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T-bills, often known as Treasury bills, are short-term debt securities that the US government has issued. Due to their backing by the full faith and credit of the United States government and their ease of purchase and sale on the secondary market, they are among the safest and most liquid investments available.
T-bills mature in less than a year and have maturities ranging from four to 52 weeks. Their face value, which represents the sum that investors will get when the bonds mature, is discounted when they are sold. The interest income that investors receive from holding T-bills is the difference between the purchase price and the face value.
For instance, if a buyer pays $9,800 for a 26-week T-bill with a face value of $10,000, they will receive $200 in interest when they redeem it at maturity. The short-term interest rates now in effect are reflected in the interest rate on T-bills, which is decided by market forces of supply and demand.
T-bills do not accrue interest over time like bonds do; rather, they pay a flat sum when they mature. Because of this, they appeal to investors who want to protect their principal and get a stable return without taking on too much risk.
T-bills are available for direct purchase from the U.S. Treasury through TreasuryDirect.gov, as well as from brokers, banks, and dealers who take part in Treasury auctions. T-bills can also be acquired indirectly by investors through exchange-traded funds (ETFs) or mutual funds that invest in them.
Federal income taxes are due on T-bills but state and local income taxes are not applicable. Yet, because of their quick maturities and modest yields, they often have a little tax impact.
Investors who wish to park their money for a brief period of time and earn some interest without taking on much risk can consider T-bills. They can also be used as a benchmark for other short-term investments, a protection against inflation, or a way to hedge against market volatility.
