What is a treasury bond?

A Treasury bond is a debt instrument issued by the United States Treasury. The treasury raises money that can be used to run the US government through the sale of bonds and other financial securities and provides incentives for citizens to buy these bonds to ensure they have funds when they need them. When buying a Treasury bond, someone is essentially lending money to the government in exchange for fixed interest payments every six months. Once the bond matures, the holder receives its face value.

Treasury bonds mature in at least 10 years, with 10-year bonds being the most common, although some have a maturity of up to 30 years. They are sold four times a year: in February, May, August and October. The Treasury has bond auctions, and individuals can also purchase bonds directly through the Treasury. Beneficiaries can purchase Treasury bonds in a wide variety of denominations, with a maximum allowable purchase of $5 million in bonds, and buyers will receive interest payments every six months until the bond matures.

Because Treasury bonds are guaranteed by the full faith and credit of the United States government, they have a very high value, making them an extremely solid investment. Interest returns tend to be quite low and certainly lower than riskier bonds, but some people prefer to invest in T bonds, as they are called, because they are highly reliable.

Interest income on a Treasury bond is taxed only at the federal level, not at the state or local level. This can be a distinct benefit for people who receive large interest payments and is another reason why some people like to invest in treasury bonds. Tax relief was once one of the incentives offered by the Treasury to encourage people to buy Treasury bonds.

The interest rate on a Treasury bond tends to be less exciting, leading many investors to buy these bonds in bulk to secure large interest payments. This can make investing in Treasury bonds prohibitively expensive for people without a lot of money, as they may not have the funds to buy enough bonds to make the interest payments worthwhile. However, Treasury bonds can also be used as a savings instrument, as the face value of the bond will be paid at maturity, generating an explosion of resources that can be useful. Parents, for example, can choose to buy T-bonds annually so their children have money for college.

Go up

This website uses third-party cookies