Understanding Treasury Bond Interest Rates | Bankrate (2024)

Treasury bonds are government securities that have a 20-year or 30-year term, and they pay a fixed interest rate on a semi-annual basis. They earn interest until maturity and the owner is also paid a par amount, or the principal, when the Treasury bond matures. This interest is exempt from state and local taxes, but it’s subject to federal income tax, according to TreasuryDirect.

Treasurys are marketable securities, so they can be sold before maturity – unlike U.S. savings bonds, which are non-marketable securities and are issued and registered to a specific owner and can’t be sold in the secondary financial market.

What Treasury bonds pay in interest

Let’s run through an example of how Treasury bonds work and what they could pay you.

Imagine a 30-year U.S. Treasury Bond is paying around a 3 percent coupon rate. That means the bond will pay $30 per year for every $1,000 in face value (par value) that you own. So the semiannual coupon payments are half that, or $15 per $1,000.

Interest payments are made directly into your TreasuryDirect.gov account, if you use it to hold your securities. If you hold your bonds at a brokerage, then the interest payment will go there.

The yield on 30-year Treasury bonds is around 4.25 percent, as of April 2024.

When a Treasury bond is issued, the coupon rate stays fixed for the life of the bond, but the bond’s price can change as it’s traded in the market. If the bond price goes up, then its yield goes lower, even though the coupon rate remains the same. Conversely, if the bond price falls, the yield will go up, even though the coupon rate remains the same. Either way, when the bond matures, you’ll receive the face value of the bond back.

If the coupon rate is higher than the yield, that means the bond is selling at a premium, says Greg McBride, CFA, Bankrate chief financial analyst.

With a stock, you know what the price is today but you don’t know its future value. But with a bond you know what the end value is going to be when it matures, McBride says.

“If the price now is above the face value, then your yield is going to be less than the coupon rate because you may have paid $110 for the bond, it’s going to mature at $100,” McBride says. “Conversely, if you buy it for less than face value, your yield to maturity is going to be higher than the coupon rate. Because at maturity, that bond you paid $95 for is now going to give you $100.”

How to buy Treasury bonds

Investors have two major ways to buy Treasury bonds:

  • Buy new bonds straight from the U.S. Treasury, a bank or a broker
  • Buy existing bonds from the bond exchange through a bank or broker

You can buy Treasury bonds electronically from TreasuryDirect through non-competitive bidding. Non-competitive bidding means that you agree to accept the yield determined at auction and you’re guaranteed to receive both the amount and specific bond you want.

T-bonds can also be bought through banks, brokers or dealers through either a competitive or non-competitive bid. In a competitive bid, you specify the yield that you’ll accept and you may or may not get the bond you want. If you do receive the Treasury bond, it may be a smaller amount than what you requested.

Treasury bond auctions happen four times a year: in February, May, August and November. You must purchase at least $100 worth of Treasury bonds and they are sold in $100 increments. The maximum amount of Treasury bonds you may buy in a single auction is $10 million during non-competitive bidding or 35 percent of the initial offering amount via competitive bidding.

Of course, because Treasury bonds are traded on an exchange, you can also buy them at any time the market is open through a broker or bank offering such services. Those bonds won’t be new, but that’s largely irrelevant.

Who should invest in Treasury bonds?

Treasury bonds might be a good fit for someone who seeks safety, because Treasury securities are backed by the “full faith and credit” of the U.S. government. U.S. Treasury bonds are the de facto safe-haven investment for investors, McBride says.

“So when the stock market goes down, you’ll often see investors flocking to the safety of Treasurys,” McBride says.

Investors are often looking for the safety that bonds provide, and are less concerned with the yield.

Treasury bonds may also be an option to diversify your portfolio, if you’re heavily invested in stocks, for example. They tend to reduce the volatility of a portfolio, and usually fluctuate much less than stocks, which are well-known for their volatility. By diversifying your portfolio, you can smoothen your returns and reduce the overall risk in your portfolio.

But that doesn’t mean bonds are a good choice in all situations, particularly when the interest rate on bonds is very low. Then bonds may actually be risky.

