Treasury Bills vs Savings Accounts: Which Is Better?

Treasury bills are generally better than savings accounts for short-term savings if you can lock up your money for a few weeks or months and want a guaranteed, often slightly higher yield. Savings accounts are better if you need instant access to your cash without any maturity date. The right choice depends on your timeline, your need for liquidity, and the current interest rate environment.

Formula

The calculator compares the interest earned on a lump sum placed in a Treasury bill versus a savings account over a given holding period. Both use simple interest for the period, assuming no compounding during the term (T-bills pay at maturity; savings accounts typically compound monthly, but for a short comparison the difference is negligible).

T-bill earnings = Amount × (T-bill yield / 100) × (Months / 12)

Savings earnings = Amount × (Savings APY / 100) × (Months / 12)

Where:

• Amount – the principal you deposit or invest (in dollars).
• T-bill yield – the annualized yield of the Treasury bill (in percent).
• Savings APY – the annual percentage yield of the savings account (in percent).
• Months – the number of months you plan to keep the money invested or deposited.

Worked Example

Using the default values: $10,000, 6 months, T-bill yield 5.0%, savings APY 4.0%.

1. T-bill earnings: $10,000 × (5.0/100) × (6/12) = $10,000 × 0.05 × 0.5 = $250.00
2. Savings earnings: $10,000 × (4.0/100) × (6/12) = $10,000 × 0.04 × 0.5 = $200.00
3. Difference: $250.00 − $200.00 = $50.00

So with these rates, the T-bill earns $50 more over six months. If the savings APY were 5.0% and the T-bill yield 4.0%, the savings account would come out ahead by $50.

What Are Treasury Bills?

Treasury bills (T-bills) are short-term debt securities issued by the U.S. Department of the Treasury. They mature in 4, 8, 13, 26, or 52 weeks. You buy them at a discount to face value, and at maturity you receive the full face value. The difference is your interest. For example, you might pay $990 for a $1,000 T-bill that matures in 13 weeks; at maturity you get $1,000, earning $10.

T-bills are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. They are also exempt from state and local taxes, though you still owe federal income tax on the interest.

How Savings Accounts Work

A savings account is a deposit account held at a bank or credit union that pays interest on your balance. The interest rate is expressed as an annual percentage yield (APY), which includes compounding. Most savings accounts compound daily or monthly and credit interest to your account regularly.

Savings accounts are highly liquid – you can withdraw money at any time without penalty (though some accounts limit withdrawals to six per month under federal Regulation D, a rule that was suspended during the pandemic but may still apply at some banks). Funds are insured by the FDIC (or NCUA for credit unions) up to $250,000 per depositor, per institution.

Key Differences: Liquidity, Risk, and Returns

The main trade-offs between T-bills and savings accounts come down to three factors:

• Liquidity: Savings accounts allow instant access to your money. T-bills lock your money until maturity, though you can sell them on the secondary market before maturity (but you might lose principal if rates have risen).
• Risk: Both are extremely safe. T-bills carry no credit risk (backed by the government) and virtually no default risk. Savings accounts are insured by the government up to $250,000, so they are also very safe, but only up to that limit.
• Returns: Historically, T-bill yields often exceed savings account APYs, especially when the Federal Reserve keeps rates high. However, savings account rates can be more competitive at some online banks, and T-bill yields fluctuate with market conditions.

How to Choose Between Them

Your choice should depend on your specific situation:

1. If you need the money before a specific date (e.g., a tax payment, a vacation, or a down payment) and that date is within 12 months, a T-bill with a matching maturity can lock in a known return.
2. If you might need the money on short notice (emergency fund, unexpected expenses), a savings account is better because you can withdraw without penalty.
3. If you want to avoid state income taxes on interest, T-bills are advantageous because they are exempt from state and local taxes, while savings account interest is fully taxable at all levels.
4. If you prefer simplicity and automatic access, a savings account is easier to manage – no auction, no maturity date, no secondary market.

Common Mistakes and Misconceptions

One common mistake is assuming T-bills always pay more than savings accounts. That’s not always true – it depends on the prevailing rate environment. For example, in a low-rate environment, savings accounts might pay 0.5% while T-bills pay 0.1%. Always compare current yields.

Another misconception is that T-bills are completely risk-free. While they are free of credit risk, they do carry interest rate risk if you sell before maturity. If rates rise, the value of your T-bill on the secondary market falls. If you hold to maturity, you get the face value, so no loss.

Also, people sometimes forget that T-bill interest is subject to federal income tax, even though it’s exempt from state and local taxes. The after-tax return depends on your tax bracket. For high earners in states with high income taxes, T-bills become more attractive; for those in no-tax states, the advantage shrinks.

Costs and Fees

Savings accounts typically have no maintenance fees if you meet minimum balance requirements, but some banks charge monthly fees if your balance falls below a threshold. T-bills have no fees when bought directly from TreasuryDirect, but if you buy through a broker, you might pay a small commission (often $0 to $10 per transaction). Also, if you sell a T-bill before maturity, you may incur a bid-ask spread.

Alternatives to Consider

Other short-term savings options include:

• Money market accounts (MMAs) – similar to savings accounts but may offer higher rates and limited check-writing.
• Money market funds – mutual funds that invest in short-term government and corporate debt; they offer liquidity and competitive yields, but are not FDIC-insured.
• Certificates of deposit (CDs) – offer fixed rates for a term (e.g., 3, 6, 12 months) with penalties for early withdrawal.
• High-yield savings accounts (HYSAs) – online savings accounts that often pay higher APYs than traditional brick-and-mortar banks.

Frequently Asked Questions

Can I lose money with a T-bill?

If you hold a T-bill to maturity, you will not lose money – you always get the face value. However, if you sell before maturity, you could get less than what you paid if interest rates have risen since your purchase.

Are T-bills state tax exempt?

Yes, interest earned on Treasury bills is exempt from state and local income taxes. It is still subject to federal income tax.

How do I buy Treasury bills?

You can buy T-bills directly from the U.S. Treasury through TreasuryDirect.gov, or through a brokerage account. At TreasuryDirect, you can schedule purchases at auction; at a broker, you can buy them in the secondary market.

What is the minimum amount to buy a T-bill?

The minimum purchase is $100 at TreasuryDirect, and you can buy in $100 increments. Through a broker, the minimum is often $1,000, but it varies by broker.

Is a savings account safer than a T-bill?

Both are very safe. T-bills are backed by the U.S. government, so they have virtually no default risk. Savings accounts are insured by the FDIC up to $250,000 per depositor, per bank, so they are also extremely safe, but only up to that limit.

Which gives better returns right now?

It depends on the current rate environment. As of early 2025, T-bill yields have often been slightly higher than the average savings account APY, but many online banks offer APYs that are competitive. Always check current rates before deciding.

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in amount | Amount to invest | $ | 10000 | 0
in months | Holding period (months) | months | 6 | 1 | 12
in tbill_yield | T-bill yield (annual, %) | % | 5.0 | 0 | 10
in savings_apy | Savings APY (%) | % | 4.0 | 0 | 10
out tbill_earn | T-bill earnings | $ | amount * (tbill_yield/100) * (months/12) | 2
out savings_earn | Savings earnings | $ | amount * (savings_apy/100) * (months/12) | 2
out diff | Difference (T-bill minus savings) | $ | tbill_earn - savings_earn | 2