U.S. Bonds vs. Bills vs. Notes: What’s the Difference?

Reviewed by JeFreda R. BrownReviewed by JeFreda R. Brown

U.S. Bonds vs. Bills vs. Notes: An Overview

According to the U.S. Treasury Department, the selling of bills of credit to fund the government’s operations dates back to the Revolutionary War. The first Treasury bills hit the market in 1929 followed by the popular U.S. savings bonds in 1935 and, finally, Treasury notes.

U.S. savings bonds, U.S. Treasury bills, and notes are all interest-bearing investment products sold by the U.S. government to help finance its operations. The investor effectively loans money to the federal government and earns a profit in return.

Key Takeaways

• U.S. savings bonds, T-bills, and T-notes are all forms of debt issued by the federal government to help finance its operations.
• Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity.
• T-notes mature between two and 10 years, with bi-annual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.
• These all can be bought and sold in the secondary market, except for savings bonds, which are registered to a single owner.

U.S. Bonds

The U.S. savings bond is the original savings vehicle for the small American investor, backed by the full faith and credit of the U.S. government.

Unlike the other government debt instruments, savings bonds are registered to a single owner and are not transferable. That is, they cannot be resold. However, they can be inherited, and they can be cashed in early with payment of an interest penalty.

Savings bonds have not been printed on paper since 2012, and they are no longer sold at banks or post offices. Today, savings bonds can only be purchased online through the TreasuryDirect website.

Series EE and Series I Bonds

The most common savings bonds for investors are the Series EE and the Series I bonds. They are an option in some company retirement plans. Series EE bonds can be purchased for as little as $25 or as much as $10,000.

They are guaranteed to at least double in value in 20 years and can continue to pay interest for up to 30 years after issuance.

Series I savings bonds have built-in protection against inflation. They are issued with a fixed rate of return plus a variable inflation rate that is based on the Consumer Price Index (CPI). They also can earn interest for up to 30 years.

Treasury Bills

The U.S. Treasury bill, or T-bill, is a short-term investment, by definition maturing in one year or less. A T-bill pays no interest but is sold at a discount to its par value or face value. So the investor pays less than full value upfront for the T-bill and gets the full value at the maturity date. The difference between the two numbers is the investor’s return on the investment.

For example, an investor who purchases a $100 T-bill at a discount price of $97 will receive the $100 face value at maturity. The $3 difference represents the return on the security.

Treasury bills can be bought through a bank or broker, or at the TreasuryDirect.gov website. Because of their short-term and nearly risk-free nature, T-bills are among the safest, most liquid securities in the world and form the foundation of several important markets such as the overnight interbank repo market, money market funds, and the commercial paper market.

Treasury Notes

Treasury notes, called T-notes, are similar to Treasury bonds but they are short-term rather than long-term investments. T-notes are issued in $100 increments in terms of two, three, five, seven, and 10 years. The investor is paid a fixed rate of interest twice a year until the maturity date of the note.

Treasury notes are sold at a government auction. The buyer may enter a competitive bid, specifying a yield, or a non-competitive bid, agreeing to buy at the yield determined by auction.

Like T-bills, T-notes can be bought through a bank, a broker, or the TreasuryDirect.gov website.

Special Considerations

For the individual investor, U.S. government debt represents a safe investment with a modest return.

These bonds are considered to be among the safest investments in the world, and therefore they carry quite modest yields for investors, with short-term T-bills earning only the risk-free rate of return.

Important

The U.S. government has never defaulted on its bond obligations.

Here are some sample rates:

• Series I bonds issued from May 2024 to October 2024 have a composite rate of 4.28%.
• A 52-week T-bill was selling at auction at an average discount of 4.89% as of May 20, 2024.

How Can I Buy Treasury Bills?

Treasury bills can be purchased directly from the government on the U.S. Treasury Department website, TreasuryDirect.gov. TreasuryDirect is an online platform where individuals can buy government securities once opening an account.

Individuals also can purchase bills from a broker or a bank.

What Is Riskier, Treasury Bonds or Bills?

Treasury bonds and bills have no default risk as they are backed by the full faith and credit of the U.S. government. Given the strength of the U.S. economy, these securities come with no risks. An investor will receive the full face value of the instrument at maturity.

What Has a Longer Maturity, a Treasury Bill or a Bond?

Treasury bills are short-term investments, with a maturity between a few weeks to a year from the time of purchase. Treasury bonds are more varied and are longer-term investments that are held for more than a year. Treasury bonds also have a higher interest payout than bills.

The Bottom Line

These three mainstays of the U.S. government borrowing system offer investors a safe, if unspectacular, return on their investment dollars.

U.S. savings bonds are a long-term choice and are appropriate for savers looking at a 20-year or 30-year time horizon. Treasury bills are a short-term alternative, maturing in a year or less. Treasury notes are at the midpoint, maturing in two to 10 years.

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