Treasury bills: how they work and who backs them

A UK Treasury bill is a short-term loan to the government. You buy it for less than its face value and the government pays you the full £100 back when it matures. There is no interest payment along the way: the return is the gap between the discounted price and the £100 redemption price¹. UK Treasury bills were first introduced in 1877 and are also called "zero-coupon" instruments².

The terms are short. Typically one, three or six months¹, and in most weekly tenders the Debt Management Office offers a mix of 1-month, 3-month and 6-month Treasury bills². Some investment apps offer a 28-day version instead². The minimum at the weekly auction is £1,000, and a bid is not a purchase: it may not be filled¹.

Treasury bills are sold by the UK government, so the only way to lose the whole investment is for the government to default on its debts, which is very unlikely¹. That is a different thing from saying your capital is guaranteed. The price you get back is fixed only if you hold to maturity, and the yield is taxable as income unless you hold the bill inside an ISA or a SIPP¹.

Treasury bills pay no interest: your return is the discount to £100

The whole return on a Treasury bill comes from buying it cheap. UK Treasury bills are issued at a discount to their maturity value and do not pay a coupon². The redemption price the government pays back is £100¹. If you pay less than that and hold the bill to maturity, the difference is what you earn.

The arithmetic is simple once you see it. A £1,000 investment in a six-month Treasury bill at £97.50 per bill returns £100 per bill after six months, giving a 2.5% yield, or an annualised equivalent yield of 5%¹. The same logic works over shorter periods: a 28-day UK Treasury bill with a maturity value of £1,000 and a 5% annualised yield has a purchase price of £996.16².

Two things follow from that structure. First, there is no income stream during the life of the bill, so nothing to reinvest and nothing to spend until maturity. Second, the return is fixed at the moment you buy, not floating with the market. What you do not know in advance is the price, because that comes out of the tender.

Terms of one, three or six months, and 28 days on some apps

Treasury bills are short-dated by design. Typically the term is one, three or six months¹, and in most weekly tenders the Debt Management Office offers a mix of 1-month, 3-month and 6-month Treasury bills². Some investment apps list a 28-day UK Treasury bill instead, which is the shortest commonly available term².

That range matters more than it looks. A one-month bill returns your money four weeks after you buy it, which suits money you know you will need soon. A six-month bill locks the return in for longer, which protects you if yields fall but leaves you exposed if they rise. The choice between them is a choice about how long you are willing to wait and how often you want to make a decision.

For comparison, fixed-rate savings bonds from banks and building societies run on much longer terms. NS&I's product finder lists terms of 1 year, 2 years, 3 years and 5 years³. A Treasury bill sits at the short end of that spectrum, closer to a notice account than to a multi-year bond.

Buying at the weekly auction: £1,000 minimum and bids that may not fill

Treasury bills are sold through a weekly tender rather than on a shelf at a fixed price. The minimum is £1,000¹. You submit a bid, and the bills are allocated according to what the market will pay. That is why a provider can describe the rate as subject to success in tender: the yield is only earned if the bid goes through⁴.

The practical consequence is that you may not get what you asked for. A bid that is not filled leaves your money uncommitted, and you can bid again at the next weekly tender. A bid that is filled gives you bills at the price the tender produced, which may differ from the yield you had in mind when you placed it.

Most consumers do not approach the Debt Management Office directly. They buy through an investment platform or app that participates in the tender on their behalf, which is why the minimum, the available terms and the dealing process vary between providers. If you are comparing routes in, the mechanics of how investment platforms work and the dealing charges they apply are the two things that change what you actually receive.

Money is locked in until the bill matures

Once you hold a Treasury bill, the money is committed for the term. There is no early access in the way a savings account allows. That is the same shape as a fixed-rate bond: Shawbrook states that funds are typically locked in until the end of the term, with no access permitted before maturity⁵, and LHV Bank says that once your money is locked into a Fixed Rate Bond it is secured for the full term, so you will not be able to access your funds⁶. The same wording appears on its 6 Month Fixed Rate Bond⁷.

