How does a T-Bill pay interest?

T-Bills don't pay regular interest coupons. Instead, they are sold at a discount to their face value. For example, you might buy a $1,000 T-Bill for $950. When it matures, the government pays you $1,000, and the $50 difference is your interest.

Are T-Bills safer than GICs?

Yes, T-Bills are backed by the full faith and credit of the federal government. While GICs are extremely safe because of deposit insurance, T-Bills represent the absolute 'risk-free' rate in the economy.

Can you sell a T-Bill before it matures?

Yes, T-Bills are highly liquid and can be sold on the secondary market through your brokerage before maturity, though you will be subject to prevailing market prices at the time of sale.

Treasury Bills Guide

The Ultimate "Risk-Free" Asset

When financial analysts refer to the "risk-free rate," they are talking about Treasury Bills (T-Bills). Backed by the federal government, T-Bills are the safest place to park your cash. For FIRE practitioners managing a large cash wedge, understanding how to buy and ladder T-Bills is an essential skill.

How Do T-Bills Work?

Unlike a traditional savings account or a bond, T-Bills do not pay out monthly or semi-annual interest. Instead, they are sold at a discount to their face value.

For example, if you want to buy a $10,000 T-Bill that yields 5% over one year, you might purchase it today for approximately $9,523. You hold it for the year, and at maturity, the government deposits exactly $10,000 into your account. The $477 difference is your interest.

Why Choose T-Bills?

While an HYSA or a GIC might seem simpler, T-Bills offer several distinct advantages:

1. Ultimate Safety

Because they are issued by the federal government, the risk of default is virtually zero. Bank deposits are insured up to a limit (e.g., $100,000 via CDIC in Canada), but if you need to safely park $500,000, T-Bills allow you to do so without worrying about bank failures or spreading money across multiple institutions.

2. Liquidity

Unlike non-redeemable GICs, T-Bills are highly liquid. They trade on a massive secondary market. If you buy a 1-year T-Bill but suddenly need the cash in month 6, you can sell it through your brokerage. (Note: You may sell it for slightly more or less than expected depending on how interest rates have moved in the interim).

3. Tax Advantages (US Investors)

For US investors, the interest earned on federal T-Bills is exempt from state and local income taxes. If you live in a high-tax state like California or New York, a T-Bill yielding 5% might provide a better after-tax return than a bank CD yielding 5.5%.

How to Buy T-Bills

Buying T-Bills requires a bit more effort than opening a savings account:

Direct from the Government: In the US, you can buy them directly at auction via TreasuryDirect.gov without fees.
Through a Brokerage: Most discount brokerages allow you to buy T-Bills on the secondary market or participate in auctions. You will need to navigate to the "Fixed Income" or "Bonds" section of your trading platform.
T-Bill ETFs: The easiest way to get exposure without managing individual bills is to buy a T-Bill ETF (like CBIL in Canada or SGOV in the US), which functions similarly to Money Market Funds.

Building a T-Bill Ladder

If you have a large cash position, you shouldn't put it all into a single maturity date. A "ladder" involves buying bills that mature at different intervals.

A common strategy is a 4-Week Ladder. You divide your cash into four equal parts and buy a 4-week T-Bill every week for four weeks. Once the ladder is established, a bill matures every single week. You can either take the cash or reinvest it into a new 4-week bill, ensuring you always have liquidity rolling in.

Where Do T-Bills Fit in Your FIRE Plan?

T-Bills are excellent for preserving capital and fighting off the effects of inflation safely. They are a core component of the Cash Wedge Strategy for early retirees who need guaranteed money to live on while their equity portfolio is left alone to grow.

To see how T-Bills stack up against the alternatives, read our complete Cash Savings Compared guide.