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Differences Between Treasury Bills, Notes and Bonds


Treasury bills, notes and bonds are collectively known as Treasury securities, and are issued by the U.S. Department of the Treasury. It’s also worth noting that the Federal Reserve buys them as part of its monetary policy to aid in controlling inflation and stabilizing the economy. Backed by the full faith and credit of the U.S. government, Treasury securities are considered virtually risk-free, making them a popular choice for conservative investors as part of their family financial planning strategy. It can be helpful to know the differences between a Treasury bill vs. note vs. bond, so you can choose what best fits your investment portfolio and needs. 

Have questions about the role Treasury securities can fill within your portfolio? Consider reaching out to a financial advisor.

What Are Treasury Bills?

Treasury bills, also known as T-bills, are unique among Treasury securities in that they don’t make interest payments until maturity. They are instead sold at a discount to their face value. Investors then receive the full value at maturity. For example, an investor might purchase a T-bill with a face value of $10,000 for $9,700. Upon maturity, the investor receives the full $10,000, realizing a $300 profit.

Treasury bills also have a very short maturity period, typically up to one year.

What Are Treasury Notes?

Treasury notes, or T-notes, are medium-term securities typically issued with maturity periods ranging from 2 to 10 years. T-notes also feature semi-annual interest payments, known as coupons. For example, a 5-year T-note might offer an annual interest rate of 1.5%, paid out every six months.

What Are Treasury Bonds?

Treasury bonds, or T-bonds, have the longest maturity periods between Treasury bills vs. notes vs. bonds, typically ranging from 20 to 30 years. They also offer semi-annual interest payments. For example, a $10,000 Treasury bond with a 2% annual interest rate would generate $100 every six months until maturity.

Pros and Cons of Treasury Bills vs. Notes vs. Bonds

A couple reviewing the pros and cons of a Treasury bill vs. note vs. bond in an investment portfolio.

While the biggest difference between a Treasury bill vs. note vs. bond lies in their differing maturity dates, and whether they offer a coupon and/or are paid in full at maturity, overall, all three securities are known for their safety and liquidity.

They have a low correlation with more volatile assets such as stocks, which helps in stabilizing an investment portfolio during economic downturns. And being that they are backed by the government, they provide a secure investment route with minimal risk of default. 

Treasury bills, notes and bonds are also highly liquid; investors can sell them quickly and easily on the market, without significant price concessions. 

On the downside, this high level of security and liquidity typically comes with lower yields compared to riskier assets like stocks or corporate bonds. The yield on a 10-year Treasury note often remains about 4%, which is lower than the historical average annual return of the S&P 500, which is around 10%.

Portfolio Strategies

Investors can employ various strategies when investing in Treasury securities depending on their financial goals and market outlook, such as laddering, buy-and-hold, and trading based on interest rate predictions. 

Laddering involves purchasing Treasuries with different maturities so that they come due at staggered intervals, managing interest rate risk and ensuring a steady income stream. 

The buy-and-hold strategy is favored by those seeking stability and capital preservation, holding the securities until maturity regardless of the interest rate environment. 

Trading based on interest rate predictions involves buying or selling Treasuries based on expected changes in interest rates to capitalize on price fluctuations.

Tax Benefits of a Treasury Bill vs. Note vs. Bond

The interest income earned from Treasury securities is subject to federal income tax. However, it is exempt from state and local taxes, which can make these securities particularly appealing to investors in high-tax states. 

To further manage tax liabilities resulting from investments in Treasury securities, investors can employ various tax planning strategies. One effective strategy is the timing of purchases and sales of securities. For example, purchasing T-bills at the end of the tax year can defer the recognition of interest income to the following year, potentially reducing the overall tax burden (depending on the investor’s income for that year). 

Bottom Line

Couple working with a financial advisor to determine whether a Treasury bill vs. bond vs. note is right for them.

Treasury securities are popular for their safety and security, but their low-risk also means lower returns. Understanding the differences between a Treasury bill vs. note vs. bond can help you build an effective strategy for your investment portfolio. 

Tips for Putting Together an Investment Portfolio

  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Putting together an investment portfolio is a big part of pursuing your financial goals and preparing for retirement. Use our free investment return calculator to plan your path.
  • It can also help to know when you need the assistance of an investment advisor vs. a financial planner to pursue your goals.

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