Quick answer: a Treasury bill’s quoted annual rate is not the percentage you earn during its short life. For a bill held to maturity, start with the dollar difference between face value and purchase price. Then distinguish the auction discount rate, the return on money actually paid, and any annualized comparison.
Prepared October 3, 2026. U.S. educational guide. Rates and prices in the worked example are hypothetical, not current auction results or investment recommendations.
How much does a $10,000 Treasury bill actually earn?
Consider a hypothetical 91-day bill with $10,000 face value and a 4.00% annual bank discount rate. It costs about $9,898.89 and pays $10,000 at maturity, producing about $101.11 before taxes and fees. It does not pay $400 over 91 days.
Face value is the maturity payment, not necessarily the amount withdrawn to buy the bill. Saying “I invested $10,000” can therefore obscure which quantity a return calculation uses. Keep purchase dollars and maturity dollars separate.
Turn the discount quote into a purchase price
TreasuryDirect’s pricing guide gives this relationship for a bill’s discount quote: price = face value × [1 − (discount rate × days ÷ 360)]. Enter 4.00% as 0.04, not 4.
For our example: $10,000 × [1 − (0.04 × 91 ÷ 360)] = $9,898.8889. Subtract that from $10,000 to obtain $101.1111 interest. Calculations below use unrounded values internally; displayed dollar amounts round to cents. Actual auction and cash-settlement rounding may cause small differences.
| Measure | Hypothetical result | What it tells you |
|---|---|---|
| Face value | $10,000.00 | Payment at maturity |
| Purchase price | $9,898.89 | Cash used to buy the bill |
| Interest at maturity | $101.11 | Dollar gain before taxes and fees |
| 91-day holding-period return | 1.0214% | Gain divided by purchase price |
| Bank discount rate | 4.0000% | Annual quote using face value and 360 days |
| Annualized simple investment rate | 4.0970% | Short-bill annualization using purchase price and a 365-day year |
Why do discount rate and investment rate differ?
The same $101.11 gain is divided by two different amounts. The bank discount calculation uses the $10,000 face value. The holding-period return uses the smaller amount actually paid. Annualization also changes the day-count basis.
For this 91-day, non-leap-year example, holding-period return = ($10,000 − $9,898.8889) ÷ $9,898.8889 = 1.0214%. Annualized simple investment rate = holding-period return × 365 ÷ 91 = 4.0970%.
These are different descriptions of one transaction, not separate interest payments. TreasuryDirect’s glossary distinguishes investment yield from compounding. Do not add the discount rate to the investment rate or interpret their difference as a bonus.
Scope matters: the simple conversion shown here is for this short bill. Treasury’s auction regulations, Appendix B, specify a different investment-rate calculation for bills longer than one-half year. Do not apply the 91-day formula mechanically to a 52-week bill. Applicable leap-year conventions also need checking.
Compare a bill and a savings account over the same 91 days
A bank APY incorporates compounding under its disclosure assumptions; the short bill’s simple investment rate does not. The clearest first comparison is dollar earnings on the same starting cash over the same dates.
Assume a fee-free savings account keeps an unchanged 4.00% APY, with interest retained and a constant daily growth factor consistent with that APY. Investing the same $9,898.8889 for 91 days produces:
$9,898.8889 × [(1.04)91/365 − 1] = about $97.27.
The hypothetical bill earns $101.11, about $3.84 more before tax and fees. This small difference is not a product recommendation. A changing savings rate, fees, interest-crediting terms, earlier withdrawal needs or tax circumstances can reverse the comparison. Read our savings APY versus monthly fees guide before comparing headline rates.
Does an effective annual yield promise another year’s return?
No. Repeating the same 91-day growth factor mathematically across a year gives (1 + 0.01021439)365/91 − 1, or about 4.1604%. That is a hypothetical effective annual equivalent, not this bill’s actual 91-day gain, not its quoted simple investment rate, and not a guaranteed reinvestment outcome. Future bills can have different prices and rates; fractional-period annualization is only a comparison convention.
What changes if you sell before maturity?
The purchase-price-to-face-value calculation assumes you hold the bill to maturity. If you sell earlier, your outcome depends on sale proceeds and any costs instead. The face-value payment should not be substituted for an unknown resale price.
The official Treasury bill overview separates holding to maturity from selling beforehand and notes that bill interest is subject to federal income tax but exempt from state and local income taxes. The figures here are before tax. Brokerage funds or ETFs are different products; do not automatically apply direct-bill treatment to every fund distribution.
For the rate-price mechanism, see why bond prices respond to interest rates. Access and sale procedures depend on where the security is held; verify them before using a bill for money you may need immediately.
A five-item check before interpreting any bill quote
- Identify whether the percentage is a discount rate, investment rate or effective annual measure.
- Record purchase price, face value and exact days to maturity.
- Calculate maturity dollars minus purchase dollars.
- Compare alternatives on the same cash amount and time horizon, after relevant costs.
- Separate the held-to-maturity result from early-sale and reinvestment assumptions.
Frequently asked questions
Is the rate in an auction result automatically a bank APY?
No. Read the field label and its convention before comparing it with a bank account.
Will a 4% bill pay me 4% in three months?
No. A quoted annualized rate is not a three-month holding-period return. Calculate dollars from price and maturity value.
Can I use this example as a current auction quote?
No. All example inputs are invented for arithmetic illustration, not drawn from a live auction.
Bottom line: understand your dollars first and annualize second. This guide explains calculations, not whether a Treasury bill suits your personal financial situation.