Treasury Bonds Explained: The Safest Place to Park Your Money

What Are Treasury Securities?

Treasury securities are debt instruments issued by the United States federal government to finance its operations. When you buy a Treasury security, you are lending money to the U.S. government. In return, the government promises to pay you interest and return your principal at a specified date.

Because they are backed by the "full faith and credit" of the United States government, Treasuries are considered among the safest investments in the world. The U.S. government has never defaulted on its debt obligations. While not FDIC-insured (that's for bank accounts), they carry essentially zero default risk.

The Four Main Types of Treasury Securities

Treasury Bills (T-Bills)

T-bills are short-term securities with maturities ranging from 4 weeks to 52 weeks. They are sold at a discount to face value — meaning you pay less than $1,000 and receive $1,000 at maturity. The difference represents your interest. For example, you might pay $975 for a 6-month T-bill and receive $1,000 at maturity, earning $25 in interest (approximately 5.1% annualized).

Treasury Notes (T-Notes)

T-notes have maturities of 2, 3, 5, 7, and 10 years. Unlike T-bills, they pay interest semi-annually at a fixed rate. The 10-year T-note yield is the most-watched indicator in financial markets — it influences mortgage rates, corporate borrowing costs, and stock valuations globally.

Treasury Bonds (T-Bonds)

T-bonds are long-term securities with 20 or 30-year maturities, paying semi-annual interest. They offer the highest yields among standard Treasury securities but tie up your money the longest. Long-term bond prices fluctuate significantly with interest rate changes.

Series I Savings Bonds (I Bonds)

I Bonds are unique savings bonds whose interest rate adjusts every 6 months based on inflation (the Consumer Price Index, or CPI). When inflation is high, I Bond rates are high. The composite rate combines a fixed rate and an inflation adjustment. I Bonds cannot lose value, earn at least 0% (never go negative), and are exempt from state income taxes. The annual purchase limit is $10,000 per person from TreasuryDirect.gov.

TIPS (Treasury Inflation-Protected Securities)

TIPS are Treasury notes or bonds whose principal adjusts with inflation. If inflation rises 3%, your TIPS principal increases by 3%. Interest is paid on the adjusted principal, so your payments also rise with inflation. TIPS are available in 5, 10, and 30-year terms.

Tax Treatment: A Key Advantage

Interest from Treasury securities is subject to federal income tax but is exempt from state and local income taxes. This makes Treasuries especially attractive in high-tax states. For someone in California paying 13.3% state income tax, the effective yield advantage of Treasuries over corporate bonds of equal risk can be substantial.

I Bonds and TIPS are also subject to federal tax but exempt from state tax. I Bond interest can be deferred until redemption, offering some tax flexibility.

How to Buy Treasury Securities

There are two main ways to buy Treasuries:

• TreasuryDirect.gov: The official U.S. Treasury website. You can buy T-bills, T-notes, T-bonds, I Bonds, and TIPS directly with no fees. Minimum purchase is $100 for most securities. I Bonds can only be purchased here (not through brokerages).
• Brokerage account: You can buy T-bills, T-notes, T-bonds, and TIPS through any major brokerage like Fidelity, Vanguard, or Schwab. Most offer commission-free Treasury purchases at new issuances. You can also buy Treasury ETFs (like SGOV for T-bills or VGIT for intermediate T-notes) for more flexibility.

Current Treasury Yields (2026)

Treasury yields fluctuate with Federal Reserve policy and market conditions. As of early 2026:

• 3-month T-bill: approximately 4.2–4.5%
• 6-month T-bill: approximately 4.0–4.3%
• 2-year T-note: approximately 3.8–4.1%
• 10-year T-note: approximately 4.0–4.4%
• 30-year T-bond: approximately 4.2–4.7%

Check TreasuryDirect.gov or your brokerage for current rates before purchasing.

Treasury ETFs: The Easiest Way for Most Investors

For regular investors who want Treasury exposure without managing individual bonds, Treasury ETFs offer convenience:

• SGOV: iShares 0-3 Month Treasury Bond ETF. Essentially a cash equivalent with near-daily liquidity and T-bill yields.
• SHY: iShares 1-3 Year Treasury Bond ETF. Short-duration, lower interest rate risk.
• IEF: iShares 7-10 Year Treasury Bond ETF. Medium-duration, higher yield but more price volatility.
• TLT: iShares 20+ Year Treasury Bond ETF. Long-duration, highest yield but significant price volatility.