Treasury Bills, or more commonly knows as T-Bills, are the bonds issued by Government. It is a short term (less than one year) government zero coupon bond. It represent short-term borrowings of the Government, as T-bills are a way for Government to raise money from the public. They are exempt from local and state taxes. These are discounted securities and thus are issued at a discount to face value. Treasury bill does not pay interest, the return to the investor is the difference between the maturity value and issue price. For example, if you bought a 10,000, 26-week Treasury bill for 9,750 and held it until maturity, your interest would be 250. T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are considered to be the safest investments because Government backs them. In fact, they are considered risk-free. Treasury bills can be purchased by any one including individuals, firms, companies, corporate bodies, banks and financial institutions except State Government. These are issued by the Central bank on behalf of Government and sold through fortnightly or monthly auctions at varying discount rate depending upon the bids. Tenders (bids) are invited for the bills and the best offers are accepted. The Minimum Amount of bids to make the bills varies from country to country. T-bills are an ideal form of short term investment.
The only downside to T-bills is that you won’t get a great return because Treasuries are exceptionally safe and you might not get back all of your investment if you cash out before the maturity date.
There are basically 3 main types of treasury securities that you can buy:
Treasury Bill : A treasury bill (T-Bill), is debt that will be repaid within a year with typical maturity dates from the issue date. The T-Bills have the shortest repayment period of any publicly available government debt to investors and is considered the safest investment investment of all. Unlike most other investments where an interest is paid, treasury bills are sold instead at a discount at auction time to give investors a positive return.
Treasury Note : Treasury notes(T-Notes), also represent debt that the government will repay but the maturity dates of these are typically from two to ten years. Unlike treasury bills however, treasury notes pay interests every six months.
Treasury Bonds: Treasury Bonds(T-Bonds), matures in twenty or thirty years. Much like the treasury notes, they give out interest every six months and for pension funds and are useful for very long term institutional investors who need to lower their risk as well.