The difference is what happens if you need out. Bonds can be sold before maturity on the secondary market, and a broker may charge a commission for doing so⁸. Whether a particular Treasury bill can be sold early, and at what price, depends on your provider and on demand at the time. Selling early means you take whatever price the market offers rather than the fixed £100 maturity value, so a sale before maturity can return less than you paid.

The wider point is that short-dated does not mean accessible. A six-month bill is a six-month commitment. Money you might need at short notice belongs somewhere you can reach it, and the savings market is where that comparison is made.

Tax on Treasury bill returns, and holding them in an ISA or SIPP

The yield from Treasury bills is subject to income tax¹. It is not a capital gain, so the annual exempt amount for capital gains does not apply to it. That distinguishes bills from gilts, which are exempt from capital gains tax if you sell your holding and make a profit, although income from gilt interest is taxed⁹.

The wrapper changes the answer. Treasury bills can be held in a Stocks and Shares ISA and a Self-Invested Personal Pension, so the yield can be paid free of UK income tax¹. With an ISA, any returns you earn are free from UK Income Tax and Capital Gains Tax¹⁰, and that treatment remains while you keep the money in ISAs¹¹. Pensions work differently but to similar effect: you usually get tax relief on money you pay into a pension¹², and a £100 contribution into your pension will cost a basic rate taxpayer £80¹³.

Where the bill sits outside a wrapper, the tax position depends on your marginal rate. Independent guidance puts the income tax thresholds on interest from bonds and gilts at £1,000 a year for a basic rate taxpayer, £500 for a higher-rate taxpayer and £0 for an additional-rate taxpayer⁹. The same source notes that gilts are exempt from capital gains tax on a profit⁹.

Backed by the UK government, but capital is not guaranteed

The backing is real but it is not a guarantee of your capital in the everyday sense. Treasury bills are sold by the UK government, and the only way to lose the whole investment is for the government to default on its debts, which is very unlikely¹. The Bank of England makes the same point about the money it issues: "The money we issue is backed by the Government."¹⁴

What that does not cover is everything around the bill. Three risks sit outside the government's promise:

• Price risk if you sell early. Selling before maturity means accepting the market price, which can be below what you paid⁸.
• Reinvestment risk. A short term locks in a return for a short period only. When the bill matures, the rate available then may be lower.
• Provider risk. The platform or app holding the bill can fail. Protection arrangements differ between providers, and the FSCS position depends on how the holding is structured.

There is also a wider caution about figures in this area. Official statistics note that "The figures reported have not been verified by HM Treasury or any other body."¹⁵ That applies to reported data rather than to the bills themselves, but it is a reminder that not every number attached to government finance carries the same weight.

What is the difference between a Treasury bill and a gilt?

Both are UK government instruments, but they are different products. Gilts are issued by HM Treasury and listed on the London Stock Exchange¹⁶. A gilt pays regular interest, called a coupon, and runs for years. A Treasury bill is issued at a discount to its maturity value and does not pay a coupon², and it matures in months rather than years.

The tax treatment differs too. Gilts are exempt from capital gains tax if you sell your holding and make a profit, although income from gilt interest is taxed⁹. Treasury bill returns are subject to income tax as yield rather than as a capital gain¹. For a reader weighing the two, the gilts page covers the longer-dated instrument, and the bonds page covers the wider market.

The market backdrop is worth knowing. UK 10-year gilt yields fell from 4.66% on 31 March 2025 to 4.51% on 30 June 2025, and then rose to 4.76% on 30 September 2025¹⁷. That is a longer-dated yield, not a Treasury bill yield, but it shows the direction of travel in government borrowing costs over that period.

How is the yield on a Treasury bill set?

The yield is not announced in advance. It falls out of the price the tender produces. Because bills are issued at a discount to their maturity value², the yield is simply the difference between what you pay and the £100 you get back¹. A higher price means a lower yield, and vice versa.

That is why the same bill can produce different returns for different buyers at the same tender. The market sets the price, and the price sets the yield. A provider quoting a rate before the tender is quoting an expectation, not a commitment, which is why the wording "Rate subject to success in tender" appears on product pages⁴.

For context on how government borrowing costs move, the 10-year gilt yield stood at 4.76% on 30 September 2025, up from 4.51% on 30 June 2025¹⁷. That is a different instrument with a different term, but it illustrates that these yields change over months rather than staying fixed.

