Treasury Bills vs Bonds: Maturity, Payments, and Taxes
Treasury bills and Treasury bonds are both loans to the United States government, but they suit different jobs. A bill is short-term cash parked for a year or less; a bond is a decades-long commitment paying regular income.
Key takeaways
- Bills mature in one year or less, pay no periodic interest, and return face value at maturity.
- Bonds mature in 20 or 30 years and pay a fixed rate every six months.
- Notes, maturing in 2 to 10 years, sit between the two.
- Both have a $100 minimum through TreasuryDirect and are exempt from state and local tax.
- Bonds carry far more price risk if sold early; bills held to maturity avoid it.
The difference in one paragraph
When you buy a Treasury security, you lend money to the federal government, which promises to repay it with interest. The type is decided by two questions: how long until repayment, and how the interest reaches you. Bills answer short and once: they mature in 4, 8, 13, 26, or 52 weeks, pay nothing during the term, and return face value at maturity. Bonds answer long and regularly: they mature in 20 or 30 years and pay a fixed coupon every six months.
Treasury bills: short, simple, and sold at a discount
A Treasury bill, or T-bill, never pays a coupon. You buy it below face value and the gap is your interest. TreasuryDirect gives the textbook case: buy a $10,000 26-week bill for $9,750, hold it to maturity, and the $250 difference is your interest. Bills are auctioned weekly, and the longest matures within a year, so your money is never tied up long. That makes bills the natural home for cash with a known near-term use, such as an emergency fund or a house deposit due next year. The trade-off is reinvestment risk: at maturity, you buy again at whatever rate then prevails.
Treasury bonds: long, steady, and paid twice a year
A Treasury bond, or T-bond, works like a traditional bond. You pay face value at auction, receive a fixed payment every six months, and get the principal back at maturity in 20 or 30 years. That semiannual income is the point: a retiree can plan around it for decades, and the fixed rate locks in todays income even if market rates fall later. The cost is duration risk: a 30-year bond is far more sensitive to rate changes than a bill, so selling early after rates rise can mean a price well below what you paid. Hold to maturity and that swing never touches you.
Where Treasury notes fit
Notes fill the gap most savers actually live in. Treasury notes mature in 2, 3, 5, 7, or 10 years and, like bonds, pay a fixed rate every six months. They usually yield more than bills while carrying much less price risk than a 30-year bond. All three are marketable securities, sold later on the secondary market.
Treasury bills vs bonds at a glance
| Feature | Treasury bill | Treasury bond |
|---|---|---|
| Maturity | 4 to 52 weeks | 20 or 30 years |
| How interest is paid | Discount at maturity | Fixed coupon every six months |
| Minimum via TreasuryDirect | $100, in $100 increments | $100, in $100 increments |
| Where to buy | TreasuryDirect, bank, or broker | TreasuryDirect, bank, or broker |
| Main risk | Reinvestment at lower rates | Price fall if sold after rates rise |
| Best for | Cash needed within a year | Long-term regular income |
Worked example: $10,000 in a bill versus $10,000 in a bond
Start with the bill, using TreasuryDirects own example: buy a $10,000 26-week bill for $9,750, hold it to maturity, and receive $10,000, so interest is $250 over about half a year. Now the bond, using an illustrative fixed rate of 4 percent, not a live quote: a $10,000 bond at 4 percent pays $200 every six months, or $400 a year, totalling $12,000 of interest over 30 years plus the $10,000 principal at maturity. The bill returns $250 in six months; the bond pays decades of income but locks your money away for 30 years. Neither figure includes tax.
Risk: the same backing, very different price behaviour
Both are backed by the full faith and credit of the United States government, so non-payment risk is as low as the market offers. The risks that bite differ. For bills, rates may fall before you reinvest, shrinking your next return. For bonds, rates may rise, making your fixed coupon unattractive, so the market price falls to compensate. Inflation is shared: neither adjusts for it, so if prices rise faster than your yield, your real return turns negative even though nominal payments arrive in full.
Taxes and where to buy
Interest on both is subject to federal income tax but exempt from state and local income taxes, as TreasuryDirect states. For bills, the discount is taxed federally in the year the bill matures; for bonds, each coupon counts as ordinary income when received. In a high-tax state, that exemption can make a Treasury yield beat a slightly higher bank yield after tax, so compare after-tax returns, not headline rates. Buy at auction through TreasuryDirect, the Treasurys free platform, or through a bank or broker, which may charge a fee. New securities bought through TreasuryDirect must be held 45 days before transfer, and 4-week bills cannot be transferred at all.
Which one fits your situation?
Choose bills when the date you need the money is known and near, bonds when you want predictable income for decades and can leave the principal untouched, and notes when your horizon is two to ten years. Our editorial verdict: match the maturity to the date you need the money, and let yield come second. For a different kind of government-backed saving, see our guide to what a savings bond is; unlike bills and bonds, savings bonds cannot be traded on the secondary market. For the bank alternative, compare how CDs work.
Sources & further reading
- TreasuryDirect, User Guide Sections 201 Through 210Bill discount example, maturities, $100 minimums, state and local tax exemption (verified 4 Nov 2026).
- SmartAsset, Treasury Bills vs. Bonds: What is the Difference?Bill vs bond maturities, semiannual bond payments, auction buying routes (verified 4 Nov 2026).
This article is general information only, not financial advice.