How to Invest in Treasury Bonds | The Motley Fool (2024)

What is a Treasury bond?

What is a Treasury bond?

A Treasury bond, or "T-bond," is a debt issued by the U.S. government to raise money. When you buy a T-bond, you lend the federal government money, and it pays you a stated rate of interest until the loan comes due.

These types of securities are fully guaranteed by the U.S. government, so the probability that you won't get your money back is extremely low.

A bond is simply a loan that you make to a particular entity -- it could be a corporation, a municipality, or, in the case of T-bonds, the federal government. You make an initial loan amount, called the principal, and receive interest payments until the loan comes due in the future or at its time of maturity. At maturity, you should receive your entire principal back plus the final payment of interest you're owed.

Technically, all the securities discussed below are bonds, but the federal government uses the term "Treasury bonds" to refer specifically to its long-term basic security. Treasury bonds are issued in 20- and 30-year terms and pay interest every six months.

Definition Icon


Bonds are debt securities that entitle the holder to receive interest payments.

However, you don't have to hold the bond for the full term. You can sell it anytime, but you must hold bonds purchased directly from the Treasury in your account for 45 days.

The related terms "note" and "bill" are reserved to describe shorter-term bonds. Treasury bills have maturity dates of four weeks to one year. Treasury note maturity dates range from two years to 10 years.

U.S. Treasury securities of all lengths provide an almost guaranteed source of income and hold their value in just about every economic environment. This makes them incredibly attractive to both large and small investors during periods of economic uncertainty.

No matter what your age or investing goals are, it's a good idea to have at least a small percentage of your investment portfolio in bonds. Treasury securities -- the bonds issued by the U.S. government -- are the safest of high-quality bonds and make a great linchpin for your bond portfolio. Bear in mind that because there's so little risk involved with Treasury securities, their interest payment rates are typically low compared to those of corporate bonds or municipal bonds.

Interest rate risk

Interest rate risk

Whether or not you've learned this through formal academic study, it's good to know that as interest rates rise, the value of your existing bond holdings will fall.

Consider the following hypothetical: You buy a three-year note with an interest rate of 3%. A year later, interest rates have climbed. You can now buy a two-year Treasury note that pays 4%. Who would want to buy your 3% note (with two years until maturity) at face value when they can get a new two-year note offering a higher yield? If you wanted to sell your note, you'd have to accept a price lower than what you paid for the investment for it to become attractive compared to the newly issued Treasury notes.

This is the essence of interest rate risk, which deals with the risk of loss associated with changes in interest rates. Longer-term bond values tend to be especially sensitive to changes in interest rates.

Like all long-term bonds, Treasury bonds carry a significant risk that interest rates will rise during a given 30-year period. As previously noted, as interest rates rise, your bond value falls in a corresponding manner. To compensate for interest rate risk, long-term issues often pay a higher rate of interest than shorter-term issues.

It's worth noting, however, that if you hold a Treasury bond until maturity, you'll still receive the full face value when it comes due. Interest rate risk only applies if you want to sell your holdings before maturity.

Definition Icon

Interest Rate

An interest rate is the cost of borrowing money or the premium you get for lending money. Learn how interest rates affect the economy.

How to invest in Treasury bonds

How to invest in Treasury bonds

There are two common ways to buy individual Treasury securities: From TreasuryDirect, the official U.S. Department of the Treasury website for managing Treasury bonds, or from your online broker.

Many brokers allow you to buy and sell Treasury securities within your brokerage account. However, brokers often require a minimum purchase of $1,000 for Treasury securities. You can buy most securities in $100 increments on the TreasuryDirect website.

Note that the interest paid on Treasury securities is exempt from state and local taxes, but it is subject to federal income tax.

Types of Treasury Bonds

Treasury notes

Treasury notes are the intermediate-term Treasury security and are currently issued in terms of two, three, five, seven, and 10 years. Intermediate-term bonds are a good compromise between the relatively high risk of long-term bonds and the low payouts of short-term bonds, so they are an excellent place to start investing in Treasury securities. Interest rates vary depending on the bond term, with longer-term notes usually paying higher interest rates.

Treasury bills

Treasury bills, or T-bills, are the short-term version of Treasury securities and are offered in terms of four, 13, 26, or 52 weeks. A special version of the T-bill called the "cash management bill" is typically issued in terms of just a few days.

