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Match the Treasury’s maturity to the date you need your money. Treasury bills mature in one year or less, notes mature in two to 10 years, and marketable Treasury bonds mature in 20 or 30 years. Bills are usually the cleanest choice for cash needed within months, notes fit many two-to-10-year goals, and bonds are intended for money that can remain invested for decades. Every marketable Treasury can be sold before maturity, but a sale before maturity occurs at the market price then available—not necessarily the amount you paid.
This guide explains how bills, notes and bonds work, how their income differs, what early-sale risk means, how TreasuryDirect restrictions affect access, and how to choose or ladder securities around a known cash date.
The three Treasury categories at a glance
| Security | Available maturities | How interest is delivered | Typical role |
|---|---|---|---|
| Treasury bills | Four weeks to 52 weeks; regular terms include 4, 6, 8, 13, 17, 26 and 52 weeks | Usually sold at a discount to face value (or at par). You receive face value at maturity; the discount is the interest. | Near-term cash, planned expenses and short ladders |
| Treasury notes | 2, 3, 5, 7 or 10 years | Fixed rate set at auction; interest paid every six months | Intermediate goals and predictable periodic income |
| Marketable Treasury bonds | 20 or 30 years | Interest paid every six months | Long-duration money that can stay invested for decades |
All three are marketable U.S. Treasury securities. They are transferable, and the U.S. government backs them with its full faith and credit. “Treasury bonds” in this article means these marketable 20- or 30-year securities, not U.S. Savings Bonds, which are a different product.
What a Treasury bill does
A bill is a short-term obligation with a maturity of one year or less. The regular menu runs from four weeks through 52 weeks, with 4-, 6-, 8-, 13-, 17-, 26- and 52-week terms. Bills do not send a coupon check every six months. Instead, the purchase price is below face value in a discount transaction (or equal to face value when sold at par), and the difference between what you pay and the face value you receive at maturity is the interest.
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Example of the cash flow
Suppose a bill has a $10,000 face value and is offered at a discount. You pay less than $10,000 at purchase, hold it until the stated maturity, and receive $10,000. The exact return depends on the auction price and the length of the term. That discount is the bill’s interest; it is not a coupon rate and should not be described as one.
When bills fit best
- A known expense is due in a few weeks or months.
- You want to divide a cash reserve into several maturity dates rather than lock it all up at once.
- You prefer to receive one defined amount at maturity instead of managing periodic interest payments.
A bill is still a marketable security. If you sell before maturity, the price is set by the market at that time, so the amount you receive can differ from the amount you originally paid or the face value you expected at maturity.
What a Treasury note does
Treasury notes have 2-, 3-, 5-, 7- and 10-year maturities. The Treasury sets a fixed interest rate at auction, and the note pays interest every six months. The minimum purchase for a note is $100.
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Semiannual payments can be useful when a goal has an ongoing spending requirement—for example, supplementing income during a multi-year period. You can spend each payment or reinvest it. If your liability has a specific date, choosing a note whose maturity is close to that date can reduce the need to sell in the market.
Notes and changing market prices
A note’s coupon is fixed after the auction, but its market price is not. If the yield to maturity available in the market rises above the note’s coupon rate, the note’s price generally falls below par. If the market yield falls below the coupon rate, the price generally rises above par. The change matters if you sell before maturity; it does not change the scheduled coupon payments or the principal due at maturity, provided the note is held to maturity.
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What a marketable Treasury bond does
Marketable Treasury bonds mature in 20 or 30 years and pay interest every six months. Their long maturities make them appropriate only for money that can remain invested for a very long time.
Long duration means greater price sensitivity
Like notes, bonds trade at prices that move inversely to market yields. A bond paying a coupon below current yields generally trades below par; one paying a coupon above current yields generally trades above par. The longer the maturity, the more time there is for those rate differences to affect the market price. That sensitivity is important when you might need to sell before the 20- or 30-year maturity.
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A bond can make sense for a long-term allocation when you can tolerate substantial interim price changes and do not expect to use the principal for decades. It is usually a poor match for a bill-sized cash need, because selling a 20- or 30-year security for a near-term expense turns a long-term holding into a market-timing decision.
