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What Happens When You Buy a U.S. Treasury Bill? Explained

Learn how buying a U.S. Treasury bill works, why they are low-risk, and how you earn interest from T-bills sold at a discount.

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Video transcript

When you buy a U.S. Treasury bill (T-bill), you are essentially lending money to the U.S. government. T-bills are sold at a discount from their face value, meaning you pay less upfront and receive the full face value at maturity. This difference represents your interest. They are considered a low-risk investment due to the government's creditworthiness.

Questions and answers

  1. What is a U.S. Treasury bill?

    A U.S. Treasury bill is a short-term government debt security sold at a discount and redeemed at face value at maturity, representing a safe investment.

  2. How do you earn interest from a Treasury bill?

    You earn interest on a Treasury bill because you buy it at a discount below its face value and receive the full face value at maturity.

  3. Why are Treasury bills considered low-risk?

    Treasury bills are low-risk because they are backed by the U.S. government's creditworthiness, making default extremely unlikely.

  4. What is the typical maturity period for a Treasury bill?

    Treasury bills typically mature in a short period ranging from a few days up to one year.

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For more insights on government securities and safe investment options, explore our related videos on U.S. Treasury bonds, notes, and inflation-protected securities. Stay informed to make smarter financial decisions.