By the BrightPurse Team | Personal Finance
On Monday, September 28, the U.S. Treasury sold $82 billion of six-month bills. The headline rate was 4.285%. If you bought $10,000 of them, though, you’re on track to earn at an annual rate of 4.44%, and if you roll the money into another bill in April, closer to 4.49%. Same bill, three numbers. Understanding how Treasury bills work mostly comes down to understanding why those numbers differ, and which one belongs next to your bank’s rate.
The rate most people see quoted for a T-bill is the least useful number Treasury publishes about it. It understates what you earn, and when you stack it next to a savings account or CD, it makes the bill look worse than it is.
A Treasury bill pays no interest, and that’s the whole trick
A bill is the plainest loan the government makes. You hand Treasury some money now, and on a fixed date it hands you back a round number, called the face value. There are no interest checks along the way. Your earnings are just the gap between what you paid and what you get back.
According to TreasuryDirect’s Treasury bill page, bills mature in 4, 6, 8, 13, 17, 26 or 52 weeks, sell in $100 increments, and are auctioned weekly (every four weeks for the 52-week bill). Federal tax is due on what you earn. State and local income tax is not.
Bills are also enormous. As of August 31, 2026, Treasury had $7.25 trillion in bills outstanding out of $31.83 trillion in marketable debt, about 22.8%, according to the Monthly Statement of the Public Debt on Fiscal Data. Money market funds, banks, foreign central banks and a lot of ordinary savers all hold them for the same reason: they’re about as close to cash as an investment gets.
How the auction sets your price, and why you get Wall Street’s rate
When you buy a bill through TreasuryDirect or a brokerage at auction, you usually place a noncompetitive bid. You don’t name a rate. You just say “I’ll take $10,000 at whatever the auction decides.” Treasury caps noncompetitive bids at $10 million per bidder.
The big institutions place competitive bids, each naming the lowest rate they’ll accept. Treasury fills the offering starting from the lowest rates and works upward until the money is spoken for. The rate where it stops is the “high rate.” Treasury runs a single-price auction, so every winning bidder, including you, gets that same high rate, even bidders who said they’d accept a lower one.
The September 28 auction shows it clearly. Per Treasury’s published auction results, competitive bidders tendered about $214 billion for an $82 billion offering. Accepted bids ranged from a low of 4.150% to a median of 4.250% to a high of 4.285%. Everyone accepted, from the most aggressive dealer to the retiree buying $1,000, was paid 4.285%. Noncompetitive buyers took about $1.75 billion of the sale, and roughly $761 million came through TreasuryDirect’s retail system. Small savers ride on the same terms as primary dealers.
The headline rate uses a 360-day year and the wrong denominator
That 4.285% is a “discount rate,” a convention left over from older money markets. It measures your earnings as a share of the face value and annualizes them over a 360-day year. Both choices make the number smaller than your true return.
Work it through on a $10,000 bill from that auction. The price was 97.833694 per $100 of face value, so you paid $9,783.37. In 182 days you get $10,000. Your earnings are $216.63.
The discount rate divides $216.63 by the $10,000 face value, which gives 2.166%, then scales it by 360 divided by 182. That’s 4.285%. But you didn’t lend Treasury $10,000. You lent it $9,783.37. Divide $216.63 by what you paid and you get 2.214%. Scale that by a real 365-day year, 365 divided by 182, and you land at 4.441%. Treasury publishes this figure too, as the “investment rate.” It’s the one that belongs next to a bank’s quoted rate.
Then there’s compounding. A savings account’s APY assumes interest earns interest. A single bill doesn’t do that, but if you roll the full $10,000 into another six-month bill at the same rate, your money compounds twice a year. Raise 1.02214 to the power of 365 over 182 and subtract one, and the annual-yield equivalent is about 4.49%. That’s the fairest number to hold up against an APY, with the caveat that the next auction’s rate could be higher or lower.
So for one bill: 4.285% in the headline, 4.441% as a simple annual yield, roughly 4.49% compounded. The gap between the first and last is about a fifth of a percentage point, which is real money on a large balance and a meaningful distortion when someone is choosing between a bill and a bank product.
The state tax exemption widens the gap further
Bank interest is taxable by your state. Treasury bill income isn’t. On that same $10,000 bill, if your state taxes income at 5%, the exemption keeps about $10.83 in your pocket that bank interest would have handed over. (Your actual savings depend on your bracket and on how your state and federal returns interact, so treat that as a rough figure.) If you’ve read our explainer on tax-equivalent yield for municipal bonds, it’s the same logic applied at the state level only.
Now the comparison that matters. The FDIC’s national rates for September 2026 put the average six-month CD at 1.41% and the average savings account at 0.37%. Over the same 182 days, $9,783.37 in an average six-month CD would earn about $68.78. The bill earns $216.63, before counting the tax break. Plenty of online banks pay far more than the national average, so the gap with the best accounts is much narrower. Against the typical account, it’s a $148 difference on less than ten grand.
What the bill gives up in exchange
Bills buy that yield with flexibility, and the costs are mechanical. You can’t pull out $500 on a Tuesday the way you can from savings. Inside TreasuryDirect, a bill has to sit for 45 days before you can even transfer it out, and to sell early you must move it to a bank or broker first, which is why a 4-week bill held there can’t be sold at all. At a brokerage you can sell any day, but at whatever the market pays, which could be a little less than you’d have earned by waiting.
Rates also move every week. The 26-week bill auctioned at 4.060% on September 14, 4.155% on September 21, and 4.285% on September 28. That’s helpful when rates rise and painful when they fall, because each rollover reprices. A CD locks a rate. A savings account adjusts whenever the bank decides. A bill sits in between: locked for its term, then repriced at the next auction. We covered how banks set and adjust their side of that equation in how savings account interest is calculated.
What to take away
When you see a T-bill rate in a headline, assume it’s the discount rate and mentally add a bit. Look for the investment rate on Treasury’s results page, and remember that state tax exemption makes the comparison tilt further toward the bill if you live somewhere with an income tax. Treasury bills work by selling you a round number at a discount, and the auction hands you the same price the biggest bidders pay. The only thing working against you is the way the rate is quoted.