How to Calculate the Percentage Return of a T-Bill

How to Calculate the Percentage Return of a Treasury Bill

By Matthew DiLallo – Updated Dec 12, 2024 at 3:56 PM

Key Points

T-bills are sold at a discount to their face value.
They offer returns at maturity without periodic interest payments.
With T-bill yields higher in recent years, they can be an excellent, low-risk way to put cash to work and earn a return.

Treasury bills, or T-bills, have become significantly more attractive in recent years as interest rates have risen. However, it's important to know how to calculate the percentage return of a Treasury bill before buying one. You should also know how to compare them effectively against other types of securities.

Here, we'll go step-by-step through the Treasury bill return calculations.

Loading paragraph...

An infographic walking through the three steps to calculate the percentage return of a treasury bill. — Image source: The Motley Fool.

Loading image...

Loading paragraph...

Bonds

Bonds are debt securities that entitle the holder to receive interest payments.

Loading definition...

You won't receive ongoing interest payments from this investment. Instead, you will receive the full face value of the T-bill at maturity, reflecting your principal investment and investment return. Unlike stocks and other bonds, T-bill investments are backed by the full faith and credit of the United States government. That makes them very low-risk investments.

Loading paragraph...

Loading pitch...

For ease of calculation, the bill's par value is expressed as 100 in the annualized yield calculation, and the bill's purchase price is expressed as a number less than 100 to reflect the implied discount.

To calculate yield, subtract the bill's purchase price from its face value and then divide the result by the bill's purchase price. Finally, multiply your answer by 100 to convert it to a percentage. The image below provides a visual of this formula.

Loading paragraph...

The formula to calculate a treasury bond's yield. — Image source: The Motley Fool.

Loading image...

Loading paragraph...

The bottom line on T-bill returns

T-bills have only recently come back into focus after over a decade of minuscule returns. Today, they can make up a meaningful part of your portfolio, particularly if you're approaching or in retirement.

It's key to understand how to calculate and annualize T-bill returns so you're able to make informed decisions for your portfolio. Take an active part in analyzing potential investments to create a financial plan that works for you.

Loading paragraph...

Loading pitch...

About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

TMFmd19

@MatthewDiLallo

The Motley Fool has a disclosure policy.