Everything You Need To Know About T-Bills (Treasury Bills for Beginners in 2025)

Hello friends.

In this video we are going to demystify Treasury bills or tea bills and teach you everything that you need to know to be able to implement them in your cash management strategy.

T-bills can save you money on taxes depending on where you live.

They give you a better interest rate on your cash.

They have no fees.

They can be automated and are a great place to store money for a safety net, or for a longer term purchase that you are saving for.

In fact, I've decided to move the majority of my cash savings into a Treasury bill ladder, which allows me to earn a superior interest rate with no fees.

And I'll get into why I decided to do that in this video.

Okay.

So here are the five things that we're going to talk about in this video.

First is just what are T-bills.

And it's the core information that you need to know to be able to make an informed decision Next, I'm going to talk about the advantages of Treasury bills, why I think they're a superior way to manage cash and earn a little bit of extra money on cash Then we'll talk about considerations, reasons that you might not want to use your t-bill ladders or Treasury bills in in your cash management strategy.

Then how to pick Treasury bills.

then finally how to actually purchase them.

So it's bringing all of the information on what you should do and showing you exactly how to do it.

So let's talk about what Treasury bills are.

So Treasury bills are sold by the US Treasury.

So the Treasury needs to be able to fund the government.

So the Treasury has an auction every single week where they sell Treasury bills that anyone can buy.

Anyone can do it as long as you have $100 and in some cases, $1,000, which we'll get into so you can buy them at an auction directly from the US Treasury, which is the way that we'll do it in the video.

And the reason for that is because if you buy them at auction or what's called a new issue of treasury bills, you're able to automate future purchases of that same Treasury bill.

So what that means is it you buy it manually the first time, and then you can automate future purchases so that you never have to do this manual process again.

And you can just continue earning interest You can also buy them on the secondary market.

And what that means is you can buy them at any time.

So you don't have to wait till an auction.

The disadvantage is one you're going to pay a very small fee.

And you're not able to automate future purchases like we're going to do in this video.

So my recommendation and what we'll focus on is we buy them at auction weekly.

And I'll show you how to do that.

So then how do you make money on these.

So what happens is when we go to auction and we buy these, we actually get a discount on the Treasury bill.

So let's say the Treasury is going to sell you $1000 or $1000 Treasury bill.

So what happens at auction is you will actually get a discount off of what's called face value or the value of the bill.

So let me give you an example.

So at auction, let's say I want to buy a $1,000 of a Treasury bill.

Well I might get it for $990, for instance.

and then the government's going to use my money for a certain period of time and then give me back the face value of the Treasury bill.

So in this case, I bought a $1,000 Treasury bill.

I was sold it for $990, and that $10 that I got on discount is my income.

And that's the interest that you're going to earn on your treasury bills.

So that's really important.

It's not an interest payment, but it's actually a discount on your purchase.

And every time you purchase a new one, you're going to continue to get a discount. And so you'll continue to get paid. Okay.

So then the next thing that's important is how much money do you need to be able to buy these.

So if you buy them directly from the United States Treasury you can buy them in $100 increments.

So it's nice if you don't have a lot of cash, but you can get started for as little as $100.

Most brokerages like fidelity, which is what I'm going to focus on, require that you have at least $1,000 to purchase.

So this can be limiting for some people.

But if you can meet these minimums, you can invest as much cash as you want into buying these treasury bills.

So the reason that I like to do it through a brokerage is I like having all of my assets within my brokerage.

So I will focus on buying these treasuries directly through a brokerage.

But that does come with the $1,000 requirement and $1,000 increments.

And then the last thing that's important to understand is how long do you actually have to wait before the government gives you the money back?

So this is what's called a duration.

So the duration of a Treasury bill, there's really six ones that I'll focus on there as short as a four week duration.

So what that means is you go to auction, you buy it and then you have to wait four weeks until the government gives you your money back.

Now there's also all these other durations, and you can even go up to a one year duration on these Treasury bills.

Now, how do you pick the right duration?

I will get into that briefly in step four, where we talk about picking the right duration for your needs.

Okay. So we have covered what T-bills are.

Now let's get into the different advantages.

Okay, so let me talk about the seven advantages as I see them.

First is that they are risk free.

And I smile a little bit because there's a lot of news right now about the Treasury and about the US government and our debt level.

And you might have seen last week Moody's downgrading US government bonds.

So it's still as about risk free as we can possibly get with our cash.

We are buying treasury bills directly from the US government, which is backed by the full faith and credit of the US government.

So this is the same type of insurance as you would get with FDIC insurance through a bank.

So when you when you have a bank account and it's FDIC insured, it's backed by the full faith and credit of the government.

another key advantage is that they are tax advantaged.

So unlike a money market or a high yield savings account, they are exempt from state and local tax.

So if you live in a state where you are taxed at a state level, this can be a great way to avoid tax.

