Wichita Bail Bonds Blog

A $1,000 Treasury Bill (T-Bill) does not cost $1,000 upfront. Instead, it is sold at a discount, meaning you pay less than $1,000 when you buy it, and receive the full $1,000 when it matures. The difference between the purchase price and the face value is your interest income. T-Bills are considered one of the safest short-term investments available because they are backed by the full faith and credit of the U.S. government.

How Discount Pricing Works

T-Bills do not pay interest through regular payments like other bonds. Instead, they are issued at a discount and redeemed at full face value. The return you earn is the difference between the purchase price and the $1,000 you receive at maturity. The discount is determined at auction and is based on prevailing market interest rates and the term of the T-Bill.

• Example – If a 26-week T-Bill sells for $975, you pay $975 today and receive $1,000 when it matures. Your earnings are $25.
• Discount rate – The yield is calculated based on how much less you pay compared to the face value.
• Short-term duration – Terms range from 4 to 52 weeks.

Current Pricing Estimate

Let’s say you’re buying a 52-week T-Bill with a yield of 5%. Based on that rate, the cost to buy a $1,000 T-Bill would be approximately $952. You would still receive $1,000 at the end of the year, making your return $48. The actual cost will vary slightly depending on the auction results when you place your order through a platform like TreasuryDirect or a brokerage.

• Cost at 5% yield – Around $952
• Face value at maturity – $1,000
• Earnings – Approximately $48 in one year

Other Important Details

• Minimum purchase – You can buy as little as $100, and in increments of $100 thereafter.
• Taxes – T-Bill interest is exempt from state and local income tax but is subject to federal income tax.
• Liquidity – You can sell T-Bills before maturity on the secondary market, but the price may vary.
• Risk – Virtually no credit risk, but potential for market loss if sold early.

A $1,000 T-Bill typically costs less than $1,000 when purchased. The exact amount depends on the term length and the yield determined at auction. The difference between what you pay and the amount you receive at maturity is your profit. T-Bills offer a low-risk investment option with predictable returns and are suitable for individuals looking to preserve capital while earning modest interest income.