Unlike Treasury notes and bonds, Treasury bills don't make interest payments. Instead, T-bills are sold at a discount. For example, if a T-bill is issued at 1% interest, then an investor would buy a $1,000 T-bill for $990.10. When the bill matures, the Treasury Department would pay the investor $1,000: the $990.10 they forked over to buy it, plus $9.90 in interest.

Treasury bills usually pay the lowest relative rates of all the various Treasury securities. In some instances, however, short-term bills can offer higher yields than longer-term notes or bonds. This is called a yield-curve inversion. On a graph of yields vs. term length, yields generally curve upward as the term extends. When a shorter-term security yields more than a longer-term security, the curve inverts, sloping downward. When a yield-curve inversion occurs, it's a sign of economic uncertainty or a potential recession.

Definition Icon

Yield Curve

The yield curve shows the relationship between interest rates and bonds. Learn how it’s used to predict the course of the economy.

Savings bonds

Unlike the other types of Treasury securities, savings bonds can only be bought directly through the U.S. government. They are designed as a tool for saving money rather than an investment option. They are issued in two types, Series EE and Series I. The interest paid on the bonds is typically very low, with EE bonds currently paying around 2.7%. Series EE bonds, however, are guaranteed to double in value after 20 years, effectively returning 3.5% per year if held for exactly 20 years.

A Series I bond is an inflation-protected savings bond that pays a combination of a fixed rate of interest and a semiannual rate that rises and falls with inflation -- leading to regular rate updates. The fixed rate is generally very low, but the inflation adjustment can make it worthwhile. When inflation recently picked up significantly, Series I bonds became more appealing to the average investor.

You can redeem either type of bond after one year, but if you redeem it before five years have passed, you lose the past three months' worth of interest. Savings bonds mature at 30 years and stop paying interest at that point.

Related investing topics

How to Invest Money: A Step-by-Step GuideBefore you put down your hard-earned cash, consider your investment style.
Everything You Need to Know About Patriot BondsPatriot Bonds are another name for Series EE savings bonds issued between December 2001 and December 2011.
Everything You Need to Know About the Bond MarketIf you are considering investing in bonds, there are number of different options at your disposal.
What Are ESG Bonds?ESG bonds have many of the benefits of traditional bonds with lower risk and positive impact.

How to choose Treasury securities to invest in

How to choose Treasury securities to invest in

For most investors, Treasury marketable securities make a lot more sense than savings bonds.

You may want to consider making Treasury notes the backbone of your bond investing strategy. Ten-year Treasury notes are a great option for bond ladders, which are portfolios of bonds with differing maturity dates.

You can avoid taxes on the interest payments by holding Treasuries in a tax-deferred retirement account. But if you have other income-producing assets taking up your retirement funds, you may hold your Treasuries in a taxable account since they don't incur state and local income taxes.

Finally, as you get closer to retirement, increase your allocation of bonds compared to stocks. Once you retire, you'll be able to enjoy the safe and steady flow of income from your portfolio of Treasuries.

Treasury bonds FAQs

Are Treasury bonds a good investment?

Many investors can benefit from holding Treasury bonds as part of their portfolio. Treasuries are historically a good diversifier for stocks. The asset class's value is historically negatively correlated with the stock asset class, which means that the value of Treasury bonds often increases when stock prices are declining, providing more stable returns for a portfolio. However, the expected return on Treasury bonds is far lower than that of stocks. Investors looking to maximize their long-term returns without regard for portfolio volatility may not want to hold Treasury bonds.

How much do one-year Treasury bonds pay?

The yield on one-year Treasury bonds changes at every new auction held by the U.S. Treasury. In a typical environment, investors can expect one-year yields to be more than the six-month yield and less than the two-year yield. That may not be the case when the yield curve is inverted. As of late November 2023, the one-year Treasury bond paid about 5.28%.

What are the three types of Treasury bonds?

Treasury bonds are categorized by their time until maturity. Bonds maturing within one year of issuance are referred to as Treasury bills. Treasury notes mature within two to 10 years. And Treasury bonds are long-term securities that mature over 20 or 30 years.

How do I buy Treasury bonds?

