Learn About Treasury Bills on Fidelity

What Are Treasury Bills and How Do They Work

Treasury Bills, commonly called T-Bills, are short-term loans that people and organizations give to the U.S. government. When you buy a Treasury Bill, you are essentially lending money to the government. In return, the government promises to pay you back with interest after a set period of time. Unlike stocks or bonds that may take years to mature, Treasury Bills typically mature in less than one year.

The way Treasury Bills work is straightforward. The U.S. Department of the Treasury issues these securities and sells them to investors. You purchase a T-Bill at a discount to its face value. For example, you might pay $9,800 for a Treasury Bill with a $10,000 face value. When the T-Bill matures, the government pays you the full $10,000. The difference between what you paid and what you received—$200 in this example—is your profit or interest earned.

Treasury Bills come in different maturity periods. The most common terms are 4 weeks, 8 weeks, 13 weeks (3 months), 26 weeks (6 months), and 52 weeks (1 year). The shorter the maturity period, the smaller the discount and the lower your return. The longer the maturity period, the larger the discount and the higher your potential return. This relationship between time and return helps investors decide which T-Bill term matches their financial timeline.

The government conducts regular auctions to sell Treasury Bills to the public. These auctions happen on specific schedules throughout the year. For instance, 4-week and 13-week T-Bills are auctioned weekly, while 26-week and 52-week T-Bills are auctioned every other week. Individual investors can participate in these auctions through platforms like Fidelity, which simplifies the purchasing process.

Treasury Bills are considered among the safest investments available because they are backed by the full faith and credit of the U.S. government. This backing means the government has never defaulted on its debt obligations. Because of this safety, Treasury Bills typically offer lower returns compared to stocks, corporate bonds, or other investments that carry more risk. The trade-off between safety and return is a key consideration when deciding whether T-Bills fit your financial situation.

Practical takeaway: Treasury Bills function as short-term, low-risk loans to the government where you buy at a discount and receive the full face value at maturity. Understanding how this discount mechanism works helps you calculate your actual return before investing.

Why Investors Choose Treasury Bills Through Fidelity

Fidelity offers Treasury Bills as part of its broader investment platform. The company provides tools and resources that allow individual investors to view current T-Bill offerings, understand the terms, and complete transactions without unnecessary complications. Many investors turn to Fidelity because the platform brings together information about different Treasury Bill options in one location.

One reason investors use Fidelity for Treasury Bills relates to transparency in pricing. The platform displays the current discount rates, maturity dates, and terms for available T-Bills. This transparency allows you to compare different options side-by-side before making a decision. You can see exactly what you would pay for a particular T-Bill and what you would receive at maturity, removing guesswork from the process.

Fidelity also handles the custody and record-keeping of Treasury Bills you purchase. This means the company keeps track of your T-Bill holdings, maturity dates, and the interest you earn. You receive statements showing your positions, which can be useful for tax purposes since the interest from Treasury Bills is subject to federal income tax. Having a centralized record through Fidelity simplifies tax reporting compared to managing multiple purchases from different sources.

The platform provides educational materials about how Treasury Bills work, including explanations of terms, historical yield data, and general information about the risks and benefits. These resources help both beginning and experienced investors understand what they are purchasing and how Treasury Bills fit within a broader investment strategy. The availability of this information in one place reduces the need to search across multiple websites.

Fidelity's customer service team can answer questions about Treasury Bill mechanics, account procedures, and the auction process. While the company cannot provide personalized investment recommendations, it can clarify how specific T-Bills work and explain the terms listed on the platform. This resource can be valuable when you encounter unfamiliar terminology or have questions about the process.

Practical takeaway: Fidelity consolidates Treasury Bill information, handles record-keeping, and provides educational resources in one platform. This centralization reduces the complexity of researching and managing T-Bill purchases compared to handling auctions independently.

Understanding T-Bill Auctions and Bidding on Fidelity

The U.S. Treasury conducts auctions to sell Treasury Bills to investors. During these auctions, the government determines what discount rates will be offered based on market demand. Fidelity allows individual investors to participate in these auctions directly without needing a specialized trading account. This accessibility means regular investors can compete alongside institutional investors and financial firms.

There are two ways to bid in a Treasury Bill auction: competitive bidding and noncompetitive bidding. With noncompetitive bidding, you agree to accept whatever discount rate the auction determines. You specify the amount you wish to purchase, and your order is fulfilled at the auction's clearing price. This approach removes the uncertainty of whether your bid will be accepted, since noncompetitive bids are guaranteed to be filled. Most individual investors use noncompetitive bidding because it is simpler and more predictable.

Competitive bidding works differently. You specify both the amount you wish to purchase and the discount rate you are willing to accept. If your bid is higher than the auction's clearing rate, your order may not be filled. Competitive bidding requires more knowledge of market conditions and historical rates. Many individual investors avoid competitive bidding because the process is more complex and orders may not be filled if your bid is too conservative.

The auction process on Fidelity typically involves these steps: you log into your account, navigate to the Treasury auctions section, select the T-Bill you wish to purchase, enter the amount, choose noncompetitive or competitive bidding if available, and submit your order. Auctions close at a specific time, usually 11:30 a.m. Eastern Time. After the auction closes and the Treasury determines the clearing price, your order is either filled at that rate or rejected if you used competitive bidding and bid too low.

The settlement process occurs a few business days after the auction. This means the Treasury deducts money from your account and credits the T-Bills to your holdings. You can view your T-Bill positions in your Fidelity account and monitor the maturity date. As the maturity date approaches, you will see your cash position gradually increase on your account statement, reflecting the value of the upcoming payment.

Practical takeaway: Participating in Treasury Bill auctions through Fidelity involves selecting noncompetitive bidding in most cases, which guarantees your order fills at the auction's clearing rate. Understanding the noncompetitive process removes complexity from the bidding decision.

Calculating Returns and Understanding Treasury Bill Yields

The return from a Treasury Bill is the difference between what you pay and what you receive at maturity. If you purchase a $10,000 face value T-Bill for $9,850, your profit is $150. However, to compare Treasury Bills fairly and understand their actual return rates, investors use yield calculations. Yield expresses your return as a percentage, making it easier to compare different T-Bills with different maturity dates.

Two common yield measures for Treasury Bills are the discount yield and the bond equivalent yield. The discount yield shows what percentage profit you make relative to the face value. The bond equivalent yield adjusts this figure to match the calculation method used for longer-term bonds, making it easier to compare T-Bills with other fixed-income investments. Fidelity displays both measurements for each available T-Bill, though the bond equivalent yield is typically more useful for comparing across different investment types.

To understand yield practically, consider this example: A 26-week T-Bill with a $10,000 face value might be offered at a discount yield of 5.2%. This means that if you calculate your return over the six-month period and annualize it using the discount formula, it equals 5.2%. The bond equivalent yield for the same T-Bill might be listed as 5.35%, which is slightly higher because it uses a different calculation method. Both numbers describe the same investment but emphasize different aspects of the return.