What bills, notes and bonds have in common
- U.S. government backing: TreasuryDirect states that these securities are backed by the full faith and credit of the United States government.
- Marketability: Each is transferable and can be sold before maturity through a bank, broker or dealer.
- A maturity date: Holding to maturity follows the security’s stated principal repayment schedule. Selling earlier replaces that certainty with the market price available on the sale date.
- Federal tax treatment: Interest is subject to federal income tax but is exempt from state and local income tax for bills and notes. Your tax situation, including how you report a bill’s discount, can require professional advice.
Choose by the date you need the cash
Cash needed in weeks or months: use bills
Start with the spending date, then select a bill maturing on or just before that date. If expenses occur repeatedly, build a ladder rather than buying one large bill. For example, separate purchases can mature every month or quarter, creating a schedule of principal becoming available without a sale in the secondary market.
Bills do not send coupon checks. Plan for the entire return to arrive at maturity and keep a separate immediately available balance for expenses that cannot wait for a bill to mature.
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A goal in roughly two to ten years: consider notes
Notes provide a fixed coupon and semiannual payments while offering maturities that cover many medium-term goals. Select a maturity that lines up with the liability date whenever possible. If you buy a 5-year note for a goal due in five years and hold it to maturity, you avoid having to guess what its market price will be at the moment you need the principal.
Money that can remain invested for decades: consider bonds
A 20- or 30-year bond is a long commitment. It can provide semiannual income, but the market value can be especially sensitive to changes in interest rates before maturity. Use it only for funds whose time horizon genuinely matches that duration.
Five decision questions before you buy
- When is the money needed? Identify an exact date or a realistic range. The date determines whether a bill, note or bond is even eligible.
- Do you need periodic income? Bills deliver their return at maturity. Notes and bonds pay interest every six months.
- Could you need to sell early? If the answer is yes, accept that the sale price may be above or below your purchase price. Longer maturities generally expose you to more rate-driven price movement.
- How much reinvestment risk can you accept? A short bill matures quickly. You then must reinvest at whatever rates are available, which may be higher or lower than today’s rates. A longer note or bond locks in its coupon for longer but creates more price sensitivity if sold early.
- Which access route fits your situation? Individuals can buy at auction through TreasuryDirect or through a broker, dealer or financial institution. TreasuryDirect purchases have a 45-day holding period before transfer or sale.
How to buy a Treasury for a specific cash need
- Write down the liability date and amount. Include a margin for taxes, fees charged by an intermediary and any uncertainty in the expense.
- Choose the shortest maturity that safely reaches the date. A bill is generally appropriate for a date within one year. A 2- to 10-year date points to a note, while a 20- or 30-year horizon points to a bond.
- Decide whether maturity cash or ongoing income is more useful. Select a bill when one payment at maturity is preferable. Select a note or bond when semiannual interest is part of the plan.
- Select a purchase channel. TreasuryDirect and financial intermediaries both provide access to Treasury auctions. Compare the intermediary’s transaction terms and the convenience of its account with the direct account’s transfer restrictions.
- Confirm the term and minimum. Notes have a $100 minimum purchase. The exact bill or bond minimum and any intermediary-specific order rules should be confirmed in the purchase screen or account documentation before submitting an order.
- Record the maturity date. Put the date and expected principal on a calendar. Decide in advance whether the proceeds will be spent or reinvested.
How selling before maturity works
TreasuryDirect says an individual can hold a bill or note until maturity or sell it before maturity. A TreasuryDirect purchase must be held for 45 days before it can be transferred or sold. Early sale is conducted through a bank, broker or dealer rather than as an immediate cash-out inside TreasuryDirect.
What determines the amount you receive
The market price on the sale date reflects current yields, the security’s remaining term, its coupon (for a note or bond), and market demand. A note or bond bought when rates were lower may be worth less after rates rise because new securities offer higher yields. Conversely, a higher-coupon holding can trade above par when comparable market yields fall. A sale also can involve an intermediary’s spread or commission, so the quoted price is not necessarily the same as the amount that reaches your account.
