Dear Dr. Don,
Do Treasury bills come in different prices? How does one know the interest rate they pay? Is a Treasury bill safer than a CD? Any other information on Treasury bills would be welcome.
— Bill Buyer

Dear Bill,
The U.S. Treasury issues bills, notes and bonds. Treasury bills have a final maturity of a year or less. Treasury notes are issued in two-, three-, five- and 10-year maturities. The Treasury bond has a final maturity of 30 years from its issuance date. Treasury inflation-protected securities (TIPS) are issued in five-, 10-, and 20-year maturities.

There’s a weekly auction of 30-day, 91-day and 182-day Treasury bills, more commonly called the one-month, three-month and six-month bills. A 52-week Treasury bill is auctioned monthly.

Treasury bills are discount securities. That means that they don’t pay coupon interest. Instead, the bills are sold at a discount and mature at face value. The difference in price is your interest payment. Investopedia has a “Treasury Bill Price Calculator.”

The Treasury changed its minimum denominations in the spring of 2008 so you can now buy Treasury bills, notes and bonds in minimum denominations of just $100. At this size, it really only makes sense to buy through TreasuryDirect, because there’s no commission on the purchase.

There is a commission charged, currently $45, if you sell the security before it matures — so you should plan on holding until maturity.

To buy using TreasuryDirect, you have to enter a noncompetitive bid on the Treasury bill before it is auctioned. By bidding noncompetitively, you agree to accept whatever discount rate is determined at auction.

The TreasuryDirect Web page “Treasury Bills: How To Buy” explains it all in greater depth.

An FDIC-insured CD and a U.S. Treasury bill are both backed by the full faith and credit of the U.S. government. Treasury bills will fluctuate in market value with changes in the interest-rate environment, but you will receive face value at maturity. Treasury securities have a tax advantage in that the interest income is not subject to state and local taxes.

Bankrate posts the weekly auction results for the three- and six-month bill on its Treasury securities” page. You can shop CD rates on Bankrate’s “Compare Interest Rates” page.

It’s hard for Treasury bills to compete with CDs in the current interest-rate environment. Banks are competing with each other for deposits, but the U.S. government is seeing a lot of investors flock to its Treasury securities for the safety they offer for large investments.