Treasury Bills vs. Treasury Bonds: Know the Difference

There are two critical differences investors need to understand.

A calculator sits on a pile of papers and bills.
(Image credit: Getty Images)

The federal government raises huge amounts of money by issuing debt securities. Treasury bills and Treasury bonds are the two main varieties buyers invest in. They both have the backing of the “full faith and credit” of the U.S. government. This means investors have a fairly low risk of nonpayment of interest and loss of principal.

Treasury bills and bonds each have a starting price of $100. You can buy these either from a broker or directly from the federal government using the TreasuryDirect website, which does not charge a fee.  

“All Treasuries are SALT free,” says Judith A. Raneri, a vice president and portfolio manager at Gabelli Funds LLC. “That is, the interest earned is state and local tax free. These securities are only subject to federal tax.” 

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While these investments are both government-backed debt securities, there are some major differences between Treasury bills and Treasury bonds. Mainly, they vary in when the principal is repaid, which is called the maturity of the security, and how the interest is paid.


For a Treasury bill, there are six maturities: four weeks, eight weeks, 13 weeks, 17 weeks, 26 weeks and 52 weeks. This flexibility is a key advantage. It allows investors to better manage their short-term cash.  

“Treasury bills can be used as a cash alternative within a portfolio,” says Sara Kalsman, a certified financial planner at Betterment. “They provide a relatively stable return while preserving capital during volatile market environments.”

Treasury bonds, on the other hand, have only two maturities. They are for 20 years and 30 years.  

To bypass the lengthy maturities, you can sell bonds before they mature (the same goes for Treasury bills). In fact, this is a common practice, as each investor has unique goals and requirements for their portfolios.  

When you sell a Treasury bond, it results in a capital gain or loss, thanks to an inverse relationship between the price of a bond and interest rate levels. When interest rates rise, Treasury bond prices generally fall — and vice versa.

For example, suppose you buy a 20-year Treasury bond for $1,000, and it has a fixed rate of interest of 5%. After a year, the interest rate rises to 7%. It will be tough to sell your bond when the interest rate is higher, because a buyer could purchase the same type of security for $1,000 and get a higher rate. You would have to lower the price of your security below $1,000 to make it so the yield is 7%, which means you lose out on your principal investment.

When rates are low, it's a great time to sell. Looking at the same 5% bond, if the interest rate fell to 3%, the value of your bond will have increased. You'll have a capital gain if you sell the bond in that instance.

Interest paid

A Treasury bill has “imputed” interest. This means the interest is calculated as the difference between the price you pay for the security and the amount you get when it matures. The federal government will not send you any interest payments. This is because Treasury bills are sold at 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. Suppose you purchased a bond for $1,000, and the interest rate is 4%. In this case, you will get $20 every six months.  

As you invest in debt securities, consider these critical differences between Treasury bills and Treasury bonds to make the best choice for your short-term and long-term goals. 

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Tom Taulli
Contributing Writer,

Tom Taulli has been developing software since the 1980s when he was in high school.  He sold his applications to a variety of publications. In college, he started his first company, which focused on the development of e-learning systems. He would go on to create other companies as well, including that was sold to InfoSpace in 1996. Along the way, Tom has written columns for online publications such as Bloomberg, Forbes, Barron's and Kiplinger.  He has also written a variety of books, including Artificial Intelligence Basics:  A Non-Technical Introduction. He can be reached on Twitter at @ttaulli.