Treasury Bills (T-Bills)
Definition of 'Treasury Bills (T-Bills)'
Treasury Bills (or T-Bills, as they are sometimes called) are short-term, money market securities issued by the U.S. Government and sold at a discount to the buyer with guaranteed return after a period of time. They do not pay interest in the sense that they do not accrue interest over time, but the interest it pays out is the difference between what the T-bill is sold for and its face value (sometimes called par amount).
TheStreet Explains ‘Treasury Bills (T-Bills)’
Treasury Bills are right up there next to taxes for the Uncle Sam as a critical means of raising cash. And, as financial instruments go, they are relatively straightforward and simple: the government says, “You can buy this security for less than its worth, and after a couple of months, I will give you exactly what it’s worth. You keep the difference, and thanks very much for your short-term cash.” The way one “buys” a T-Bill is actually by winning it through a bidding process at an auction, in which you may submit a non-competitive bid (receiving, in the end, the face value of the T-bill once it matures) or a competitive bid (receiving only what you managed to secure as a return, since you bid against other investors for the most favorable rate).
Treasury Bills mature after four weeks, 13 weeks, 26 weeks, or 52 weeks typically (but never more than a year), and they come with some quirks, as well. What one earns after a 13-week T-bill matures is exempt from state and local income taxes, but not from federal income tax. The minimum purchase is $100 (and all purchases must be in increments of $100), yet a majority of T-bills are issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000, and $1 million. For that reason, T-bills appeal to individual investors because they are so affordable, but also because they are essentially risk free assets (Uncle Sam’s credit rating is excellent).
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