Treasury Bills for Your Down Payment: A Beginner's Guide

Treasury bills sound like something only professional investors use, but they're one of the simplest and safest places to keep money you'll need within a year or two. They're backed by the U.S. government, come in short terms, and their interest is exempt from state and local income taxes. For a down payment fund, that combination can be hard to beat.

This guide explains how T-bills work, how to compare them with savings accounts and CDs, and how to set them up so they're ready when you're ready to buy.

What a Treasury bill is

A T-bill is a short-term loan to the U.S. government. According to TreasuryDirect, bills are sold in terms ranging from 4 weeks to 52 weeks, in increments of $100.

T-bills don't pay interest the way a savings account does. Instead, you buy them at a discount to their face value and receive the full face value at maturity. The difference is your interest. For example, you might pay about $980 for a $1,000 26-week bill and receive $1,000 when it matures.

Why T-bills appeal to home savers

• Safety. They're backed by the full faith and credit of the U.S. government.
• Short, predictable terms. You can choose maturities that line up with your house hunt.
• State and local tax exemption. Interest is subject to federal income tax but exempt from state and local income taxes, which helps if you live in a state with an income tax.
• No penalty at maturity. Hold to maturity and you get the full face value.

The tax advantage, with numbers

Savings account and CD interest is taxable at both the federal and state level. T-bill interest is only federally taxable. To compare fairly, look at what you keep after state tax.

Worked example: Suppose a high-yield savings account pays 4.00% APY and a T-bill yields 3.90%. If your state income tax rate is 6%, the savings account's after-state-tax yield is about 4.00% × (1 − 0.06) = 3.76%, while the T-bill keeps its full 3.90% at the state level. In this example the T-bill comes out ahead despite the lower headline rate. In a state with no income tax, the savings account would win. These rates are illustrative; check current yields at TreasuryDirect or your brokerage.

On a $41,070 fund, which is 10% of the national median sales price of $410,700 (Q2 2026), a 0.14-point after-tax advantage is about $57 a year. Modest, but real money for very little effort.

How T-bill yields relate to the Fed

T-bill yields track expectations for short-term interest rates, which the Federal Reserve heavily influences. The effective federal funds rate averaged 3.75% in September 2026. When the Fed cuts rates, new T-bills generally yield less; when it raises them, new bills yield more. Because T-bills are short, your yield adjusts each time you roll into a new bill.

Two ways to buy

TreasuryDirect

You can buy T-bills directly from the government at TreasuryDirect.gov with no fees. You can set up automatic reinvestment, which rolls a maturing bill into a new one. The trade-off: you can't sell a bill held at TreasuryDirect before maturity. It would need to be transferred to a brokerage first, and there's a waiting period before transfers are allowed. Plan your maturities carefully.

A brokerage account

Most major brokerages let you buy new-issue T-bills at auction, often with no commission, and also sell them before maturity on the secondary market. Selling early means accepting the current market price, which could be slightly above or below what you paid plus accrued interest. Brokerages also typically make it easy to move money to your bank when maturities arrive.

Building a T-bill ladder

Like a CD ladder, a T-bill ladder spreads money across several maturities. For example:

• Buy 4-week, 13-week and 26-week bills in equal amounts.
• As each one matures, roll it into a new bill that matures before your target purchase date, or move it to savings if you're close to buying.

Keep earnest money and an emergency cushion in an insured savings account so you're never forced to sell early. See our CD ladder guide for the same approach with CDs.

Things to watch out for

• Timing at closing. Money from a maturing bill can take a day or more to reach your bank, and your closing funds may need to be wired. Make sure the last bills mature comfortably before your closing date.
• Federal taxes. You'll still owe federal tax on T-bill interest. TreasuryDirect and brokerages issue tax forms.
• Not FDIC insured. T-bills are backed by the U.S. government directly rather than by FDIC insurance. Money market funds that hold T-bills are not the same as owning T-bills and aren't insured or guaranteed.

Who T-bills are best for

T-bills are a strong fit if you live in a state with an income tax, have a reasonably clear purchase window, and are comfortable logging in a few times a year to manage maturities. If you value total simplicity or don't know when you'll buy, a high-yield savings account may be easier. Our guide to where to keep your house fund compares all the options.

Going deeper on Treasuries

TreasuryDirect and brokerage screens are enough to buy, but a beginner Treasury bills or government bonds book helps with auction mechanics, taxes and ladder design once the house fund is large enough to split across maturities.

Treasury bills investing books on Amazon (Affiliate link. We may earn a commission.)

Practical takeaways

• T-bills are short-term government debt with terms from 4 to 52 weeks, sold at a discount.
• Interest is exempt from state and local tax, which can beat higher-rate savings accounts in high-tax states.
• Buy at TreasuryDirect (no early sale) or a brokerage (can sell before maturity).
• Ladder maturities to match your timeline and keep a liquid cushion in savings.
• Track your T-bills alongside other accounts in our tracker, and watch rates on our rates page.

Sources

• TreasuryDirect: Treasury bills
• Federal Reserve: Open market operations
• Effective federal funds rate, via FRED
• FDIC: Understanding deposit insurance

Yields in the example are illustrative. Rates and prices are as of the dates noted and will change. This article is for education only and is not financial or tax advice.