a bank or brokerage.
  • Savings accounts let you withdraw money anytime without penalty, making them better for emergency funds or money you might need soon.
  • Both T-bills and savings accounts are backed by the federal government or FDIC insurance, so your principal is protected either way.

How T-bill interest rates compare to savings account rates

T-bill rates change every week when the government holds an auction. As of early 2024, 13-week T-bills were paying around 5% annually, while the average savings account paid around 0.5% to 4.5% depending on the bank. High-yield savings accounts (offered by online banks) were closer to 4% to 5%, which narrows the gap significantly.

The rate you get on a T-bill depends on the auction date and the length of the bill. A 4-week bill pays less than a 52-week bill because you are lending the money for a shorter time. Savings account rates are set by each bank and can change at any time, though they usually move in the same direction as T-bill rates.

The real comparison is between a T-bill and a high-yield savings account, not a regular savings account. A regular savings account at a big bank might pay 0.01% to 0.5%, which makes a T-bill the obvious choice. But a high-yield savings account at an online bank can match or beat a T-bill rate, and your money stays accessible.

Why your money gets locked in with a T-bill

When you buy a T-bill, you commit to holding it until the maturity date. You cannot call the government and ask for your money back early. If you need the cash before maturity, you have to sell the bill on the secondary market—a system where investors buy and sell existing T-bills. Selling early can result in a loss if interest rates have risen since you bought it, because the bill becomes worth less.

A savings account has no maturity date. Your money is yours to withdraw at any time, usually within one business day. Some savings accounts have withdrawal limits (six per month under older federal rules, though this has loosened), but there is no penalty for taking your money out.

This lock-in period is the main reason T-bills pay more. The government knows you cannot touch the money, so it pays you for that commitment. If you think you might need the cash within the next few months, a savings account is the safer choice.

How to buy Treasury bills and what it costs

You can buy T-bills directly from the U.S. government through TreasuryDirect, the official government website. You set up an account, link a bank account, and bid in the weekly auction. The minimum purchase is $100, and you can buy in $100 increments up to $5 million per auction. There is no fee to buy through TreasuryDirect.

You can also buy T-bills through a bank or brokerage firm like Fidelity, Charles Schwab, or Vanguard. These firms may charge a small fee (usually $0 to $25 per transaction), but they handle the paperwork and may offer more flexibility in how you manage the bills. Some brokerages offer T-bills with no fee.

When a T-bill matures, the government deposits the full face value into your account automatically. You then decide whether to buy another bill or move the money elsewhere. The whole process is straightforward, but it requires planning—you cannot buy a T-bill and access the money the next day.

The safety difference between T-bills and savings accounts

Both are extremely safe. T-bills are backed by the full faith and credit of the U.S. government, meaning the government will not default on them. Savings accounts are insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per account holder per bank. If the bank fails, the FDIC pays you back.

In practice, a T-bill is considered the safest investment in the world because the U.S. government has never defaulted. A savings account is also very safe because of FDIC insurance. The risk difference is negligible for most people. Your choice should be based on interest rate and access to your money, not safety.

When a T-bill makes sense and when a savings account does

Use a T-bill if you have money you will not need for at least three months, you want the highest interest rate available, and you are comfortable with the idea that you cannot access the cash early without a potential loss. T-bills work well for money set aside for a known expense (a car purchase in six months, a vacation in four months) or for part of your savings that you are not using as an emergency fund.

Use a savings account if you need quick access to your money, you might have an unexpected expense, or you want to avoid the complexity of buying and managing T-bills. A high-yield savings account bridges the gap—it offers competitive interest rates (often matching or beating T-bills) while keeping your money accessible. Many people use both: a high-yield savings account for emergency funds and short-term goals, and T-bills for money they know they will not touch for several months.

The tax treatment of T-bill interest versus savings account interest

Interest from both T-bills and savings accounts is taxable income. The difference is what type of tax applies. T-bill interest is subject to federal income tax but exempt from state and local income tax. Savings account interest is subject to federal, state, and local income tax.

This tax advantage can matter if you live in a state with high income tax (like California or New York). A T-bill paying 5% federal-only might be worth more after taxes than a savings account paying 5% that gets hit with state tax. Run the numbers using your tax bracket to see which comes out ahead in your situation.

Frequently Asked Questions

Can I sell a T-bill before it matures?

Yes, you can sell it on the secondary market, but you may lose money if interest rates have risen since you bought it. The longer the remaining time to maturity, the bigger the potential loss. It is possible to sell, but it defeats the purpose of buying a T-bill for a may provide return.

What happens if I need the money from my T-bill early?

You have two options: sell it on the secondary market (risking a loss) or wait until maturity. There is no early withdrawal option like a savings account has. This is why T-bills work best for money you know you will not need.

Is the interest on a T-bill paid upfront or at maturity?

T-bills are sold at a discount, so you pay less than the face value upfront. When the bill matures, you receive the full face value. The difference is your interest. You do not receive a separate interest payment—it is built into the price.

Do I need a brokerage account to buy T-bills?

No. You can buy directly from the government through TreasuryDirect without a brokerage account. You only need a bank account to link for the purchase and deposit. A brokerage account is optional and may offer convenience or additional features, but it is not required.

What if interest rates drop after I buy a T-bill?

You are locked in at the rate you bought. If rates drop, your T-bill becomes more valuable (because it pays more than new bills), but you still cannot access the money early without selling. The benefit is that you are may provide the rate you locked in, regardless of what happens to rates later.