The Tool Desk
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1. Match the maturity to when you may need the money
Treasury bonds are long-term marketable securities with 20- or 30-year terms, and they pay interest every six months. Those terms are a poor fit for money you expect to spend sooner unless you are prepared to sell the bond before maturity. Treasury securities can be sold before they mature, but their market price at that time may not equal face value. TreasuryDirect’s Treasury bond overview describes their terms and payments.
Ask yourself whether the planned use of the money is tied to a date, such as a future expense, and whether you can leave the principal invested until then. A bond’s maturity date does not prevent an early sale, but it also does not guarantee that an early sale will recover what you paid.
2. Compare yield to maturity with the price you will pay
Do not judge a bond by its stated interest rate, or coupon, alone. The coupon determines interest paid on the bond’s face value. Your return also depends on the price you pay and whether you hold the bond to maturity. Treasury describes yield to maturity as the annual rate of return on the security. TreasuryDirect explains pricing and interest rates.
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- If yield to maturity is higher than the stated interest rate, the bond’s price is below par (face value).
- If yield to maturity is lower than the stated interest rate, the bond’s price is above par.
- If you still own the bond at maturity, you receive its face value; paying above or below face value affects the overall return.
Compare the current yield to maturity with the price and transaction terms for the specific bond you are considering. Treasury’s pricing page includes historical examples, not a live quote. Check current offerings and the quote from the bank or brokerage you would use before deciding.
3. Decide whether you can tolerate an early-sale loss
Bond prices generally fall when market interest rates rise, and longer maturities generally carry more interest-rate risk than otherwise similar shorter bonds. If you sell before maturity, the price could be less than your purchase price or face value; it could also be more. The exact result depends on market conditions and the bond’s transaction price. Investor.gov’s bond FAQ explains interest-rate, inflation, liquidity, credit, and call risks.
Consider how you would respond if market rates rose and the bond’s resale price fell before you needed the money. If you might have to sell at that point, the maturity date alone is not a sufficient measure of suitability.
4. Separate U.S. government backing from market and inflation risk
Treasury securities are backed by the full faith and credit of the U.S. government. That backing concerns payment by the issuer; it does not keep a bond’s resale price stable or protect the purchasing power of fixed payments from inflation. Investor.gov puts the purchasing-power risk plainly: “Inflation reduces purchasing power, which is a risk for investors receiving a fixed rate of interest.”
A long-term nominal Treasury bond may keep paying its stated interest, but the goods and services those payments can buy may change over time. Keep issuer-payment confidence, possible losses on an early sale, and inflation’s effect on purchasing power as separate questions.
5. Compare a nominal Treasury bond with TIPS
If inflation protection is important, compare the fixed nominal payments of a Treasury bond with Treasury Inflation-Protected Securities (TIPS). TIPS principal adjusts with the Consumer Price Index (CPI), and interest is paid on the adjusted principal, so the payment amount can vary. At maturity, Treasury pays the greater of adjusted principal or the original principal. TIPS are offered with 5-, 10-, or 30-year terms. TreasuryDirect’s TIPS overview describes their principal adjustments, payments, terms, and tax treatment.
| What to compare | Long-term Treasury bond | TIPS |
|---|---|---|
| Terms described by Treasury | 20 or 30 years | 5, 10, or 30 years |
| Interest payments | Every six months, based on face value | Based on adjusted principal; payment amount can vary |
| Principal | Face value is paid at maturity if you still own the bond | Adjusted with CPI; maturity payment is no less than original principal |
| Inflation exposure | Fixed nominal payments can lose purchasing power | Principal adjusts with CPI; that does not eliminate the risks of an early sale |
Neither structure is automatically better. Compare the maturity with your time horizon, the current yield and price, the possibility of an early sale, and whether inflation-linked principal or fixed nominal payments better fit your plans.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.6. Check where you will buy and what the transaction costs
Treasury says marketable securities are available through banks and brokerages. The purchase channel matters because you need to understand the quote, price, yield, any spread or fee, and the account’s transaction terms before placing an order. TreasuryDirect’s overview of marketable securities identifies banks and brokerages as purchase channels.
- Confirm the bond or TIPS offering and maturity you are considering.
- Review the price and yield to maturity shown for the actual transaction.
- Ask the provider about fees, spreads, and how to sell before maturity.
- Check how interest and any sale proceeds will be handled in your account.
7. Check the tax treatment for your situation
TreasuryDirect says federal taxes apply to TIPS interest and that changes in TIPS principal may affect federal taxes; it also says TIPS are not subject to state or local taxes. Tax rules and individual outcomes can depend on circumstances, so verify current rules and consult a qualified tax professional if the tax result could affect your choice.
Quick Recap
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