Treasury bills are short-term U.S. government securities that mature in four weeks to one year and normally pay their return at maturity. Treasury bonds run for 20 or 30 years, pay a fixed coupon every six months, and return face value at maturity if held to maturity. Both have the U.S. government’s full-faith-and-credit backing, but neither has a guaranteed resale price before maturity. The practical choice is therefore a trade-off between time horizon, cash-flow needs, reinvestment risk and tolerance for market-price changes.
Treasury bills vs. Treasury bonds at a glance
| Feature | Treasury bills | Treasury bonds |
|---|---|---|
| Maturity | Four weeks through 52 weeks. Current standard terms listed by the Treasury are 4, 6, 8, 13, 17, 26 and 52 weeks. | 20 or 30 years. |
| How you receive interest | Usually bought at a discount (or, in some auctions, at par) and paid face value at maturity. The difference is the interest. | Fixed coupon set at auction, paid every six months, plus face value at maturity if held to maturity. |
| Price before maturity | Can be sold in the secondary market; proceeds depend on the market price at that time. | Can trade above or below face value as market yields change. A sale before maturity can produce a gain or loss. |
| Minimum purchase | $100, in $100 increments. | $100, in $100 increments. |
| Purchase channels | TreasuryDirect, a bank, broker or dealer at auction, or the secondary market. | TreasuryDirect, a bank, broker or dealer at auction, or the secondary market. |
| Tax treatment listed by Treasury | Interest is subject to federal income tax and exempt from state and local income tax. | Interest is subject to federal income tax and exempt from state and local income tax. |
These are product specifications, not promises about future returns. Auction rates and market prices change over time, so a current bill yield cannot be stated without a dated auction result for a specific term.
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What is the difference between Treasury bills and Treasury bonds?
The defining difference is the time until the government repays the security. A bill is designed for a cash need measured in weeks or months. A bond commits the issuer and investor to a 20- or 30-year cash-flow schedule. That longer schedule creates regular coupon income, but it also leaves much more value exposed to changing market yields if the owner sells early.
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Do not confuse Treasury bonds with U.S. savings bonds. Savings bonds are a separate product with different transfer, redemption and interest rules. This comparison concerns marketable Treasury bills and Treasury bonds.
How Treasury bills work
Maturities and cash flow
Treasury bills currently listed by Treasury mature in 4, 6, 8, 13, 17, 26 or 52 weeks. They do not make a monthly or semiannual coupon payment. Instead, you generally pay less than the bill’s face value and receive the full face value at maturity. The difference is the bill’s interest.
For example, a hypothetical $1,000 bill bought at a 5% annualized discount for 26 weeks would have an illustrative price of about $975. The actual Treasury formula uses a 360-day year:
Price = Face value × (1 − (discount rate × time) ÷ 360)
In that illustration, the $25 difference is not a monthly distribution. It is realized when the Treasury pays $1,000 at maturity. The 5% figure is only a mathematical example, not a current auction quote; actual discount rates are established at auction and vary by term and date.
Discount rate is not the same as a bond coupon
A bill’s quoted discount rate is calculated from its purchase discount and the time remaining. A bond’s coupon is a fixed percentage of face value paid every six months. Because the cash-flow patterns and calculations differ, comparing a bill discount rate directly with a bond coupon rate can give a misleading impression of which investment pays more.
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What happens if you sell a bill early?
You may sell a bill in the secondary market before it matures, but the buyer will price it using current market yields, the remaining term and other market conditions. A short remaining term may limit the magnitude of price movement, but it does not make the resale price identical to face value. If you need a known maturity payment, holding until maturity avoids that sale-price uncertainty.
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How Treasury bonds work
Coupon payments and repayment
Treasury bonds have 20- or 30-year maturities. At auction, Treasury sets a fixed interest rate, called the coupon rate. While you hold the bond, the coupon is calculated on its face value and paid every six months. At maturity, Treasury pays the face value, assuming the bond remains in your account until then.
A $1,000 face-value bond with a hypothetical 4% coupon would pay $20 every six months, or $40 per year. That example explains the payment pattern only; it is not a current offer or forecast.
Why a bond can trade above or below face value
The coupon does not change after issuance, but the bond’s market price does. TreasuryDirect explains the relationship this way:
- If the market yield to maturity is higher than the bond’s coupon rate, the bond generally trades below face value.
- If the market yield to maturity equals the coupon rate, the bond generally trades at face value.
- If the market yield to maturity is lower than the coupon rate, the bond generally trades above face value.
