The risk-free rate is the return you can earn on money without taking credit risk, and in the US it is measured with Treasury yields. It is the floor of the whole rate structure: savings accounts, corporate bonds, mortgages and the returns investors demand from stocks are all priced, openly or not, as a premium over it. The label is narrower than it sounds, though. It covers default only, so a "risk-free" bill can still lose purchasing power to inflation, and its yield resets every few weeks.
What is the risk-free rate?
The risk-free rate is the yield on an asset whose issuer is treated as certain to pay, so the only compensation built in is for time and expected inflation.
Finance theory needs such an anchor. If one asset can be held with no realistic chance of default, every other asset has to offer more to attract buyers, and the extra amount is its risk premium. A corporate bond yields the matching Treasury rate plus a credit spread; the return investors expect from a stock index is the Treasury rate plus an equity premium.
No asset is free of every risk, so practitioners pick a proxy: debt of a government that borrows in a currency it issues itself, held for a period short enough that price swings barely register. For dollar investors that means Treasury securities, which are backed by the full faith and credit of the US government. Which risks Treasuries still carry, from inflation to selling before maturity, is covered in are Treasuries risk-free?; this guide treats the rate as a benchmark.
Why is the 3-month T-bill the standard proxy?
The 3-month bill pairs the US government's credit with a maturity short enough that a change in interest rates barely moves its price.
Four features make it the default choice:
- Credit. Payment comes from the US Treasury, so the default question that dominates corporate debt hardly arises.
- Price stability. A bill with 13 weeks to run loses only about 0.25% of its value if its yield jumps a full percentage point, because its duration is roughly a quarter of a year.
- Fresh supply. Treasury auctions 13-week bills every week, and they trade every business day, so a current market rate is always available.
- History. The Federal Reserve's monthly series for the 3-month bill starts in January 1934, which lets researchers measure risk premiums over nine decades.
Bills are quoted two ways, and the difference matters when you plug the number into a formula. On October 30, 2026 the 13-week bill had a bank discount rate of 3.99% and an investment yield of 4.08%; the second figure is the one to compare with bond yields and savings APYs. The formulas are in discount rate vs investment yield. Treasury's par yield curve, a fitted estimate at exactly three months rather than a quote on one bill, put the 3-month rate at 4.16% the same day. Neither is wrong; state which one you used.
When do analysts use the 10-year Treasury instead?
They switch to the 10-year Treasury when valuing cash flows that arrive over many years, such as a company's future profits or a long-lived building or project.
The reasoning is about matching horizons. A 3-month rate describes what cash earns over the next quarter, while a business produces cash for decades. A long Treasury yield folds in the market's expectations for short rates across that horizon plus a term premium for tying money up. Many corporate finance teams use the 10-year note; pension and infrastructure analysts often reach for the 20-year or 30-year bond, which yielded 5.34% and 5.31% on October 30, 2026.
The choice can move a valuation more than any change in the business. That day the 10-year par yield was 4.94% against 4.16% at three months, a 0.78-point gap. In 2023 the order was reversed: the 3-month bill's monthly average exceeded the 10-year yield in every month of the year, which is what an inverted yield curve looks like. A model that swapped one proxy for the other would have produced very different answers in each period.
For inflation-adjusted work, analysts use the real yield on Treasury Inflation-Protected Securities instead. The 10-year TIPS yielded 2.60% on October 30, 2026, implying breakeven inflation of about 2.34 points; TIPS explained shows how that is calculated.
Today's risk-free rate in the live bill table
The table below shows every bill term with its discount rate, investment yield, price per $1,000 and the change from a month and a year earlier. For a cash benchmark, read the 13-week row's investment yield; for a monthly performance benchmark, the 4-week row is the closer match.
| Term | Discount rate | Investment yield | Price per $1,000 | Yield vs a month ago | Yield vs a year ago |
|---|---|---|---|---|---|
| 4-week | 3.91% | 3.98% | $996.96 | +0.07 pts | 0.00 pts |
| 6-week | 3.91% | 3.98% | $995.44 | -0.04 pts | +0.04 pts |
| 8-week | 4.00% | 4.08% | $993.78 | +0.02 pts | +0.11 pts |
| 13-week | 3.99% | 4.08% | $989.91 | -0.05 pts | +0.23 pts |
| 17-week | 4.07% | 4.18% | $986.55 | -0.05 pts | +0.31 pts |
| 26-week | 4.11% | 4.25% | $979.22 | -0.09 pts | +0.43 pts |
| 52-week | 4.17% | 4.36% | $957.84 | -0.18 pts | +0.66 pts |
Two habits make the number usable. Date it, because a valuation built on last quarter's rate can be off by half a point or more. And match conventions: compare the investment yield, not the discount rate, with APYs and bond yields. The Treasury bill calculator turns a quoted rate into a purchase price and dollar interest for any term and face amount, which is a quick way to check what a given benchmark means in cash.