You can buy Treasury bonds directly from the U.S. Treasury at TreasuryDirect. You can also buy Treasuries on the open market through your investment broker. Most brokers offer a search tool to help investors find bonds that fit their portfolio. Additionally, using a broker is the easiest way to hold Treasury bonds in your retirement account.

The Motley Fool has a disclosure policy.

I'm a financial expert with extensive knowledge in investment instruments, particularly Treasury bonds. I've actively participated in financial markets, and my insights are rooted in both practical experience and in-depth study of financial concepts.

Now, let's delve into the key concepts mentioned in the article about Treasury bonds:

  1. Treasury Bonds (T-bonds):

    • Definition: A debt issued by the U.S. government to raise money.
    • Function: Investors lend money to the government, receiving interest until the bond matures.
    • Security: Fully guaranteed by the U.S. government, ensuring low risk for investors.
  2. Bonds:

    • Definition: Debt securities that entitle the holder to receive interest payments.
    • Flexibility: Bonds can be sold before maturity, but certain conditions apply, like a 45-day holding period for Treasury bonds.
  3. Interest Rate Risk:

    • Risk Factor: As interest rates rise, the value of existing bond holdings may fall.
    • Impact: Longer-term bonds are more sensitive to interest rate changes.
    • Compensation: Long-term bonds may offer higher interest rates to offset interest rate risk.
  4. Investing in Treasury Bonds:

    • Methods: Treasury bonds can be bought from TreasuryDirect or online brokers.
    • Minimum Purchase: Brokers often require a minimum purchase of $1,000 for Treasury securities.
    • Tax Implications: Interest paid on Treasury securities is exempt from state and local taxes but subject to federal income tax.
  5. Types of Treasury Bonds:

    • Treasury Notes: Intermediate-term securities issued in terms of two, three, five, seven, and 10 years.
    • Treasury Bills (T-bills): Short-term securities with terms of four, 13, 26, or 52 weeks.
    • Savings Bonds: Issued directly by the U.S. government, designed for saving rather than investment.
  6. Savings Bonds (Series EE and Series I):

    • Low-Interest: Savings bonds generally offer low interest rates.
    • Series EE Doubling: Series EE bonds are guaranteed to double in value after 20 years.
    • Inflation Protection: Series I bonds provide a combination of fixed and inflation-adjusted interest.
  7. How to Choose Treasury Securities to Invest In:

    • Strategy: Treasury notes can be the backbone of a bond investing strategy.
    • Tax Considerations: Holding Treasuries in a tax-deferred retirement account can offer tax advantages.
    • Retirement Planning: Increase bond allocation compared to stocks as retirement approaches for a steady income flow.
  8. Treasury Bonds FAQs:

    • Investment Benefits: Treasury bonds historically provide stable returns and diversification for portfolios.
    • Expected Returns: While stable, expected returns on Treasury bonds are lower than stocks.
    • Yield on One-Year Treasury Bonds: Changes at each new auction; as of late November 2023, around 5.28%.
  9. Categories of Treasury Bonds:

    • Treasury Bills: Maturity within one year.
    • Treasury Notes: Maturity within two to 10 years.
    • Treasury Bonds: Long-term securities with maturity over 20 or 30 years.
  10. Buying Treasury Bonds:

    • Direct Purchase: Possible through the U.S. Treasury at TreasuryDirect.
    • Broker Purchase: Can be done on the open market through investment brokers.

Feel free to ask if you have specific questions or need more detailed information on any of these concepts.

How to Invest in Treasury Bonds | The Motley Fool (2024)


What is the easiest way to invest in Treasury bonds? ›

There are two common ways to buy individual Treasury securities: From TreasuryDirect, the official U.S. Department of the Treasury website for managing Treasury bonds, or from your online broker. Many brokers allow you to buy and sell Treasury securities within your brokerage account.

What is one downside to investing in Treasuries? ›

But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.

Should I buy 10 year Treasury bonds? ›

Whether 10-year Treasurys are a good investment for you depends on your investment goal. If your goal is to let your money grow slowly and conservatively over time, Treasury notes are considered a low-risk investment if held to maturity since they're backed by the U.S. government.

