How to Invest in Treasury Bonds and Bills
T-bills, T-notes, T-bonds, TIPS, and I-bonds — a plain-English guide to every type of US Treasury security, how to buy them, and where they fit in a long-term portfolio.
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Treasury securities — bonds, notes, and bills issued directly by the US government — are the closest thing to a risk-free investment that exists in practice. They're backed by the full faith and credit of the US government, which has never defaulted on its debt. They're also one of the most misunderstood corners of the investment universe, because the jargon (T-bills, T-notes, T-bonds, TIPS, I-bonds) obscures what are actually very simple instruments.
This guide explains how each type works, how to buy them, and where they fit in a portfolio.
The Four Types of Treasury Securities
Treasury Bills (T-Bills)
T-bills are short-term government debt maturing in 4, 8, 13, 17, 26, or 52 weeks. They don't pay interest in the traditional sense — instead, you buy them at a discount to face value and receive the full face value at maturity. The difference is your return.
Example: a 26-week T-bill with a 5% annualized yield might be purchased for $975 and mature at $1,000 — the $25 difference is your interest, earned over six months.
T-bills are the closest substitute for a high-yield savings account in terms of safety, and in 2024–2025, their yields frequently exceeded those of many savings accounts. They're the standard vehicle for parking cash you expect to need within a year.
Treasury Notes (T-Notes)
T-notes have maturities of 2, 3, 5, 7, or 10 years and pay a fixed coupon every six months. The 10-year T-note is the most widely referenced interest rate benchmark in the world — when financial media says "the yield rose to 4.5%," they're almost always referring to the 10-year note.
T-notes are appropriate for investors who want regular income with medium-term commitment and no credit risk.
Treasury Bonds (T-Bonds)
T-bonds work identically to T-notes but have maturities of 20 or 30 years. The longer maturity means greater interest rate sensitivity — when rates rise, long-duration bonds fall more in price than shorter-duration ones. A 30-year bond purchased when rates were 3% could fall 30–40% in market value if rates rise to 5%, even though the principal is guaranteed at maturity.
For most individual investors, the 20- and 30-year maturities introduce more risk than most people expect from "safe" government bonds.
TIPS and I-Bonds (Inflation Protection)
TIPS (Treasury Inflation-Protected Securities) adjust their principal value with inflation. If CPI rises 4% in a year, the principal on your TIPS increases 4%, and subsequent coupon payments are calculated on the higher principal. When rates are low and inflation is running hot, TIPS provide meaningful protection that nominal bonds don't.
I-Bonds are savings bonds (not tradeable) that earn a composite rate: a fixed rate plus an inflation component that adjusts every six months. The annual purchase limit is $10,000 per person directly from the US Treasury. During the 2021–2022 inflation surge, I-bond rates hit 9.62% — the highest in the instrument's history — attracting significant mainstream attention.
| Type | Maturity | Interest | Best For |
|---|---|---|---|
| T-Bills | 4 weeks – 1 year | Discount to face value | Cash parking, short-term |
| T-Notes | 2–10 years | Fixed coupon (semi-annual) | Income, medium-term |
| T-Bonds | 20–30 years | Fixed coupon (semi-annual) | Long-term, duration exposure |
| TIPS | 5, 10, 30 years | Inflation-adjusted principal | Inflation hedge |
| I-Bonds | Up to 30 years | Fixed + inflation composite | Inflation protection, savings |
How to Buy Treasury Securities
TreasuryDirect.gov
The US Treasury's direct platform lets you buy T-bills, T-notes, T-bonds, TIPS, and I-bonds directly with no intermediary and no fees. I-bonds can only be purchased here — they're not available through brokerages. Minimum purchase is $100.
The interface is functional but dated. For T-bills and notes, most investors find the brokerage route more convenient.
Through a Brokerage
Fidelity, Vanguard, Schwab, and most major brokerages let you buy newly issued Treasuries (at auction, no commission) or existing Treasuries on the secondary market. The brokerage route is simpler if you're already managing other investments there — everything appears in the same account.
For T-bills specifically, many investors use the "auto-roll" feature at Fidelity or Schwab — new bills are purchased automatically at each maturity, maintaining continuous exposure without manual action.
Treasury ETFs
If you want exposure to Treasuries without dealing with individual bond ladders, ETFs cover every segment of the yield curve:
- SHY — iShares 1-3 Year Treasury Bond ETF (short duration, minimal rate risk)
- IEF — iShares 7-10 Year Treasury Bond ETF (medium duration)
- TLT — iShares 20+ Year Treasury Bond ETF (long duration, higher rate sensitivity)
- SCHP — Schwab US TIPS ETF (inflation protection, 0.03% expense ratio)
- BIL — SPDR Bloomberg 1-3 Month T-Bill ETF (near-cash, minimal duration)
ETFs sacrifice some yield (expense ratio) and the guaranteed principal return you get by holding individual bonds to maturity — but they provide instant diversification across maturities and the simplicity of a single ticker.
Where Treasuries Fit in a Portfolio
Treasuries serve two roles: the bond allocation in a balanced stock/bond portfolio, and a place to hold short-term cash at better-than-savings-account yields.
For investors building the bond component of a long-term portfolio, our three-fund portfolio guide explains how to size the bond allocation relative to stocks and how to choose between a total bond market fund and a Treasury-specific fund.
The key variable is duration. Short-duration Treasuries (T-bills, 1–3 year notes) have minimal interest rate risk and are appropriate for money you'll need within a few years. Long-duration Treasuries (10–30 year bonds) carry significant price volatility when rates move and are generally only appropriate as part of a bond ladder or for investors with a genuinely long horizon.
Tax Treatment
Treasury interest is subject to federal income tax but exempt from state and local taxes. In high-tax states like California or New York, this makes the effective after-tax yield of Treasuries meaningfully higher than equivalent-yield taxable instruments. For investors in these states, the state tax exemption is a real, calculable advantage worth factoring in when comparing Treasuries to CDs or corporate bonds.
The Bottom Line
Treasuries are the bedrock of the fixed income market for good reason: no credit risk, deep liquidity, and guaranteed principal return at maturity. For most individual investors, the entry point is either T-bills via auto-roll at a brokerage for short-term cash management, or a Treasury bond ETF as the fixed income sleeve of a long-term portfolio.
I-bonds are worth the annual $10,000 limit when inflation runs hot — they're one of the rare instruments where the government explicitly protects you from inflation in real time. TIPS serve a similar purpose with higher liquidity and no purchase cap.
The Bond Book by Annette Thau — The most comprehensive and readable guide to bonds for individual investors. Thau covers every type of fixed income instrument — Treasuries, municipals, corporates, TIPS — with enough depth to actually understand what you own and why.
The Psychology of Money by Morgan Housel — A useful companion for understanding why investors often underutilize safe instruments like Treasuries, even when they should. Housel's chapter on "reasonable vs. rational" is directly applicable to the decision of how much safety to hold in a portfolio.
Both are available on Audible — try it free for 30 days and get your first audiobook included.
Want the full picture? This article is part of our Complete Investing Guide — covering everything from index funds and ETFs to retirement accounts and portfolio rebalancing.
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