What Is the Difference Between a Treasury Bill, Treasury Note & a US Savings Bond?

Treasury Bills

Treasury bills are short-term debt securities sold by the Treasury through an auction process and traded on the secondary markets. T-bills have initial maturities of 4, 13, 26 or 52 weeks. Treasury bills are purchased at a discount to the face amount, and the amount of discount is the interest to be earned. For example, a $100,000 bill costs an investor $99,800. The $200 difference is the interest the investor will earn when the bill matures, and the face amount is paid out to the investor by the Treasury.

Treasury notes are intermediate term debt securities sold by the Treasury. Initial terms for notes are 2, 3, 5, 7 and 10 years. A Treasury note pays a fixed rate of interest -- the coupon rate -- which is paid to an investor semi-annually. As a marketable security, the market value of a Treasury note may be higher or lower than the face value, based on current market rates in relation to the note's coupon rate. Rising rates will result in falling note prices.

Savings bonds are non-marketable savings certificates. The Treasury currently offers series EE and series I savings bonds. Series EE bonds earn a fixed rate of interest for the life of the bond and I bonds earn interest indexed for the rate of inflation. A savings bond accrues and compounds interest into the value of the bond and will continue to earn interest for up to 30 years after issue. Savings bonds can be purchased in amounts from $25 to $5,000, with a $5,000 individual annual purchase limit per bond type. Savings bonds come in paper form purchased at banks and electronic form bought through the Treasury Direct website.

Treasury bonds are government securities that function in exactly the same manner as Treasury notes. The difference is Treasury bonds are only issued with a maturity of 30 years. Treasury Inflation Protected Securities -- TIPS -- are marketable securities with the face amounts indexed to the rate of inflation. TIPS have a fixed coupon rate, however, the interest payments will increase over time as the face amount increases by the inflation rate, and the coupon rate is applied to the higher principal amount. TIPS are issued with maturities of 5, 10 and 30 years.