The third key benefit is that generally, they are a higher interest rate than you can get just about anywhere else.

In fact, they're going to be higher than most any money market that I can find.

They're going to be higher than most high yield savings accounts.

I did find high yield savings accounts that are a little bit higher right now.

But like I said in one of my other videos, typically there's going to be teaser rates for high yield savings accounts that will drop lower over time.

For me, a Treasury bill is kind of the default benchmark for interest on your cash.

And so I know that I'm getting the best rate at that benchmark level at all times when I'm buying Treasury bills.

The next benefit is that there are no fees for buying and holding Treasury bills.

So unlike money markets at Fidelity or Vanguard or anywhere else, you're not going to pay any type of expense ratio on Treasury bills.

So no fees for holding them.

This next one that's going to make more sense a little bit later, but they're more liquid in the sense that you can buy the duration of a Treasury bill that works for you.

so we talked about how you can buy a Treasury bill that's four weeks long.

And then they pay your money back or eight weeks or one year.

So you're really able to customize that duration for your own situation.

So unlike a bank that maybe it pays interest once a month or a CD that pays once every six months, you can really customize it to pay you in whatever duration that works for you.

And then you can also sell Treasury bills at any time.

So you run a little bit of a risk if you sell it before they mature, what can happen is if the interest rate has since gone up, your Treasury bill might be worth a little bit less.

And so it's still not a lot of money difference.

So the key thing is that they're liquid.

So you can sell them at any point versus something like a CD at a bank where you might be locked in for a set period of time.

And then finally, you can automate so much of Treasury bills that it basically just pays you interest on a set interval.

You could set it up so that it's paying you every week, every two weeks, or every month.

And once you've set up your core ladder, it's all automated and it takes very little work past what you have to do manually the first time, Okay, so those are the advantages of treasury bills.

Now, let's talk a little bit about different considerations you might have for why you might not want to do this.

Okay.

So the first con as I see it, is that it does add a little bit of complexity to managing your cash.

So there is still nothing wrong with just parking your money in a high yield savings account or a money market like I prefer to do at fidelity, which, if you haven't watched my fidelity video, I'll link up here.

let complexity earn its place in your life, so you have to decide if doing this is kind of worth your time.

For me, it is because it's going to give a little bit of extra interest, and I kind of just like setting up these things.

And, you know, like I said, that some of the other advantages, especially if you live in a state where they're state tax, it can be even more money back to you.

So the next con is that you actually have to work to purchase them the first time.

So we're going to get into how to automate the latter.

So you really don't have to do much after you buy them for the first time.

But you you do have to go on your brokerage or on the Treasury's website.

You have to know the auction date, and you have to put in your purchase at the right time.

The next con is that creating a Treasury bill ladder can get kind of complex, and it doesn't sound that hard in theory, because basically what you're doing is you're you're buying different treasury bills at different points to pay you at the times you want, but the dates can get kind of complex.

The cool thing is that the two I built kind of breaks it all down for you, and it's what I use to build my own Treasury bill ladder.

So hopefully we can make it simple, even if there's a little bit of extra complexity with the dates and the timing of different purchases.

The next con we've already hit on this is that there are minimum purchase requirements.

The way I like to buy them, especially at brokerages, is typically going to require that you have at least $1,000 to buy treasury bills, and then you're going to need to buy them in increments.

So you can't buy $1,500, you have to buy $2000 or $3000.

And so that can be prohibitive for some people, especially if you're just getting started.

The last con it's really how much decision paralysis you put on yourself.

So there's all of these different duration T-bills.

You can buy a four week, eight week, 13 week, a 52 week.

Which one do you buy? What's best for me?

You know, there's some decision paralysis and all that.

And so, you know, you might just not want to go through that.

And there's nothing wrong with it.

And you'll hear talking heads go on forever about what the right duration is or what interest rates will be into the future.

The truth is that nobody can really predict the future.

We can look backwards at what happened and say, oh, well, this might be good, or or maybe this will happen in the future and you can kind of bet on that.

That's not really my way of investing.

I prefer to just buy the t-bill duration that works for my personal need.

Okay, so those were some of the considerations Now, let's talk about how to pick the right Treasury bill.

So we already talked about there's different durations of treasury bills.

So the absolute simplest way to get into Treasury bills, in my opinion, is just to buy a four week Treasury bill.

So if you decided to buy a Treasury bill, let's say next week and in four weeks it's going to come back to you.

So the government's going to give you your money back.

Then you would have that money to spend on whatever you wanted so you could set up a rolling ladder.

So it keeps buying four week Treasury bills over and over and over again.

And then basically you have your income every single month and you can use that cash in an emergency if you buy a longer duration Treasury bill out to, let's say, a year, then obviously that money is going to be locked up, in that 52 week period.

It doesn't mean, again, that you can't sell it.

