How to Calculate Interest Rate on a Treasury Bill

by Michael Keenan ; Updated July 27, 2017

Treasury bills work differently than other bonds in that they don't have a stated interest rate when you purchase them. Instead, the T-Bills are sold at less than face value. When you're paid the face value at maturity, the difference is your interest. For example, you might spend $978 to buy a T-Bill with a $1,000 face value. When it matures, you receive your purchase price of $978 plus $22 of interest.

Calculating Periodic Interest Rate

To figure the periodic interest rate -- in this case, the percentage of interest you'll receive over the life of the T-Bill -- subtract your purchase price from the face value of the T-Bill to find the amount of interest you'll earn. Next, divide the result by the amount you paid. For example, say you purchase a T-Bill for $978 and it has a face value of $1,000. Subtract $978 from $1,000 to find you'll earn $22 in interest. Divide $22 by your purchase price of $978 to find your rate is 0.0225, or 2.25 percent.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."