Yield to maturity incorporates the price you pay, the coupon payments and the repayment of face value at maturity. Therefore, a bond’s coupon rate is not by itself the return earned by someone who buys the bond in the secondary market.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallDo Treasury bonds lose value if you sell early?
They can. If market yields rise above your bond’s coupon rate, new bonds offer relatively more income, so buyers typically pay less for your older bond. If yields fall, your higher coupon can make the bond more valuable and its price may rise above face value. Your realized proceeds are the market price on the sale date, not an automatic $1,000 per $1,000 of face value.
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Maturity, reinvestment and time-horizon risk
Bills: short commitment, frequent reinvestment decisions
A bill lets you set a maturity date within roughly a year. That can suit a tax payment, house deposit, emergency reserve or other goal with a known near-term date. The trade-off is reinvestment risk: when the bill matures, you may have to buy another bill at whatever rate is available then. A high rate today does not lock in the same rate for future bills.
Bonds: long income schedule, greater sensitivity before maturity
A 20- or 30-year bond provides a long stream of scheduled coupon payments. If you can hold through maturity, the stated terms provide the coupon payments and return of face value. If your plans change, however, the bond’s many future cash flows make its market valuation more dependent on changes in interest rates. This is a qualitative pricing implication of the longer maturity, not a Treasury-published percentage estimate.
Where Treasury notes fit
Treasury notes are a separate middle-maturity category with 2-, 3-, 5-, 7- and 10-year terms. Someone comparing bills with bonds should include notes in the decision when the goal falls between one and 20 years. Calling every Treasury security a “bond” can obscure the different maturity and cash-flow choices.
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“Safer” depends on which risk you mean. For issuer payment risk, Treasury states that its marketable securities are backed by the full faith and credit of the U.S. government and that principal and interest payments are guaranteed on time. Bills and bonds share that credit support.
For market-price risk before maturity, they are not equivalent. A bill’s shorter term generally means less time for rates to change before the scheduled payment, but a bill sold early can still be worth more or less than its face value. A 20- or 30-year bond has a much longer stream of payments whose present market value changes when yields move. A holder who does not sell and waits for maturity is affected differently from an investor who must liquidate on a particular date.
Neither security eliminates inflation risk. The dollar amount of a bill’s maturity payment and a bond’s coupon are nominal amounts. If consumer prices rise faster than your investment’s return, purchasing power can decline even when every Treasury payment arrives on time.
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How returns should be compared
Use the right measure for each security
- Bill: examine the auction discount, purchase price, face value and exact days to maturity. An annualized discount quotation is not identical to an annual percentage yield.
- Bond bought at auction: consider the coupon, issue price and the yield established at auction.
- Bond bought in the secondary market: use yield to maturity (or another clearly identified yield measure) together with the price, coupon and remaining term.
The sources for this comparison do not establish which instrument currently offers the higher yield. Rates are set at auction and change over time. Maturity alone cannot predict future performance. For a current-rate decision, consult a dated Treasury auction result and record the security term, auction date and whether the quoted figure is a discount rate, investment rate, coupon or yield to maturity.
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A simple holding-period illustration
Suppose two hypothetical investments each use $1,000. A 26-week bill bought for $975 pays $1,000 at maturity, producing $25 before tax if held to maturity. A 20-year bond bought at par with a hypothetical 4% coupon pays $20 every six months and returns $1,000 at maturity. The examples cannot be ranked by the 5% and 4% labels: the bill’s figure describes a discount calculation over 26 weeks, while the bond’s figure describes periodic coupon payments over decades. Actual auction pricing is required for a valid comparison.
Buying bills or bonds: TreasuryDirect and other channels
Direct noncompetitive auction purchase
TreasuryDirect accepts noncompetitive bids. You agree to accept the rate or yield determined at auction, rather than specifying the minimum yield you will accept. Banks, brokers and dealers can submit both competitive and noncompetitive bids. A competitive bid specifies the yield you require and can be rejected if it is not consistent with the auction outcome; the intermediary’s procedures and fees may apply.
- Choose the security and term. Select a currently offered bill term or a 20- or 30-year bond, and identify the auction date and maturity date.
- Confirm the amount. The minimum is $100, with additional purchases in $100 increments.
- Select the purchase route. Use TreasuryDirect for a direct noncompetitive bid, or use a bank, broker or dealer if you need competitive bidding, an existing brokerage account or secondary-market trading.
- Submit the order before the stated deadline. Read the account’s auction instructions; deadlines vary by security and channel.
- Review the result. The auction determines the bill’s discount or the bond’s issue yield and price. Do not treat an old illustrative rate on an educational page as a current quote.
