U.S. Treasury Bills, Notes, and Bonds Are Safe Investments

The U.S. Treasury issues sells bills, notes and bonds. Like any marketable security you can hold them to maturity or buy and sell them in the bond market.

These securities are backed by the U.S. government and no treasury bill, note or bond has ever defaulted. Because they are the ultimate safe investment, their yields tend to be lower than somewhat riskier corporate bonds.

The interest income from a U.S. Treasury security is exempt from state and local states. But you must pay federal tax on interest and any capital gains that you realized from selling a security.

You can buy treasuries from a broker, at a federal reserve bank, or on the Internet at TreasuryDirect, the site offered by the the Bureau of Public Debt, which is under the U.S. Department of Treasury.The site offers a comprehensive FAQ section that will answer your questions about U.S. Treasury products and how you buy and sell them.

Treasury Bill (T-Bill)

The U.S. Treasury Bill (T-bill) is a marketable bond with maturities of 13 and 16 weeks. The minimum purchase is $1,000 and you can purchase larger denominations in increments of $1,000. You buy the T-bill at a discount and receive the full face value of the T-bill when you redeem it at maturity. For example, if you paid $980 for a $1,000 T-bill, you would receive $120 interest at maturity. Or you can sell the T-bill before it matures and receive the current price of the T-bill, which may be more or less than your purchase price. Therefore, you can make or lose money buying and selling T-Bills before they mature.

Treasury Note (T-Note)

A Treasury note (T-Note) is a marketable bond with a maturity of 2, 3, 5, and 10 years. A Treasury note pays a fixed rate of interest every six months until maturity. At maturity, the U.S. Treasury pays back the principal to the bond holder.

The minimum purchase is a face value of $1,000 with additional increments of $1,000.

Treasury Bond (T-Bond)

The U.S. Treasury, no longer sells Treasury bonds. When issued these bonds had maturities of greater than 10 years and up to 30 years. Many investors still own T-bonds that have not matured so there is an active secondary market for them. Therefore you can buy and sell previously issued T-bonds in the bond market.

The T-bond pays a fixed rate of interest every six months until maturity. At maturity, the U.S. Treasury pays back the principal to the bond holder.

For more information about U.S. Treasury securities see Treasury Bills in Depth, Treasury Notes in Depth and Treasury Bonds in Depth at TreasuryDirect. Also see About Treasury Bills, Notes and Bonds at The Bond Market Association.

Updated August 18, 2007.