Edited by Michelle TipswordTreasury Bills vs. Bonds vs. Notes: Which Should You Invest In?
Edited by Michelle Tipsword
Quick Answer
Treasury bonds, bills and notes are different types of debt securities that are backed by the federal government. They each have fixed interest rates and tax advantages, but there are key differences that set them apart.
There are three main types of government bonds: Treasury bills, bonds and notes. Treasury bills are short-term investments that mature in a year or less. Notes are medium-term securities that typically mature in two to 10 years. And bonds are long-term investments with maturities of up to 30 years.
All of these debt securities are federally insured and provide a low-risk way to invest—but they're structured differently and have unique pros and cons to consider. You'll ultimately want to choose investments that support your financial goals and timeline. Here's a detailed breakdown of how these government bonds work so you can decide whether to include them in your portfolio.
What Are Treasury Bills?
Treasury bills (T-bills) are short-term bonds with terms ranging from four weeks to one year. They offer a fixed interest rate that's paid when the bill matures. Treasury bills are available at TreasuryDirect.gov at a discount of their face value, which is the bill's value when it's first issued. This is also the amount you'll get back upon maturity.
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Pros and Cons of Treasury Bills
Below are some important things to keep in mind when investing in T-bills.
Pros
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Ideal for short-term investing: If you're investing for near-term goals and prefer a low-risk investment, T-bills can be a good option. As of April 2026, 26-week Treasury bills had yields of 3.72%.
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Liquidity: T-bills offer relatively easy access to your money. If you don't want to wait until the end of the term, you can sell a T-bill before it matures without penalty. Just be aware that there's no guarantee you'll recoup your investment.
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Tax benefits: Earned interest is exempt from state and local taxes. However, federal income tax does apply.
Cons
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Modest returns: Returns typically lag behind other investments. For example, over the past century, average annual stock market returns have been around 10%. The trade-off is that stock investing carries more risk.
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Interest rate risk: If you purchase a T-bill and then interest rates increase, your investment will become less valuable. That's because Treasury bills pay a fixed, predetermined interest rate upon maturity—and newly issued T-bills will likely earn more.
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Delayed interest payment: T-bills provide a single interest payment when the bill matures. That may not be ideal if you're looking for an investment that generates regular income.
What Are Treasury Bonds?
Available in 20- and 30-year terms, Treasury bonds (T-bonds) are designed for long-term investing. They pay interest every six months—and the rate is fixed, so interest payments stay the same for the life of the bond. As of March 2026, the interest rate on a 20-year bond was 4.625%. The rate on a 30-year bond was slightly higher at 4.75%.
Learn more: Are Government Bonds Risk-Free?
Pros and Cons of Treasury Bonds
Here are the main advantages and disadvantages of investing in Treasury bonds.
Pros
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Low risk: Treasury bonds can be appealing to conservative investors. They aren't known for offering robust returns, but it's highly unlikely that you'll lose money.
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Tax perks: You won't owe state or local taxes on earned interest, but you will owe federal taxes each year until the bond matures.
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Can provide retirement income: Keeping a portion of your retirement savings in T-bonds can expose you to less risk when compared to stocks. Treasury bonds can also provide regular interest payments when you're no longer working.
Cons
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Lower returns: If you're looking for a low-risk investment, certificates of deposit (CDs) or money market accounts may offer higher yields than Treasury bonds. And again, the stock market has historically produced much higher average annual returns.
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Vulnerable to inflation: Inflation can gradually diminish the value of your fixed interest payments. As the cost of consumer goods increases over time, your dollar won't go as far as it used to.
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Interest rate risk: Treasury bond interest rates are fixed. That means you'll have the same rate for two or three decades. If interest rates go up during that time, any T-bonds you already own will stay locked into that lower rate.
What Are Treasury Notes?
Treasury notes are government bonds that are available in terms of two, three, five, seven or 10 years. You can expect a fixed interest rate that's paid every six months. As of April 2026, the rate on a 10-year note was 4.125%.