Treasury bond risks

While Treasury bonds don’t have a serious risk that the government won’t pay you back, they do have two other risks that are typical of bonds: inflation risk and interest rate risk.

While Treasury bonds are relatively safe investments, one key risk is that inflation will erode your returns over the years. When you get the bond’s face value back, it won’t have the same purchasing power that it did 20 or 30 years earlier.

A 30-year Treasury bond yields about 4.25 percent (as of April 2024). If that yield is not higher than inflation, then your investment loses purchasing power.

“Investors should plan on inflation over the next 30 years averaging around 3 percent,” McBride says.

McBride says that in three decades, $1,000 will only have the buying power of $476, if inflation averages 2.5 percent over that period. As of April 2024, the inflation rate is about 3.5 percent.

“So, this is not something that’s going to grow your buying power or your wealth in any meaningful way,” McBride says. “And you’ve got tremendous interest rate risk if, for some reason, you need to sell prior to maturity.”

Interest rate risk is the risk that rates move adversely. If rates rise, then the price of your bond will decline. That may not be a problem if you don’t have to sell your bond before maturity. But if you want or need to sell it, then you won’t be able to sell it for face value, but maybe much less. And the longer your maturity, the more the bond will be affected by changes in interest rates.

Rising rates have impacted bond prices in recent years, McBride says.

Do Treasury bonds pay high interest?

A number of other Treasury securities (such as Treasury bills) are paying the highest yields in over a decade. Treasury bond yields have also risen in recent years.

Investors are demanding higher returns because of the rise in inflation, McBride says.

Many people like the safety offered by investing in Treasury bonds, which are backed by the U.S. government. But that safety comes at a cost – a lower coupon rate. Investors looking for higher interest payments might turn to corporate bonds, which typically yield more. But they’ll have to take on some extra risk for that extra return.

Buying a bond issued by one of the top companies may be relatively low risk, but it’s still not as low risk as buying a U.S. government bond. And corporate bonds can range from relatively safe to extremely risky, so you need to know what you’re purchasing if you buy them.

Some government bonds tied to inflation have started paying higher rates to account for increasing costs. Government-issued Series I bonds purchased between November 2023 and April 2024 will pay interest at an annual rate of 5.27 percent, according to TreasuryDirect. The interest rate on I bonds is tied to inflation and changes every six months.

Another option are Treasury Inflation Protected Securities (TIPS), which are Treasury securities designed to preserve the investor’s purchasing power.

“The price of the bond is adjusted relative to change in the Consumer Price Index,” McBride says.

For TIPS, as the price of the bond goes up, so too does the amount of the coupon. Over the bond’s lifetime, between the upward adjustments to the price of the bond and the increasing dollar amount of the coupon, it preserves the investor’s buying power, McBride says.

Are Treasury bonds a good investment?

Whether or not Treasury bonds are a good investment depends on your own financial situation.

For people who are risk averse and desire the safety of bonds sold by the U.S. government, they might be a good fit. But for those saving for long-term investing goals such as retirement, Treasury bonds are unlikely to provide a high enough return to meet your goals or even outpace inflation.

Those looking for a low-risk investment might also consider high-yield savings accounts or certificates of deposit offered by banks backed by the Federal Deposit Insurance Corp. (FDIC). Your money’s protected from a bank failure, if it’s within FDIC limits and guidelines.

These accounts pay an annual percentage yield (APY) that will reflect the overall interest rate level, but you’ll have fast access to cash in a high-yield savings account, and you can ladder CDs to potentially take advantage of an increase in interest rates.

Those looking for higher long-term returns will likely need to turn to stocks or stock funds for at least a portion of their portfolio. These investments are regularly among the best long-term investments, and they allow you to outpace inflation and grow your purchasing power over time.

Note: Bankrate’s Rachel Christian also contributed to this story.

Understanding Treasury Bond Interest Rates | Bankrate (2024)


How do treasury bonds work for dummies? ›

We sell Treasury Bonds for a term of either 20 or 30 years. Bonds pay a fixed rate of interest every six months until they mature. You can hold a bond until it matures or sell it before it matures.

