What Are Treasurys? Government Bonds vs. Notes vs. Bills - NerdWallet (2024)


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.

» Learn more: Treasury bonds

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.

» Learn more: Treasury notes

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.

» Learn more: Treasury bills

Video: Different types of Treasurys

What Are Treasurys? Government Bonds vs. Notes vs. Bills - NerdWallet (4)

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.

» CALCULATE:Try our Treasury note and bond calculator

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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.

» Need a brokerage account? Check out our list of the best online brokers for beginners.

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.

» Learn more: How to buy Treasury bonds

Next steps:

  • What is a brokerage account and how do I open one?

  • What is an exchange-traded fund (ETF)

  • What is a bond and how do they work?

  • What are fixed-income investments?

  • The 10-year Treasury yield: What it is and why it matters

What Are Treasurys? Government Bonds vs. Notes vs. Bills - NerdWallet (2024)


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