Bonds vs. notes vs. bills overview
Treasury bonds, notes and bills are three types of investments the U.S. government issues. You loan the government money by buying a Treasury bond, note or bill and earn interest in return.
The selling of U.S. debt through Treasurys finances the operations of the federal government while also offering additional benefits to investors. Treasury securities, also known as Treasurys, are considered low-risk because they're issued and backed by the U.S. government. They're also budget-friendly for investors, since they can be purchased in increments of $100, and they're exempt from state and local taxes. You'll still pay federal taxes on the interest earned.
The face value of the Treasury is its price if held to maturity, while the Treasury's interest rate is the profit you receive for loaning the U.S. government money.
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Current Treasury rates
Rates are sourced from Google Finance and may be delayed. Data is solely for informational purposes, not for trading.
Below, an overview of the different types of Treasurys: bonds, notes and bills
U.S. Treasury bonds
Treasury bonds are the longest-term U.S. debt security with maturities of either 20 or 30 years. Also known as T-bonds, Treasury bonds pay a fixed rate of interest every six months. While Treasury bonds may yield lower returns on average than a higher-growth investment such as stocks, T-bonds offer stability and liquidity. In other words, their returns are more reliable and can help cushion the effects of stocks in your portfolio. And in a pinch, they're easy to sell and turn into cash.
U.S. Treasury notes
U.S. Treasury notes are short- and intermediate-term debt securities with maturities of 2, 3, 5, 7 or 10 years. Like Treasury bonds, Treasury notes pay a fixed rate of interest every six months. Treasury notes, or T-notes, can be bought directly from the government, at auction or through a broker.
U.S. Treasury bills
In contrast to notes and bonds, Treasury bills are the shortest-term government investment and mature in four weeks to one year. Treasury bills are also known as zero coupon bonds, meaning unlike bonds and notes, they don't pay a fixed interest rate. Instead, Treasury bills are sold at a discount rate to their face value. The "interest" you receive (so to speak) is the difference you receive between the face value of the bill and its discount rate when it matures.
Video: Different types of Treasurys
What are the risks of investing in Treasurys?
All investments involve some level of risk. The higher the risk, the greater the potential reward or loss. When issuing any loan, the issuer's creditworthiness describes how likely they are to make good on their promise to repay you.
Treasury bonds, bills and notes tend to be some of the lower-risk investments on the market because the full faith and credit of the U.S. government backs them. That said, Treasury securities of longer duration — such as bonds and notes — are more exposed to a particular type of risk called interest rate risk.
Here's how it works. Bonds and interest rates have an opposite relationship: bonds tend to lose value when interest rates rise. The risk with buying a Treasury bond of longer duration is that interest rates will increase during the bond's life, and your bond will be worth less on the market than new bonds being issued. Treasury bonds tend to pay higher interest than the shorter T-bills and notes to compensate investors for the interest rate risks they take with their purchase.
Keep in mind the opposite can also happen when interest rates fall and the price of your bond increases.
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How to buy Treasury bonds, notes and bills
Treasury bonds, notes and bills can be bought in two main ways. You can purchase Treasury securities directly from the U.S. government at TreasuryDirect.gov or through a broker.
You will need three pieces of information to get started: a taxpayer identification number or Social Security number, a U.S. address and a checking or savings account to link for payment.
If you'd rather buy Treasury securities in bulk, look for Treasury exchange-traded funds, or ETFs, and mutual funds that group bills, bonds and notes together for quick, easy and affordable diversification. Buying a collection of Treasurys with different duration lengths also helps reduce the effect any one bill, bond or note has on your portfolio.
Next steps:
FAQs
Types of Treasury securities
What's the difference between Treasury bonds vs Treasury notes vs Treasury bills? ›
Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity. T-notes mature between two and 10 years, with bi-annual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.
Is it better to buy CDs or Treasury bills? ›
Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.
Are Treasury bills more risky than Treasury bonds? ›
If you're looking for a short-term investment with low risk, Treasury bills are a great choice. However, if you're looking for a longer-term investment that yields semiannual income with a consistent interest rate, buying Treasury bonds is likely the better choice.
What are the three types of treasury securities? ›
Treasury securities are divided into three primary categories according to the length of maturity. These are Treasury Bills, Treasury Bonds, and Treasury Notes. All of these Treasury securities can be purchased directly from the U.S. government on the website, TreasuryDirect.gov, or through a bank or broker.
How often do 2 year Treasury notes pay interest? ›
Notes are relatively short or medium-term securities that mature in 2, 3, 5, 7, or 10 years. Both bonds and notes pay interest every six months. The interest rate for a particular security is set at the auction.
How do you avoid tax on treasury bonds? ›
The Treasury gives you two options:
- Report interest each year and pay taxes on it annually.
- Defer reporting interest until you redeem the bonds or give up ownership of the bond and it's reissued or the bond is no longer earning interest because it's matured.
T-Bill Tax Considerations
The interest income that you may receive from investing in a treasury bill is exempt from any state or local income taxes, regardless of the state where you file your taxes. However, you will need to report interest income from these investments on your federal tax return.
What is the current rate for a 1 year T-bill? ›
1 Year Treasury Rate is at 4.88%, compared to 4.87% the previous market day and 5.35% last year. This is higher than the long term average of 2.96%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.
What are the pros and cons of buying Treasury bills? ›
Pros and Cons of T-Bills
T-bills pay a fixed rate of interest, which can provide a stable income. However, should interest rates rise, the existing T-bills fall out of favor since their return is less than the market.
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.
What happens when a T-bill matures? ›
When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures. Note about Cash Management Bills: We also sell Cash Management Bills (CMBs) at various times and for variable terms. Cash Management Bills are only available through a bank, broker, or dealer.
What are the disadvantages of investing in Treasury bonds? ›
But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.
What is the difference between a Treasury bill and a Treasury note? ›
Key takeaways. Treasury bills have short-term maturities and pay interest at maturity. Treasury notes have mid-range maturities and pay interest every 6 months. Treasury bonds have long maturities and pay interest every 6 months.
How to buy a 6 month treasury bill? ›
You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov). The most common maturity dates are four weeks, eight weeks, 13 weeks, 26 weeks and 52 weeks.
Which treasury security has the highest yield? ›
Because of their longer maturities, Treasury bonds generally offer higher interest rates than Treasury notes to compensate investors for the additional risk of holding the securities for a longer period.
How much does a $1000 T-bill cost? ›
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.
What is the 6 month Treasury bill rate today? ›
6 Month Treasury Bill Rate is at 5.00%, compared to 5.00% the previous market day and 5.26% last year.
Do you pay capital gains on Treasury bills? ›
However, income earned from Treasury bills is not subject to state tax or local income taxes. Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.
What is the 3 month Treasury bill rate? ›
3 Month Treasury Bill Rate is at 5.21%, compared to 5.20% the previous market day and 5.26% last year. This is higher than the long term average of 4.19%. The 3 Month Treasury Bill Rate is the yield received for investing in a government issued treasury security that has a maturity of 3 months.
