How to Calculate Interest Rate on a Treasury Bill


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.

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