Treasury Bills vs Notes vs Bonds: Understanding US Government Debt

Treasury Bills (T-Bills): Short-Term Government Debt

Treasury bills are short-term securities with maturities of 4, 8, 13, 17, 26, and 52 weeks. Unlike notes and bonds, T-bills do not pay a coupon. Instead, they are sold at a discount to face value and redeemed at par at maturity. The difference between the purchase price and the face value is your interest. For example, you buy a 26-week T-bill for $9,750 and receive $10,000 at maturity — your $250 gain is the interest. T-bills are the most liquid short-term instrument in the world, with an active secondary market where you can sell before maturity. They are the closest thing to cash in the investment world, often used as a substitute for money market funds or savings accounts. Compare T-bills with high-yield savings accounts →

Treasury Notes (T-Notes): Medium-Term Government Debt

Treasury notes have maturities of 2, 3, 5, 7, and 10 years. They pay a fixed semi-annual coupon — meaning you receive interest payments every six months until maturity, at which point you get your principal back. The 10-year Treasury note is the most important benchmark in global finance. It is used to price mortgages (the 30-year fixed mortgage rate typically tracks about 1.5-2% above the 10-year yield), corporate bonds, and other loans. When you hear "Treasury yields are rising" on the news, they are almost always referring to the 10-year yield. T-notes are moderately sensitive to interest rate changes — if rates rise 1%, a 10-year note falls approximately 7-8% in price due to its duration. See how Treasury notes fit into a balanced portfolio →

Treasury Bonds (T-Bonds): Long-Term Government Debt

Treasury bonds, often called "long bonds," have maturities of 20 and 30 years — the longest maturity of any US government security. Like T-notes, they pay a semi-annual coupon. T-bonds are the most sensitive to interest rate changes because of their long duration. A 30-year bond with a duration of approximately 18 years will fall roughly 18% in price if interest rates rise 1%. This makes them both powerful tools for long-term fixed-income strategies and risky if you might need to sell before maturity. T-bonds are popular among pension funds and insurance companies that need to match long-dated liabilities. For individual investors, they are best used in a bond ladder or as a long-term holding in a diversified portfolio. Compare Treasuries with corporate bonds →

How to Buy Treasury Securities

There are two main ways to buy Treasuries. Directly through TreasuryDirect.gov — no fees, no middleman, you buy at auction and hold to maturity. This is the best approach if you plan to hold T-bills or T-notes to maturity. Through any major broker (Schwab, Fidelity, Vanguard) — you can buy at auction or in the secondary market. Brokers charge minimal or no commission for Treasuries and make it easier to sell before maturity if needed. For most investors, buying through a broker is more convenient because your Treasuries sit in the same account as your stocks and ETFs. For T-bills specifically, many brokers offer automatic rolling — your matured bill is automatically reinvested in a new one. Find the best broker for buying Treasuries →

Tax treatment: Treasury interest is taxable at the federal level but exempt from state and local taxes. This is a significant advantage for investors in high-tax states like California or New York. For example, if you are in the 37% federal bracket and live in California (13.3% top state rate), a 4.5% Treasury yield is equivalent to a 5.2% corporate bond yield on an after-tax basis. Always factor in tax treatment when comparing yields across different bond types.

Real Example: Buying a 6-Month T-Bill

Scenario: You buy a 26-week (6-month) T-bill for $9,750 at auction. At maturity, you receive $10,000. Your interest is $250 over 6 months, which works out to approximately 5.13% annualized. This is essentially a risk-free 5% return — higher than most high-yield savings accounts — with the same FDIC-equivalent safety (full faith of the US government). The difference from a savings account is that you cannot access the money for 6 months without selling on the secondary market. If you need the money before maturity, you can sell your T-bill to another investor through your broker, but you may get slightly less than you paid if rates have risen in the meantime. Calculate how much emergency fund you need in T-bills →

Are T-bills safer than savings accounts?

T-bills and FDIC-insured savings accounts are both extremely safe, but they are insured by different entities. Savings accounts are insured by the FDIC up to $250,000 per depositor per bank. T-bills are backed by the full faith and credit of the US government — the same entity that backs FDIC insurance. In practice, both are considered risk-free. The main difference is liquidity: savings accounts allow instant withdrawals, while T-bills lock your money for the duration of the term. However, T-bills typically offer higher yields than savings accounts. As of 2026, a 4-week T-bill yields about 4.2% while many high-yield savings accounts pay 3.5-4.0%. If you can handle the slightly lower liquidity, T-bills generally pay more. Start your investing journey with a balanced approach →

How do I buy Treasury bonds?

The simplest way is through TreasuryDirect.gov, where you can buy Treasury bonds directly from the US government with no fees. You need to create an account and link a bank account. You can also buy Treasury bonds through any major broker — Fidelity, Schwab, Vanguard, and others allow you to purchase both new issues at auction and existing bonds on the secondary market. Buying through a broker is more convenient if you already have an investment account and if you want the flexibility to sell before maturity. For most beginners, buying a Treasury ETF like IEF (7-10 year Treasury) or TLT (20+ year Treasury) through a broker is the easiest way to get exposure to Treasury bonds without dealing with auctions or maturity dates.

What happens to T-bond prices when interest rates rise?

When interest rates rise, existing bond prices fall. The magnitude of the price decline depends on the bond's duration. A 30-year T-bond with a duration of 18 will fall approximately 18% for each 1% increase in interest rates. A 2-year T-note with a duration of 1.9 will fall only about 1.9%. This is why T-bills (which mature in less than a year and have near-zero duration) are essentially immune to interest rate risk, while T-bonds are highly sensitive. If you hold an individual bond to maturity, you get your full principal back regardless of what happens to interest rates in between — but the market value of your bond will fluctuate along the way. If you might need to sell before maturity, shorter-term Treasuries are safer in a rising rate environment.

Which Treasury is best for an emergency fund?

For an emergency fund, T-bills with 4-week or 8-week maturities are ideal. They offer higher yields than savings accounts, near-zero interest rate risk, and the shortest lock-up period. You can set up automatic rolling so that as each T-bill matures, it is automatically reinvested in a new one. If an emergency arises, you can cancel the automatic roll and the matured funds will be available in your account. Alternatively, a T-bill ETF like BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) provides daily liquidity and yields close to T-bills, making it an excellent vehicle for emergency funds. The slight yield advantage over savings accounts, combined with the safety of US government backing, makes T-bills and T-bill ETFs the optimal choice for emergency savings for investors who are comfortable with basic brokerage accounts. Learn how much to keep in your emergency fund →

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