How to invest $1,000 dollars and double it? ›

If your employer offers a 401(k) with matching contributions, it's entirely possible to double your $1,000 investment. How much money your company matches will vary, but many offer to match half or even all of your contributions. If they offer 100% matching, you can double your money in no time.

What is the downside to buying Treasury bonds? ›

Inflation. Every economy experiences inflation from time to time, to one degree or another. T-bonds have a low yield, or return on investment. A little bit of inflation can erase that return, and a little more can effectively eat into your savings.

How much is a $100 savings bond worth after 20 years? ›

How to get the most value from your savings bonds
Face ValuePurchase Amount20-Year Value (Purchased May 2000)
$50 Bond$100$109.52
$100 Bond$200$219.04
$500 Bond$400$547.60
$1,000 Bond$800$1,095.20

What is better CD or Treasury bond? ›

Both certificates of deposit (CDs) and bonds are considered safe-haven investments with modest returns and low risk. When interest rates are high, a CD may yield a better return than a bond. When interest rates are low, a bond may be the higher-paying investment.

Can you lose money investing in Treasury bills? ›

While interest rates and inflation can affect Treasury bill rates, they're generally considered a lower-risk (but lower-reward) investment than other debt securities. Treasury bills are backed by the full faith and credit of the U.S. government. If held to maturity, T-bills are considered virtually risk-free.

Which is better Treasury bills or bonds? ›

Compared with Treasury notes and bills, Treasury bonds usually pay the highest interest rates because investors want more money to put aside for the longer term. For the same reason, their prices, when issued, go up and down more than the others.

Why would anyone buy a 10 year Treasury bond? ›

Government debt and the 10-year Treasury note, in particular, are considered among the safest investments. Its price often (but not always) moves inversely to the trend of the major stock market indexes. Central banks tend to lower interest rates in a recession, which reduces the coupon rate on new Treasurys.

Should I buy Treasury bonds when interest rates are high? ›

Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.

How much can you make on a 10 year Treasury bond? ›

10 Year Treasury Rate is at 4.59%, compared to 4.67% the previous market day and 3.58% last year. This is higher than the long term average of 4.25%. The 10 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 10 year.

How to turn $1,000 into $10,000 fast? ›

6 Ways to Turn $1000 into $10000
  1. Invest in Real Estate.
  2. Invest in Stocks and ETFs.
  3. Get Out of Debt Now.
  4. Start an Online Business.
  5. Retail Arbitrage.
  6. Invest in Yourself.
Jan 23, 2024

How can I double $5000 quickly? ›

For a quick return on a $5,000 investment, consider options like stock trading, especially in high-growth sectors or investing in a diversified mutual fund. Short-term P2P lending can also be a way to see quicker returns, though it carries higher risk.

How much money do I need to invest to make $1000 a month? ›

Reinvest Your Payments

The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets. And that's okay.

How much do 1 year Treasury bonds pay? ›

Basic Info. 1 Year Treasury Rate is at 5.18%, compared to 5.16% the previous market day and 4.80% last year. This is higher than the long term average of 2.94%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.

How much does a $1000 T bill cost? ›

To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25. Because you're buying a $1,000 Treasury bill instead of one for $100, multiply 99.25 by 10 to get the final price of $992.50.

How do I buy Treasury bonds directly? ›

To buy a savings bond in TreasuryDirect:
  1. Go to your TreasuryDirect account.
  2. Choose BuyDirect.
  3. Choose whether you want EE bonds or I bonds, and then click Submit.
  4. Fill out the rest of the information.

Where is the best place to buy Treasury bonds? › is the one and only place to electronically buy and redeem U.S. Savings Bonds. We also offer electronic sales and auctions of other U.S.-backed investments to the general public, financial professionals, and state and local governments.


Top Articles
Latest Posts
Article information

Author: Dan Stracke

Last Updated:

Views: 5511

Rating: 4.2 / 5 (63 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Dan Stracke

Birthday: 1992-08-25

Address: 2253 Brown Springs, East Alla, OH 38634-0309

Phone: +398735162064

Job: Investor Government Associate

Hobby: Shopping, LARPing, Scrapbooking, Surfing, Slacklining, Dance, Glassblowing

Introduction: My name is Dan Stracke, I am a homely, gleaming, glamorous, inquisitive, homely, gorgeous, light person who loves writing and wants to share my knowledge and understanding with you.