Treasury Bills vs. Bonds: What’s the Difference?

Patrick Villanova   Fri, October 29, 2021,

Fixed-income securities play an important role within individual investment portfolios and the economy at large. But like other securities, fixed-income instruments come in a myriad of variations, from short-term Treasury bills that only pay interest when the bill matures, to long-term Treasury bonds, whose investors receive interest twice yearly. Below, we’ll specifically examine the similarities and differences between Treasury bills, Treasury bonds and other types of bonds. If you’re interested in investing in fixed-income securities, a financial advisor can help you build a balanced portfolio.

Treasury Bills vs. Treasury Bonds

Like their name suggests, Treasury bills and Treasury bonds are debt instruments issued by the U.S. Department of the Treasury to help fund the operations of the federal government. 

Since they are backed by the “full faith and credit” of the government, both are extremely low-risk investments known for their relative safety. However, that security comes at a cost for investors. The returns offered by “T-bills” and “T-bonds” often fall well short of the returns of stocks and mutual funds.

The key difference between the two is the amount of time it takes for each to mature. While Treasury bonds are considered long-term debt securities, maturing 30 years after they are sold, Treasury bills are short-term securities that mature within a year and pay less interest than T-bonds. In fact, the maturity period of T-bills can be as short as four weeks.

The other primary difference between T-bills and T-bonds is how interest is paid. A T-bill pays out interest only when it matures. When an investor purchases a T-bill, they’ll pay a discounted rate and later collect the full face value of the bill when it reaches maturity. Treasury bonds work differently, paying out interest to investors twice a year until reaching maturity.

But T-bills and T-bonds share a plethora of similarities. Both are initially purchased at auction, either on the TreasuryDirect platform or through a bank or broker. Both can also be bought and sold on secondary markets. The minimum purchase of either kind of security is $100 and both are sold in increments of $100.

Treasury Bills vs. Savings Bonds

Another common type of bond is the U.S. savings bond. Like T-bills and T-bonds, savings bonds are issued by the Treasury Department to help fund government operations, making them reliable but not lucrative investments. However, unlike T-bills and T-bonds, savings bonds cannot be bought and sold on secondary markets. A savings bond can also be purchased with as little as $25.

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