Treasury bills are illiquid, but you're going to have a risk that if the interest rates have changed over time, that your Treasury bill might be worth less than you paid for it.

So if you hold them till maturity, which is basically what it means to wait until the government pays you back, you'll get the interest rate that you were guaranteed at auction.

So for me, the best way to purchase and decide on a Treasury bill duration is to try to match when you're going to need the money But let's look at it another way.

So actually, in the tool that I built for my ladder, I pulled the data from the last two and a half year, Treasury bill rates.

And so what you can see is that generally Treasury bill rates have fluctuated with each other.

So overall they've all followed kind of the same interest rate.

Now what you can see a few call outs.

One is the four week Treasury bill, which is this blue line.

It actually fluctuated pretty significantly in 2022.

So so let me walk you through kind of some scenarios.

So let's say you're buying a Treasury bill every four week four weeks and you're back here in 2022.

You know it could start to look like oh my gosh I'm buying Treasury bills down here.

I'm only getting, you know, 3.5% interest on my money.

So that's true.

But if you were to just set this up to roll so it's automatically buying four weeks wait, you can kind of see is that the four week Treasury bill spiked back up and on average really they're all pretty much the same.

You can see longer term treasury bills, which are these, these, white aqua lines here.

they have actually earned less interest than shorter term treasury bills.

So this is what's known as an inverted yield curve.

Because what happens is investors would expect you would earn a higher interest rate for allowing the government to have your money for a longer period of time.

so what's happened here is your interest rates on short term treasuries have actually been paying higher.

Okay, let me show you two other charts that are just helpful for you to to maybe make a decision.

First is I just pulled, the last few weeks of Treasury bill rates.

So this was as of the end of last week.

But what you can see is that the latest yields across all durations have been pretty similar.

And then the previous week they were pretty similar again.

So there's been small weekly changes.

And then if we look at average yields across the last two years you can also see that really they're all pretty close together.

I think you can you can make some some you know call out here that, hey, the eight week Treasury bill has been a little bit higher than the others.

So if you're really hunting for, for yield, I mean, you know, we don't know what's going to happen in the future.

So so this could look different in another year.

And so it really doesn't matter too much as long as you're focused on the duration that fits your needs.

So some other examples, you know, maybe you're just starting out.

You're 18 years old and you know you have rent to pay and you don't know when the next emergency is.

And this is your, your cash savings.

Well, I, I wouldn't want a long term duration t-bill I might want something every four weeks so that if an emergency hits and I'm living a little closer to the edge, that cash is going to be available to me in four weeks or eight weeks.

Let's say I'm saving for a house.

I still would probably go for a shorter term t-bill, because I would just allow that t-bill to continue to roll so they would mature after 4 or 8 weeks, and then I buy another one, the key thing again is just make sure that you pick the duration for when you need the cash, and if you don't know when you're going to need it and you are trying to plan for

an emergency, I would definitely do a shorter term duration and you can see and feel comfortable, at least for my opinion, for myself.

You know, I'm not your financial advisor, so to do whatever is best for you.

But for me, I feel pretty comfortable that I know the yields are generally close enough that I'm going to buy a shorter term duration t-bill, and that that's good enough for for my needs.

And then the last call out that I'd have is, what you can see here is that Treasury bills have been fairly competitive on your cash.

Now, like I said at the beginning of the video, some high yield savings accounts advertised maybe a 4.4%.

I've even seen one up to 5%.

Again, from my personal experience, what happens with those high yield savings accounts?

They suck you in with a competitive interest rate.

They might have you do some certain things like scan certain number of debit card transactions whatever and then after a certain period of time, they're going to drop those interest rates.

And then a lot of times those banks will be a little sketchy. So

like they'll be new digital start up banks and their processes won't be so good.

I actually looked up a few banks people recommended to me and the reviews on them were horrible.

So again, for me this gets me the benchmark interest rate on my cash.

It's going to follow the market and what the market is paying for treasury bills, and it's a pretty superior interest rate over most offerings and even over money markets, which I've held cash in on the past because I'm not paying any expense ratio.

Okay.

So we have now talked about picking your treasury bill.

You've seen some of the interest rates, and now we're going to get into how do you actually buy them so that you could you can you can put this all into action.

So for this final step, I actually have created a separate video as quick How-To that goes step by step because it's actually getting a little long to to walk through everything with fidelity.

So this is going to be its own fidelity.

How to buy a Treasury bill video.

That's really a follow on from what Treasury bills actually are, which is everything that we've covered in steps one through four.

So if you want to see how to buy them now, just follow me along to the next video.

And if you have any questions on Treasury bills or your experience with them or anything else, just leave them in the comments below.

I love answering questions and really enjoy, the community that we're building on, the Money Monk channel.

So I'll see you in the next video.

If you decide, you want to buy some Treasury bills.