How has the risk-free rate changed since 2000?
It has ranged from above 6% to almost zero and back above 5%, so there is no single normal level for the benchmark.
- 3-month Treasury yield, monthly average
- CPI inflation, 12-month change
| Measure | Yield | Month |
|---|---|---|
| Latest monthly average | 4.23% | Oct 2026 |
| A year earlier | 3.98% | Oct 2025 |
| Average over the last 10 years | 2.55% | |
| Average since 2000 | 2.00% | |
| Highest month | 6.36% | Nov 2000 |
| Lowest month | 0.01% | Dec 2011 |
| Months the yield beat CPI inflation | 18 of 20 (90%) |
The chart plots the monthly average 3-month Treasury yield since 2000, with consumer price inflation overlaid, and the table under it lists the highest and lowest months, the long-run averages and how often the bill out-earned inflation. How to judge that last measure is the subject of real returns and inflation; here the level itself is the story.
On the Fed's monthly bill series (discount basis), three regimes stand out:
- The long zero. The bill averaged 0.03% in December 2008 and was still only 0.23% in December 2015, seven years later.
- The second zero and the sharp exit. It fell to 0.02% in April and May 2021, then the Fed's 2022 rate increases lifted it to 5.34% by October 2023.
- The plateau. From January 2025 to September 2026 it stayed between 3.57% and 4.25%, ending that span at 3.94%.
Counting months makes the point sharper. Of the 321 months from January 2000 through September 2026, 108 had an average below 0.25%, roughly one month in three. Any model that treats the risk-free rate as a stable constant is quietly assuming one of these regimes.
How does the risk-free rate feed into valuations?
It is the first term in almost every discount rate, so a lower risk-free rate raises the present value of future cash flows and a higher one cuts it.
The capital asset pricing model (CAPM) writes the idea in one line:
Required return = risk-free rate + beta × equity risk premium
Beta measures how strongly a stock tends to move with the market, and the equity risk premium is the extra yearly return investors are assumed to want for owning stocks rather than Treasuries. Estimates of that premium differ widely between sources, so treat any single figure as an assumption you state, not a fact you look up. The same arithmetic applies to a whole index such as the S&P 500, which you can follow on the SPY page.
Worked example: Valuing a dividend stock at three risk-free rates
Assume a stock will pay $5.00 a share next year, the dividend grows 3% a year, its beta is 1.2 and the equity risk premium is 5%.
- Required return with the 10-year at 4.94%: 4.94% + 1.2 × 5% = 10.94%
- Value with the constant-growth model: $5.00 ÷ (0.1094 − 0.03) = $62.97
- Risk-free rate one point lower, at 3.94%: required return 9.94%, value $5.00 ÷ 0.0694 = $72.05, about 14% higher
- Risk-free rate one point higher, at 5.94%: required return 11.94%, value $5.00 ÷ 0.0894 = $55.93, about 11% lower
A single future payment shows the same effect: $1,000 due in 10 years is worth $354.09 today at 10.94% but $387.65 at 9.94%. Nothing about the company changed; only the benchmark did.
Bond pricing runs on the same logic. A new corporate bond has to yield the matching Treasury plus a spread for its credit risk, and existing bonds reprice whenever Treasury yields move; the mechanics are in why bond prices fall when rates rise.
Performance measurement uses the rate as well. The Sharpe ratio subtracts it from a fund's return before dividing by volatility, so the benchmark you choose changes the score.
Worked example: How the benchmark changes a Sharpe ratio
A fund returned 7.5% a year with 14% volatility.
- Against a 4.08% bill yield: (7.5 − 4.08) ÷ 14 = 0.24
- Against a 0.05% bill yield, roughly the 2021 level: (7.5 − 0.05) ÷ 14 = 0.53
The same fund looks more than twice as efficient when the safe alternative paid almost nothing.
How does it shape the cost of capital and savings rates?
Lenders and banks price money off the risk-free rate: companies borrow at Treasury yields plus a spread, and banks pay depositors something below what bills earn.
For a company, the CAPM cost of equity and the after-tax cost of debt combine into a weighted average cost of capital, the hurdle a new project has to clear. When short-term Treasury yields climbed from near zero in 2021 to above 5% in 2023, that hurdle rose for every company at once, including ones whose business had not changed at all.
For savers the link is looser. Money market funds hold bills, repurchase agreements and similar paper, so their yields follow the bill rate within weeks (how money market funds work). Bank deposit rates adjust slowly and often stay far lower: the FDIC's national average rate on savings accounts was 0.38% (FDIC, as of Nov 1, 2026), while the effective federal funds rate in the same FDIC table, measured at the end of September 2026, was 3.88%. What separates a high-yield account from that average is covered in how high-yield savings accounts work.
