How a bill works
U.S. Treasury bills are short-term marketable Treasury securities. TreasuryDirect describes regularly issued bills with terms from four to 52 weeks. Bills may be sold at a discount or at face value; at maturity the holder receives face value. The difference between purchase price and face value is the bill’s interest when held to maturity.
Illustration: a bill purchased for $990 and held to a $1,000 maturity payment produces a $10 difference before taxes and any applicable costs. This is a simple arithmetic example, not an auction result or a quoted yield. The annualized return depends on the actual price, term and convention used.
Choose a purchase route
TreasuryDirect offers eligible buyers noncompetitive bids at auction. Banks, brokers and dealers may also offer Treasury securities, including purchases at auction or in the secondary market. TreasuryDirect lists a $100 minimum and $100 increments for bills; an intermediary’s own conditions, availability and costs should be checked before an order.
With a noncompetitive auction bid, the purchaser accepts the auction-determined result rather than specifying a minimum acceptable yield. Check the auction schedule, issue date, maturity date and funding deadline. A secondary-market price may differ from the original auction price. No particular auction rate is assured in advance.
Understand custody and early sale
Custody is the arrangement under which the security is recorded and held. A bill in TreasuryDirect is held in that account; a brokerage account uses the intermediary’s custody arrangement. Review account access, records, beneficiary or ownership details, and where maturity proceeds will go.
TreasuryDirect imposes a minimum holding period on a marketable security bought there before sale or transfer. To sell it before maturity, the holder must transfer it to a bank, broker or dealer to arrange the sale. Allow time for the transfer and verify the current procedure; a near-term cash need may make this route inconvenient. Ask the receiving firm about its requirements and charges.
Price risk and cash planning
A bill held to maturity pays its face value according to its terms. Selling beforehand can produce a different amount: market prices move as yields and other conditions change. Investor.gov notes that early bond sales can involve a commission or markdown. Ask for the executable price and transaction costs rather than relying on a quoted yield alone.
- Identify the exact maturity date and the cash need it is intended to meet.
- Compare auction and secondary-market terms where both are available.
- Check custody, transfer restrictions, fees and sale procedures.
- Keep confirmations and the maturity or sale record for reconciliation.
- Review the tax form and get advice if the situation is complex.
A bill is a Treasury security, not a bank deposit; FDIC deposit insurance is not the relevant protection for the security. Avoid treating its market value before maturity as a fixed cash balance.
Keep the tax context specific
TreasuryDirect states that bill interest is subject to U.S. federal income tax and exempt from state and local income taxes. Tax reporting can depend on purchase, sale and account details; keep the relevant Form 1099 and transaction records. A sale before maturity or purchase in the secondary market can make the calculation less straightforward than the simple illustration.
These are U.S. federal and state/local considerations, not a conclusion about another country or an individual’s tax return. Consult a tax professional when needed, especially for cross-border circumstances or unusual transactions. Check the official documents and current intermediary terms before placing an order.
Keep records from purchase to payment
Record the security identifier, purchase date, price, face amount and maturity date in a secure place. The account statement or confirmation should show how the transaction was recorded, but check it against the order rather than assuming that an intended purchase settled. If reinvestment is selected, review whether a new bill will be purchased and where any difference in proceeds will be sent. A reinvestment creates a new security and a new maturity date; it should fit the next cash need rather than happening by accident. When comparing an intermediary with TreasuryDirect, ask about account fees as well as purchase and sale charges, and consider how easily you can obtain statements and tax information. Procedures and eligibility can change, so consult current Treasury and account instructions before acting.