- Decide whether to hold or sell. Holding to maturity follows the original payment schedule. Selling or transferring early exposes you to the market price and the rules of your account and trading channel.
TreasuryDirect’s holding restriction
TreasuryDirect says a newly purchased marketable security generally must be held at least 45 calendar days before it can be transferred or sold, except when it was purchased by reinvesting proceeds from a maturing security. Check the current account rules before relying on a short-term resale plan. A broker-held security follows that intermediary’s custody and trading procedures instead.
Secondary-market purchases and sales
A bank, broker or dealer can provide access to existing bills and bonds after auction. The quoted price reflects current yields, accrued interest where applicable, remaining maturity and the intermediary’s pricing. Ask whether a commission, markup or other charge applies, and compare the resulting yield rather than only the displayed price.
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Taxes, minimums and practical constraints
Minimum investment
Treasury lists a $100 minimum for both bills and bonds, with purchases in $100 increments. A larger account balance is not required to begin, although an investor should still retain adequate cash for expenses and emergencies.
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Federal, state and local taxes
Treasury’s product pages state that interest is subject to federal income tax and exempt from state and local income tax for both bills and bonds. The timing and reporting of bill discount income can differ from the timing of a bond coupon, and individual tax situations vary. Use the official tax forms and consult a qualified tax professional for advice about your circumstances; the general exemption is not a complete personal tax calculation.
Liquidity and access
Both securities are marketable, meaning they can generally be sold before maturity through a secondary market. “Marketable” does not mean “guaranteed to sell at face value.” A sale can produce less than your purchase price, particularly when yields have risen or when transaction costs reduce proceeds.
Which one fits common goals?
You need money within a year
A bill’s 4- to 52-week menu lets you match maturity to a near-term liability. Choose a maturity that leaves enough time for settlement and unexpected delays. If the money must be available on a precise date, avoid assuming that an early sale will produce exactly face value.
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A bond supplies fixed coupon payments every six months and can be appropriate for an investor who values a known nominal payment schedule and can tolerate price changes in the interim. Confirm that the 20- or 30-year maturity is compatible with your spending horizon and estate or liquidity plans.
You may need to sell before maturity
Compare the likely market-price exposure, not just the issuer’s credit quality. A bill’s shorter remaining term may reduce—but does not remove—price uncertainty. A long bond can have a substantial price change when market yields move because more future coupons and principal are being repriced.
You are building a ladder
Combining different bill maturities can spread reinvestment dates across the year. Adding notes or bonds can extend the ladder for longer goals and create coupon dates. Each rung should be matched to a cash need; do not assume that a ladder guarantees a particular future yield.
Common mistakes to avoid
- Comparing a bill discount rate with a bond coupon as if they were the same return. They describe different calculations and payment patterns.
- Assuming government backing fixes the resale price. It supports scheduled payments, not a guaranteed secondary-market quote.
- Calling the bill’s maturity payment monthly interest. The bill normally pays face value once at maturity; there is no periodic coupon.
- Using an old sample auction rate as today’s yield. Educational examples are illustrative. Use a dated auction result for current numbers.
- Ignoring the sale date. A bond that is attractive at maturity can still be worth less on the day you need to sell it.
- Forgetting reinvestment risk. A maturing bill must be reinvested at the then-current rate if you still need the money invested.
- Overlooking TreasuryDirect’s transfer rule. A newly purchased marketable security generally has a 45-calendar-day holding requirement, subject to the stated reinvestment exception.
- Treating Treasury bonds as savings bonds. They are different instruments with different rules.
A decision checklist
- Write down the date you need the principal.
- Decide whether you need periodic cash payments or one maturity payment.
- Determine whether you can hold through maturity.
- Compare the correctly defined rate or yield for the same date and calculation basis.
- Check the $100 minimum, account channel, auction deadline and any trading costs.
- Account for federal taxation and the state/local tax exemption in your after-tax comparison.
- Verify current terms and rates immediately before placing an order.
Bottom line
Treasury bills are the short-term choice: four weeks to one year, generally purchased below face value and paid at face value at maturity. Treasury bonds are the long-term income choice: 20 or 30 years, with fixed semiannual coupons and face-value repayment at maturity. Both carry the U.S. government’s payment backing, but a pre-maturity sale can produce a market price above or below face value—especially for a long bond when yields change. Choose the security whose maturity and cash-flow pattern match your date and liquidity needs, and compare auction or market yields using the correct definition rather than relying on the headline coupon or discount rate.
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