How do you read Treasury bond yields? ›

Here's an example: Let's say you buy a bond at its $1,000 par value with a 10% coupon. If you hold on to it, it's simple. The issuer pays you $100 a year for 10 years, and then pays you back the $1,000 on the scheduled date. The yield is therefore 10% ($100/$1000).

How do Treasury bonds work with interest rates? ›

During the life of the bond or note, you earn interest at the set rate on the par value of the bond or note. The interest rate set at auction will never be less than 0.125%. If you still own the bond after 20 years or the note after seven years, you get back the face value of the security.

Why do Treasury bond prices fall when interest rates rise? ›

What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

What is one downside to investing in treasuries? ›

So, the risks to investing in T-bonds are opportunity risks. That is, the investor might have gotten a better return elsewhere, and only time will tell. The dangers lie in three areas: inflation, interest rate risk, and opportunity costs.

How much is a $100 savings bond worth after 20 years? ›

How to get the most value from your savings bonds
Face ValuePurchase Amount20-Year Value (Purchased May 2000)
$50 Bond$100$109.52
$100 Bond$200$219.04
$500 Bond$400$547.60
$1,000 Bond$800$1,095.20

What is the difference between interest rate and yield on treasury bills? ›

Key Takeaways. Yield is the annual net profit that an investor earns on an investment. The interest rate is the percentage charged by a lender for a loan. The yield on new investments in debt of any kind reflects interest rates at the time they are issued.

What is the difference between bond rate and yield? ›

A bond's coupon rate is the rate of interest it pays annually, while its yield is the rate of return it generates.

Is Treasury yield the same as interest rate? ›

Treasury yield is the effective annual interest rate that the U.S. government pays on one of its debt obligations, expressed as a percentage.

How to calculate T bill interest? ›

Face Value Redemption and Interest Rate

For example, suppose an investor purchases a 52-week T-bill with a face value of $1,000. The investor paid $975 upfront. The discount spread is $25. After the investor receives the $1,000 at the end of the 52 weeks, the interest rate earned is 2.56% (25 / 975 = 0.0256).

How do you calculate the yield of a Treasury bill? ›

To calculate yield, subtract the bill's purchase price from its face value and then divide the result by the bill's purchase price. Finally, multiply your answer by 100 to convert it to a percentage.

What is the difference between a Treasury bill and a Treasury bond? ›

Key takeaways. Treasury bills have short-term maturities and pay interest at maturity. Treasury notes have mid-range maturities and pay interest every 6 months. Treasury bonds have long maturities and pay interest every 6 months.

Do Treasury bonds go up when interest rates go up? ›

A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices of fixed-rate bonds fall. this phenomenon is known as interest rate risk.

Should you sell bonds when interest rates rise? ›

Unless you are set on holding your bonds until maturity despite the upcoming availability of more lucrative options, a looming interest rate hike should be a clear sell signal.

Can you lose money on bonds if held to maturity? ›

If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change. But if you buy and sell bonds, you'll need to keep in mind that the price you'll pay or receive is no longer the face value of the bond.

How much do 1 year Treasury bonds pay? ›

1 Year Treasury Rate is at 5.12%, compared to 5.12% the previous market day and 4.73% last year. This is higher than the long term average of 2.95%. The 1 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 1 year.

What is Treasury bonds in simple words? ›

What are treasury bonds? Treasury bonds are debt securities issued by the government. Essentially, you're loaning money to the government by purchasing a bond at a predetermined interest rate. In turn, the government will pay you a fixed interest rate for a set duration of time.

What is a Treasury bond in simple terms? ›

Treasury bonds, often referred to as T-bonds, are long-term loans made to the U.S. government. When you buy a Treasury bond, you're essentially lending money to the federal government. In return, the government agrees to pay you a fixed rate of interest every six months for the life of the bond.

Is a Treasury bond a good investment? ›

Bottom Line. Treasury bonds are viewed as a secure and stable investment option, offering a predictable income stream and serving as a hedge against market volatility, which can be particularly appealing to conservative investors and those with long-term financial goals.


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