U.S. Bonds vs. Bills vs. Notes: What's the Difference? (2024)

U.S. Bonds vs. Bills vs. Notes: An Overview

According to the U.S. Treasury Department, the selling of national debt to fund operations dates back to the Revolutionary War. The first Treasury Bills hit the market in 1929 followed by the widely popular U.S. savings bonds in 1935 and finally the Treasury notes.

U.S. savings bonds, U.S. Treasury bills, and notes are all investment products sold by the U.S. government to help finance its operations. The investor effectively loans money to the federal government and earns a profit in return.

Key Takeaways

  • U.S. savings bonds, T-bills, and T-notes are all forms of debt issued by the federal government to help finance its operations.
  • Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity.
  • T-notes mature anywhere between two and 10 years, with bi-annual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.
  • These all can be bought and sold in the secondary market, except for savings bonds, which are registered to just a single owner.

U.S. Bonds

The U.S. savings bond is the original savings vehicle for the small American investor, backed by the full faith and credit of the U.S. government.

Unlike the other government debt instruments, savings bonds are registered to a single owner and are not transferable. That is, they cannot be resold;however, they can be inherited, and they can be cashed in early with payment of an interest penalty.

Savings bonds have not been printed on paper since 2012, and they are no longer sold at banks or post offices. Today, savings bonds can only be purchased online through the TreasuryDirect website.

The most common savings bonds for investors are the Series EE and the Series I bonds. They are an option in some company retirement plans. Series EE bonds can be purchased for as little as $25 or as much as $10,000. They are guaranteed to at least double in value in 20 years and can continue to pay interest for up to 30 years after issuance.

Series I savings bonds have built-in protection against inflation. They are issued with a fixed rate of return plus a variable inflation rate that is based on the Consumer Price Index (CPI). They also can earn interest for up to 30 years.

Treasury Bills

The U.S. Treasury bill, or T-bill, is a short-term investment, by definition maturing in one year or less. A T-bill pays no interest but is almost always sold at a discount to its par value or face value. So the investor pays less than full value upfront for the T-bill and gets the full value at the maturity date. The difference between the two numbers is the investor's return on the investment.

For example, an investor who purchases a $100 T-bill at a discount price of $97 will receive the $100 face value at maturity. The $3 difference represents the return on the security.

Treasury bills can be bought through a bank or broker, or at the TreasuryDirect.gov website. Because of their short-term and nearly risk-free nature, T-bills are among the safest, most liquid securities in the world and form the foundation of several important markets such as the overnight interbank repo market, money market funds, and the commercial paper market.

Treasury Notes

Treasury notes, called T-notes, are similar to Treasury bonds but they are short-term rather than long-term investments. T-notes are issued in $100 increments in terms of two, three, five, seven, and 10 years. The investor is paid a fixed rate of interest twice a year until the maturity date of the note.

Treasury notes are sold at a government auction. The buyer may enter a competitive bid, specifying a yield, or a non-competitive bid, agreeing to buy at the yield determined by auction.

Like T-bills, T-notes can be bought through a bank, a broker, or the TreasuryDirect.gov website.

Special Considerations

For the individual investor, U.S. government debt represents a safe investment with a modest return. In fact, these bonds are considered to be among the safest investments in the world, and as a result, carry quite modest yields for investors, with short-term T-bills earning only the risk-free rate of return.

The U.S. government has never defaulted on any of its bond obligations.

Here are some sample rates:

  • Series I bonds issued from May 2022 to October 2022 have a composite rate of 9.62%.
  • A 52-week T-bill was selling at auction at an average discount of 3.84% as of Oct. 3, 2022.

How Can I Buy Treasury Bills?

Treasury bills can be purchased directly from the government on the website, TreasuryDirect.gov. TreasuryDirect is an online platform where individuals can buy government securities once opening an account. Alternatively, individuals can purchase bills from a broker or a bank.

What Is Riskier, Treasury Bonds or Bills?

Both Treasury bonds and bills have no default risk as they are backed by the full faith and credit of the U.S. government. Given the strength of the U.S. economy, these securities come with no risks. An investor will receive the full face value of the instrument at maturity.

What Has a Longer Maturity, a Treasury Bill or a Bond?

Treasury bills are short-term investments, with a maturity between a few weeks to a year from the time of purchase. Treasury bonds are more varied and are longer-term investments that are held for more than a year. Treasury bonds also have a higher interest payout than bills.

U.S. Bonds vs. Bills vs. Notes: What's the Difference? (2024)


U.S. Bonds vs. Bills vs. Notes: What's the Difference? ›

Key Takeaways

What is the difference between bonds and bills and notes? ›

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.

What is the difference of bonds and notes? ›

Key Takeaways

Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity. T-notes mature anywhere between two and 10 years, with bi-annual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.

Are I bonds better than Treasury bills? ›

For the near-term, T-bills are going to offer better yields than I Bonds. Short-term investors should favor T-bills if their investing horizon is 2 years or less.

What are the major differences between US bonds and Treasury bonds? ›

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.

How much does a $1000 T bill cost? ›

To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.

How often do 2 year treasury notes pay interest? ›

Bonds are long-term securities that mature in 20 or 30 years. 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.

What is the primary difference between Treasury notes and bonds? ›

The primary difference between Treasury Notes and Bonds is their maturity period: Treasury Notes mature in 1 to 10 years, whereas Treasury Bonds have longer maturities of 10 to 30 years.

Is bond the same as note? ›

Bonds are very similar to notes except they have usually higher term to maturity and interest payments on bonds are usually called coupons. These are by the way not even all possible long term debt instruments, you could for example have debentures and many more.

What are the cons of Treasury notes and 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 downside to I bonds? ›

Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all. Even after that, there's a penalty of three months' interest if you sell before five years.

Do you pay taxes on Treasury bonds? ›

Interest from Treasuries is generally taxable at the federal level, but not at the state level. Interest from munis is generally exempt from federal taxes, and if you live in the state where the bond was issued, the interest may also be exempt from state taxes.

What's better, 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.

Which is better, Treasury bills or notes? ›

Treasury bills have the shortest maturities, up to one year, making them the best choice for short-term investment. Treasury bonds, with maturities of 20 and 30 years, suit long-term investment needs. Treasury notes, with maturities ranging from 2 to 10 years, are suitable for intermediate-term investment.

Should I buy a 10-year Treasury? ›

Government debt and the 10-year Treasury note, in particular, are considered among the safest investments. Its price often (but not always) moves inversely to the trend of the major stock market indexes. Central banks tend to lower interest rates in a recession, which reduces the coupon rate on new Treasurys.

What happens when a Treasury note matures? ›

Treasury notes are medium-term, ranging from two to 10 years, and are otherwise the same, with semiannual interest payments and the face value when they mature. Treasury bills mature within a year, do not pay interest, and are sold at a discount to the face value that you get at maturity.

Are loan notes the same as bonds? ›

Loan notes are similar to bonds, but they typically have a shorter maturity period and are not as liquid.

Are capital notes the same as bonds? ›

A capital note is a hybrid product and is a perpetual, unsecured security that combines features of both shares and bonds – hence the term hybrid security. It is a way for banks and companies to borrow money from investors. Like a share, most capital notes do not have a maturity date.

What is the 3 month Treasury bill rate? ›

3 Month Treasury Bill Rate is at 5.25%, compared to 5.26% the previous market day and 5.09% 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.


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