How Treasury Bills Work

How Treasury Bills Make Money

Treasury bills are one of the few investments you can make for as little as $100.
Treasury bills are one of the few investments you can make for as little as $100.
Photo by Joe Raedle/Newsmakers/Getty Images

All treasury bills are short-term investments and mature within a year from their date of issue. You have the option of buying bills with maturity periods of one month, six months or one year. Generally, the longer the maturity period, the more money you will make from your investment. The face value of a treasury bill is called its par value, and the most commonly sold bills have a par between $1,000 and $10,000. The minimum amount you can buy a bill for, though, is $100. T-bills are sold in increments of $100 up to $1 million [source: TreasuryDirect].

The purpose of treasury bills is to help finance the national debt. They are a way for the government to make money from the public. People and corporations can buy treasury bills.

There are many reasons why treasury bills are popular. Not only are they affordable enough that almost anyone can buy one, but they offer fast returns, and they are simple, easy to understand and very reliable. Additionally, the money you gain from investing in treasury bills is exempt from state and local taxes. You do have to pay federal income tax on it, however. Treasury bills are also a highly liquid form of investment. This means that they are easily tradable. They can be sold on the secondary market and easily converted into cash. If you sell a bill on the secondary market, you sell it to someone else instead of waiting for it to mature.

One of the only downsides to treasury bills is that the returns are smaller than those from many other forms of investment. This is because they are so low-risk.