Treasury Bills vs. Treasury Bonds: Know the Difference (2024)

FAQs

Treasury Bills vs. Treasury Bonds: Know the Difference? ›

The most significant difference among Treasurys is their maturity. T-bills

The federal government will not send you any interest payments. This is because Treasury bills are sold below face value, but when they mature, you're paid the current face value of the bill. For a Treasury bond, the government will pay you a fixed amount of interest every six months until maturity.

Treasury notes are redeemable on their short-term maturity while treasury bonds are usually payable not less than 20 years. Hence, completing the statement, "The primary difference between treasury notes and bonds is their maturity dates."

For this reason, T-bills have interest rate risk, which means there is a danger that bondholders might lose out should there be higher rates in the future. Although T-bills have zero default risk, their returns are typically lower than corporate bonds and some certificates of deposit.

Treasury bills typically earn lower returns than other debt securities and even some certificates of deposit. As a result, Treasury bills may be most attractive to conservative investors who want to earn a little interest without the risk of more volatile investments such as individual stocks.

However, income earned from Treasury bills is not subject to state tax or local income taxes. Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.

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.

We sell Treasury Bills (Bills) for terms ranging from four weeks to 52 weeks. Bills are sold at a discount or at par (face value). When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.

The only interest payment to you occurs when your bill matures. At that time, you are paid the par amount (also called face value) of the bill. (Bills are typically sold at a discount from the par amount, and the difference between the purchase price and the par amount is your interest.)

Both bonds and notes pay interest every six months.

What is the disadvantage of investing in Treasury bills? ›

Since T-bills have fixed interest rates, inflation can erode the purchasing power of the returns earned from these investments. This means that investors may need help to keep up with inflation, resulting in a decline in real returns. T-bills are issued with maturities of only a few weeks to a few months.

Investing in Treasury bonds comes with some disadvantages as well. Some of the major downsides to Treasury bonds are: Lower yield: You'll typically earn less interest on Treasuries compared with other, riskier securities.

Right now, the 3-month Treasury bill rate is 5.25% while the 30-year Treasury rate is 4.58%. So, if you're looking for a risk-free way to earn interest on your cash over a short period of time, investing in a T-bill could be a good choice.

Buffett hasn't been a fan of bonds for a long time. He prefers equities, which offer capital-appreciation potential, and cash—mostly risk-free U.S. Treasury bills—which mature within a year. Berkshire held $235 billion of T-bills on June 30.

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.

Bonds are generally considered a less-risky complement to the volatility of stocks in an investment portfolio. U.S. Treasurys, and specifically Treasury bills and Treasury notes, are the benchmark for a nearly risk-free investment if held to maturity.

Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.

When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.

Basic Info

6 Month Treasury Bill Rate is at 4.54%, compared to 4.58% the previous market day and 5.31% last year. This is higher than the long term average of 4.49%.

Use the Education Exclusion

You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.