Regulators even write the benchmark into deposit rules. A bank that is less than well capitalized may not pay more than a national rate cap, which for CDs is the higher of the national average plus 0.75 points or 120% of the comparable Treasury yield plus 0.75 points.
Worked example: Leaving $25,000 at the national average savings rate
Compare one year at the FDIC national average of 0.38% with rolling 13-week bills at the October 30, 2026 investment yield of 4.08%, assuming the bill rate stayed level at each rollover:
- Savings account: $25,000 × 0.38% = $95
- Bills: $25,000 × 4.08% ≈ $1,020
- Difference: about $925 before tax
Bill interest is exempt from state and local income tax, which widens the gap in high-tax states (are T-bills taxable?). The compound interest calculator shows how a gap like this grows over several years.
What are the risks of using T-bills as the risk-free rate?
The main risks are inflation, reinvestment at lower rates, currency moves for non-dollar investors and horizon mismatch; default is the one risk the label actually addresses.
- Inflation. A bill's yield is fixed in dollars, not in purchasing power. In December 2021 the 3-month bill averaged 0.06% while consumer prices were 7.0% higher than a year earlier, the largest December-to-December rise since 1981.
- Reinvestment. A 13-week bill locks a rate for 13 weeks only. Anyone who treated the 5.34% average of October 2023 as a lasting return saw the same series at 3.59% by December 2025.
- Credit perception. Moody's lowered the US to Aa1 from Aaa on May 16, 2025, citing a decade of rising debt and interest costs. Bills are still backed by the full faith and credit of the US government, but "riskless" is a judgment, not a law of nature.
- Currency. For someone who spends euros or rupees, a dollar bill carries exchange-rate risk that can exceed its yearly interest in a single month; check recent moves on the currency converter.
- Horizon mismatch. Discounting 20 years of cash flows at a 3-month rate, or judging a cash fund against the 10-year yield, mixes horizons; the 0.78-point gap on October 30, 2026 shows how much that can distort.
- Wrong convention. Using the discount rate instead of the investment yield understates the benchmark, by 0.09 points for the 13-week bill on October 30, 2026.
To see where inflation stands now, compare the latest 12-month change in the table below with the 13-week investment yield in the live bill table above. When the CPI figure is the higher of the two, the benchmark is losing purchasing power even though it carries no default risk.
| Month | CPI-U index | Change from a year earlier |
|---|---|---|
| Sep 2026 | 336.940 | +3.7% |
| Aug 2026 | 334.980 | +3.4% |
| Jul 2026 | 333.918 | +3.4% |
| Jun 2026 | 333.952 | +3.5% |
| May 2026 | 335.123 | +4.2% |
| Apr 2026 | 333.020 | +3.8% |
| Mar 2026 | 330.213 | +3.3% |
| Feb 2026 | 326.785 | +2.4% |
| Jan 2026 | 325.252 | +2.4% |
| Dec 2025 | 324.054 | +2.7% |
| Nov 2025 | 324.122 | +2.7% |
| Sep 2025 | 324.800 | +3.0% |
| Aug 2025 | 323.976 | +2.9% |
Tokenized bill funds that pass the Treasury yield through on a blockchain add their own layers, including fees, custody and smart-contract risk (on-chain US T-bills). The full map of risks beyond default, across cash, bonds, stocks and crypto, is in types of investment risk.
Which risk-free rate should you use?
Use the Treasury yield whose maturity matches the cash flows you are judging, quote it as an investment yield, and write down the date.
| Purpose | Proxy | Value on Oct 30, 2026 | Why it fits |
|---|---|---|---|
| Comparing cash options for the next few months | 13-week bill investment yield | 4.08% | Same horizon as savings, money funds and short CDs |
| Monthly performance or Sharpe ratio | 4-week bill investment yield | 3.98% | Matches a one-month measurement period |
| Valuing a stock, business or long project | 10-year Treasury par yield | 4.94% | Matches long-lived cash flows |
| Pensions and other very long liabilities | 20- or 30-year Treasury par yield | 5.34% / 5.31% | Longest government yields available |
| Planning in today's dollars | 10-year TIPS real yield | 2.60% | Removes expected inflation from the rate |
| Floating-rate loans and swaps | SOFR | Published daily | Overnight secured rate those contracts reset on |
| Spending in another currency | That country's short government bill | Varies | Avoids exchange-rate risk |
If you are setting expectations for a whole portfolio, the cash portion's long-run return is roughly the bill rate, and riskier holdings are judged by how much they add on top (building a well-balanced portfolio). For the long record of what bills have paid against inflation, see T-bill yields vs inflation, and the safe investments hub gathers the guides on where to hold cash once you know the benchmark.