Use maturity matching to avoid forced sales
If a bill, note or bond matures near the date you need the principal, you can normally receive the scheduled maturity value instead of accepting whatever market price is available that day. Maturity matching does not remove every risk—your spending date can change, and reinvestment rates can move—but it removes the need to sell a long security during an unfavorable rate cycle.
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Building a Treasury bill ladder
A ladder divides a larger cash balance among securities with different maturity dates. You might buy several bills whose maturities are one month apart, or use quarterly maturities to match tuition, insurance and tax payments. As each bill matures, use the proceeds for the scheduled expense or reinvest them into a new rung.
Advantages
- Cash becomes available on a planned schedule.
- You reduce the risk of having to sell a security unexpectedly.
- Only part of the balance is reinvested at any one time, so you are not forced to guess the best single date for interest rates.
Trade-offs
- Rates can be lower when a rung matures, creating reinvestment risk.
- You must track several maturity dates.
- A ladder held in TreasuryDirect still has the 45-day transfer or sale constraint for each newly purchased security.
Notes and bonds: coupon income versus rate risk
The semiannual coupon is predictable in amount once the note or bond is issued, but the market value changes every trading day. An investor who intends to hold to maturity can focus on the scheduled coupons and principal. An investor who may sell early must also plan for the possibility that the sale price is below par.
For a medium-term objective, a note often balances these considerations: it offers periodic income without the 20- or 30-year duration of a bond. A bond extends the income stream for much longer, but the price response to a rate change can be larger before maturity. Neither security is automatically “safer” for a goal whose date does not match its maturity; the fit depends on when the cash is needed.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Tax and account-access considerations
Interest from Treasury bills and notes is taxable at the federal level and exempt from state and local income tax. That state-tax treatment can make Treasuries more attractive in a jurisdiction with a high state income-tax rate, but it does not eliminate federal tax. Keep purchase confirmations and maturity statements so your tax preparer can report the income correctly, especially for bills purchased at a discount.
Liquidity is also part of the decision. A bank cash balance can generally be accessed immediately, while a TreasuryDirect purchase cannot be transferred or sold during its first 45 days and requires a bank, broker or dealer for an early sale after that period. Keep an emergency reserve outside Treasury securities for expenses that cannot wait.
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Common mistakes and how to avoid them
Calling a bill’s discount a coupon
A bill does not pay a periodic coupon. Its return is the difference between the discounted purchase price and face value at maturity. Use the auction’s stated pricing and yield conventions when comparing bills with coupon-paying notes.
Buying a long bond for a short obligation
A 30-year maturity does not become a short-term investment because you plan to sell in six months. If rates rise, the market price can fall before you sell. Choose a bill or a note whose maturity is closer to the obligation date.
Ignoring the 45-day TreasuryDirect hold
Money placed in a newly purchased TreasuryDirect security is not an immediately transferable emergency fund. Keep near-term cash in an immediately available account and reserve Treasuries for money that can remain invested through the hold period.
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The U.S. government backing supports payment according to the security’s terms, but it does not guarantee that a dealer will buy your security at your original price before maturity. Early sale is a market transaction.
Choosing a maturity without checking the reinvestment plan
A bill that matures before your goal date may leave you exposed to lower rates when you reinvest. A note or bond that matures after the goal date may force an early sale. Write the next action—spend, reinvest or transfer—beside every maturity date.
A practical selection checklist
- My cash-use date is written down.
- The security’s maturity is no later than the date I need the principal, unless I have a deliberate early-sale plan.
- I know whether I want one maturity payment or semiannual income.
- I can tolerate the market-price change that would occur if I had to sell early.
- I have accounted for the 45-day TreasuryDirect hold if I am buying there.
- I have kept a separate reserve for immediate emergencies.
- I understand that federal tax applies and that state and local income-tax treatment is different.
- I know what will happen at maturity: spend the proceeds, roll them into another bill, or review a new note or bond.
Bottom-line decision
Use a Treasury bill when the cash is needed within a year and a single maturity payment is acceptable. Use a Treasury note for a two- to 10-year objective when semiannual income and a defined maturity are useful. Use a marketable Treasury bond only when the money can remain invested for 20 or 30 years and you can tolerate larger price changes if circumstances force an early sale. For emergencies, keep an immediately accessible cash reserve separate from any TreasuryDirect holding.
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