Pros and Cons of Treasury Notes
Just like Treasury bills and bonds, Treasury notes have key benefits and drawbacks to consider.
Pros
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Little risk: Treasury notes are backed by the federal government, so your chance of losing money is extremely low. That can be attractive if you have a low appetite for risk.
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Recurring income: Treasury notes pay interest every six months, providing steady income until it matures. That can help add some passive income to your budget.
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Tax benefits: Similar to other government bonds, earned interest from Treasury notes is shielded from state and local income taxes. (Federal income tax is due annually.)
Cons
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Aren't known for strong returns: Interest rates on Treasury notes are often lower than returns on stocks or corporate bonds, but risk is also lower. That may be a worthwhile trade, depending on your goals.
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Interest rates are fixed: A Treasury note you purchase today won't benefit from potentially higher interest rates in the future. That's an important consideration if you're a long-term investor.
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Inflation risk: Like T-bonds, your interest payments will gradually lose value if inflation continues to increase over time.
| Treasury Bills | Treasury Bonds | Treasury Notes | |
|---|---|---|---|
| Time horizon | Short-term investing | Long-term investing | Medium-term investing |
| Time to maturity | Four weeks to one year | 20 or 30 years | Two, three, five, seven or 10 years |
| Interest payments | Fixed payment when the bill matures | Fixed payments every six months | Fixed payments every six months |
| Liquidity | Most liquid, thanks to their shorter maturity periods | Less liquid; they can be sold before they reach maturity, but older T-bonds may be more vulnerable to interest rate changes | Highly liquid and can be sold before they mature |
| Tax treatment | Interest subject to federal income tax; exempt from state and local taxes | Federal income tax due annually; exempt from state and local taxes | Federal income tax due annually; exempt from state and local taxes |
| Interest rate risk | Lowest | Highest | Medium |
Which Treasury Security Is Right for You?
Your risk tolerance, time horizon and financial goals will determine which of these Treasury securities might make sense for your portfolio. Below are some general guidelines that can help you decide.
When to Invest in Treasury Bills
T-bills may be a good call if:
- You're investing for short-term goals, whether that's a down payment on a home or your next vacation.
- Interest rates are on the rise and you don't want to lock yourself into a potentially lower rate long term.
- Liquidity is important to you.
- You're looking to add some low-risk investments to your portfolio.
When to Invest in Treasury Bonds
You might consider T-bonds if:
- You have a long time horizon.
- Current yields are higher than the rate of inflation.
- You're looking for safer investments to help diversify your portfolio.
- You want to secure an additional source of retirement income.
When to Invest in Treasury Notes
Treasury notes may be appealing if:
- You're saving for a medium-term goal (something in between the immediate future and retirement).
- You expect interest rates to decline and want to lock in a potentially higher return.
- You like the idea of receiving fixed interest payments every six months.
- You want a liquid investment that can be sold before maturity.
How to Buy Treasury Bills, Bonds and Notes
These Treasury securities are available for purchase at auction via TreasuryDirect.gov (auction timelines are below). You can also buy Treasury bonds through a bank, broker or dealer.
| Type of Treasury Security | When Auctions Occur |
|---|---|
| Treasury bills | Weekly for bills that take less than a year to mature. One-year T-bills are auctioned every four weeks. |
| Treasury bonds | Four times a year for original issues (eight times a year for reopenings). |
| Treasury notes | Monthly for notes with terms of two, three, five and seven years. For 10-year notes, auctions occur four times a year. (Auctions are held eight times a year for reopenings of 10-year notes.) |
Frequently Asked Questions
The Bottom Line
When comparing Treasury bills versus bonds versus notes, you'll find that each one has its own pros and cons. T-bonds are designed for long-term investing, while T-bills have much shorter maturity periods. Treasury notes fall somewhere in the middle.
All three can help diversify your portfolio while shielding you from state and local taxes. The right one for you will depend on your investment timeline and financial goals. Keep in mind that stock investing, while riskier, is often necessary for long-term growth.
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About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
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