Can I sell a Treasury bill before it matures?

Bonds can be sold before maturity on the secondary market, and a broker may charge a commission for doing so⁸. Whether a specific Treasury bill can be sold early depends on your provider and on whether there is a buyer. The price you get is the market price, not the £100 maturity value.

That is the trade-off. Holding to maturity gives you the fixed £100 back and removes price risk. Selling early converts the bill into a market transaction, and the outcome depends on where yields have moved since you bought. If yields have risen, the price of your bill falls, because a buyer can get a better return elsewhere.

The same principle applies across fixed-income holdings. Pension schemes invest in bonds issued by corporations and governments, alongside equities, property, infrastructure and other alternative investments¹⁸, and the pricing of those holdings moves with the market in the same way.

What happens if my auction bid is unsuccessful?

If your bid is not filled, you do not get the bills and your money is not committed. You can bid again at the next weekly tender. The rate you were quoted before the tender is not a rate you have earned, which is why providers describe it as subject to success in tender⁴.

The practical effect is that a Treasury bill purchase is not a certainty until the tender result is known. That is different from buying a fixed-rate savings bond, where the rate is agreed and the money is committed from the start. It is closer to placing an order that may be partially or wholly unfilled.

For a reader planning around a specific maturity date, that uncertainty matters. If the bid fails, the money sits uninvested until the next tender, and the term you were planning for starts later than you expected.

What happens to my money when a Treasury bill matures?

At maturity the government pays back the full face value, which is £100 per bill¹. If you invested £1,000 at £97.50 per bill, you receive £1,000 back, and the £25 difference is your return¹. There is no coupon payment along the way and no automatic rollover unless your provider offers one.

What you do with the money at that point is a fresh decision. You can reinvest in a new bill, move it elsewhere, or spend it. That decision is where reinvestment risk bites: the rate available at maturity may be higher or lower than the rate you had.

Statements and paperwork vary by provider. NS&I, for example, sends a statement shortly after the end of each tax year showing the interest earned and the value of the holding¹⁹. The statements and tax documents page covers what to expect from an investment platform.

Can I lose money on a UK Treasury bill?

The headline answer is that total loss would require the UK government to default on its debts, which is very unlikely¹. That is the strongest form of backing available in the UK market, and it is why Treasury bills are often described as a cash-like alternative.

But "very unlikely" is not "impossible", and the smaller risks are more relevant to most holders. Selling before maturity at a price below what you paid is a real loss, and it happens whenever yields have risen since purchase⁸. A provider failing is a separate risk, and the protection available depends on how the holding is structured.

There is also the question of what counts as cash-like for other purposes. Official guidance on ISA reform states that individual shares, funds, investment trusts, exchange-traded funds and corporate and government bonds, including UK gilts, are not cash-like assets²⁰. That definition matters if you are testing a holding against a rule that treats cash differently from investments.

What is reinvestment risk with Treasury bills?

Reinvestment risk is the chance that when your bill matures, the rates available then are lower than the rate you had. A six-month bill locks in a return for six months only¹. If yields fall in the meantime, the £100 you get back buys less income next time.

Shorter terms mean you face this decision more often. A 28-day bill returns your money roughly every month², so you are re-deciding constantly. A six-month bill gives you two decisions a year instead of twelve. Neither is better in the abstract; they suit different needs.

The same risk applies to any fixed-term product. A fixed-rate bond locks a rate for its term and then returns your money to a market that may have moved⁵. The difference with a Treasury bill is the timescale: months rather than years, so the reinvestment decision comes round faster.

Where to get help

MoneyHelper offers free, impartial guidance on pensions and retirement, including how personal pensions work and what tax relief applies¹³. For debt problems, StepChange provides free advice, and its guidance notes that priority bills can be different based on where you are in the UK²¹. Its policy work records that 18 million people in Britain worried about making their income last until payday²². Age UK provides information on help with urgent or one-off expenses²³.

If you are considering a Treasury bill as a home for money you might need, the investing versus saving comparison sets out how the two approaches differ, and the when investing beats saving page covers the circumstances in which each tends to fit.