Treasury Bills

Treasury Bills (T-Bills) are sold with maturity dates ranging from 4 weeks up to 52 weeks. Instead of paying interest, treasury bills are sold at a discount from their par value or face value. The difference between the purchase price and the treasury bills face value is it's interest. For example, you might purchase a $500 treasury bill for $475. When the treasury bill matures, you would be paid the full $500, thus making $25 in interest.

Treasury bills are sold in multiples of $100 and can be purchased through a bank, broker or directly from the treasury at the TreasuryDirect website. Treasury bills are issued with terms of 4, 13, 26 and 52 weeks. Another type of Treasury bill knows as the cash management bill, is issued in variable terms, is usually sold for with terms of a matter of days. Treasury bills with 4, 13, 26 and 52 week maturities are auctioned off by the government on a regular bases. The cash management bills do not have a regular auction schedule.

You can bid for a treasury bill in one of two ways:

Noncompetitive bid
You agree to accept the discount rate determined at the bills auction. With this type of bid, you are guaranteed to receive the bill you want and in the full amount you are willing to pay.
Competitive bid
With a competitive bid, you specify the discount rate you are willing to accept. Your bid may be 1) accepted in the full amount you want, 2) accepted in less than the full amount you want if your bid is equal to the high discount rate, or 3) rejected if the rate you specify is higher than the discount rate set at the auction.

Competitive bids can only be placed if you use a bank, broker or dealer. You may place noncompetitive bids on the TreasuryDirect website, bank, dealer or broker. Treasury bills can be held until maturity or they can be sold before maturity. In single auction, you may buy up to $5,000,000 in bills by non-competitive bidding or up to 35% of the initial offering amount by competitive bidding. All Treasury bills are now issued and held electronically. Paper bills were issued in the past, but all of them have matured.

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