U.S. Treasury Securities Investing Guide 2026: How to Buy T-Bills, Notes & Bonds on TreasuryDirect, Auctions, Tax Treatment & Ladder Strategy

What Are U.S. Treasury Securities? Bills, Notes, Bonds, TIPS, and I-Bonds Explained

U.S. Treasury securities are debt obligations issued by the United States Department of the Treasury to finance government operations. They are backed by the "full faith and credit" of the U.S. government and are widely regarded as the lowest-credit-risk instruments available to investors anywhere in the world. The U.S. Treasury currently issues five distinct marketable security families — Treasury bills (T-bills), Treasury notes, Treasury bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs) — plus two non-marketable savings bonds (Series EE and Series I). Each has a different maturity profile, interest payment mechanism, and tax treatment, and each plays a different role in a diversified portfolio. The definitive retail-facing reference for the entire family is TreasuryDirect.gov, the Bureau of the Fiscal Service website where investors can open accounts and buy Treasuries directly from the government without a broker intermediary.[1, 8]

The most important practical distinction among Treasury products is maturity. Treasury bills are short-term instruments with maturities of 4, 8, 13, 17, 26, or 52 weeks, sold at a discount and maturing at face value — they pay no coupon. Treasury notes carry intermediate maturities of 2, 3, 5, 7, or 10 years and pay fixed semi-annual coupons. Treasury bonds are long-term instruments issued in 20-year and 30-year maturities, also with semi-annual coupons. TIPS are issued in 5, 10, and 30-year maturities with principal that adjusts twice yearly for Consumer Price Index inflation, and pay coupons on the inflation-adjusted principal. FRNs are 2-year securities whose coupon resets weekly based on the 13-week T-bill auction rate. Finally, Series I Savings Bonds are non-marketable inflation-protected savings instruments with a composite fixed-plus-CPI rate, capped at $10,000 per person per year (electronic) plus up to $5,000 from an IRS tax refund (paper).[2, 3, 4, 5, 6]

Treasuries are uniquely important to the entire financial system because their yields define the risk-free rate — the benchmark against which every other asset is priced. When corporate bond analysts compute credit spreads, when mortgage lenders set rates, when stock analysts apply a discount rate in a discounted cash flow valuation, and when options traders compute Black-Scholes theoretical values, they all start with a Treasury yield. The Federal Reserve's H.15 Selected Interest Rates report publishes daily Treasury yields for every standard maturity, and the St. Louis Fed's FRED database tracks the full history of each series. For an individual investor, understanding Treasuries is not optional — even if you never buy one directly, every other asset in your portfolio is priced against them.[13, 15, 16]

Treasury Yields in 2026: The Rate Environment and Why It Matters for Your Portfolio

After the Federal Reserve's aggressive 2022–2023 tightening cycle raised the federal funds target rate from effectively zero to above 5%, Treasury yields climbed to levels unseen since before the 2008 financial crisis. The 13-week T-bill secondary-market rate and the 10-year Treasury constant maturity rate both broke above 4% in late 2022 and have oscillated in the 3.5%–5% range through 2024 and 2025. Because Treasury yields drive mortgage rates, corporate borrowing costs, and bank deposit rates, this regime shift turned what was once a forgotten cash-parking corner of the portfolio into a legitimate yield opportunity. For a full treatment of how Federal Reserve decisions shape these rates, see our companion article on how the Federal Reserve sets interest rates.[13, 15, 16]

The shape of the Treasury yield curve — the difference between short-term and long-term yields — is one of the most watched indicators in macroeconomics. A normal curve slopes upward: longer maturities yield more than shorter ones, compensating investors for inflation and duration risk. An inverted curve, where short-term yields exceed long-term yields, has historically preceded every U.S. recession since 1960 (with a handful of false positives). From mid-2022 through 2024 the U.S. curve was persistently inverted, with the 2-year yield often exceeding the 10-year by 50 to 100 basis points — the deepest inversion in four decades. The Federal Reserve's Z.1 Financial Accounts of the United States documents how households, pension funds, and foreign central banks responded to this unusual environment by shifting trillions of dollars into Treasuries and Treasury-backed money market funds.[14, 21]

For a retail investor deciding between leaving cash in a brick-and-mortar checking account yielding 0.01% versus buying a 13-week T-bill yielding 4%+, the decision has never been clearer. A $50,000 cash emergency fund earning the prevailing T-bill rate can generate $2,000 or more in annual interest without any credit risk — enough to meaningfully offset inflation. But projecting this decision forward over decades, including the compounding effect of rolling maturing bills into new ones and reinvesting coupon income, requires a proper calculation tool. Our compound interest calculator is designed to model exactly this: periodic contributions, compounding frequencies, and different annual yield assumptions so you can see how a Treasury-bill savings strategy compounds over 5, 10, or 30 years versus the alternatives.[13, 15]

Treasury Bills (T-Bills) Explained: Discount Pricing, Maturities, and the Worked Example

Treasury bills are the simplest and most frequently issued U.S. government security. Unlike notes and bonds, T-bills pay no explicit coupon interest; instead, they are sold at a discount to face value and mature at full face value, with the difference representing the investor's return. A $10,000 26-week bill bought at $9,800 will pay back exactly $10,000 at maturity, for a $200 return. Since this $200 is earned over approximately 26 weeks on $9,800 of invested capital, the annualized investment rate is (200 / 9,800) × (365 / 182) ≈ 4.10%. TreasuryDirect publishes both the "discount rate" (the traditional money-market convention, using a 360-day year) and the "investment rate" (the effective annualized rate using a 365-day year) after every auction, and investors should focus on the investment rate for comparison with other yields. Full mechanics and worked examples are on the TreasuryDirect Treasury Bills page.[2, 10]

The U.S. Treasury auctions T-bills on a predictable weekly schedule: 4-week, 8-week, 13-week, and 26-week bills are auctioned every Tuesday and Thursday, 17-week bills are auctioned every Wednesday, and 52-week bills are auctioned every four weeks on a Tuesday. In addition, the Treasury occasionally issues Cash Management Bills (CMBs) with non-standard maturities of a few days to a few weeks to manage short-term cash flow needs. Auction results are published at TreasuryDirect's auctions page within hours of each auction closing. The minimum purchase is $100 through TreasuryDirect, with bids submitted in $100 increments up to a non-competitive maximum of $10 million per auction per CUSIP. For retail investors, the 4-week and 13-week bills are the most popular instruments because they offer flexibility close to a savings account with yields typically higher than bank money market rates.[2, 7]

One subtlety that catches new investors off guard: T-bills purchased at TreasuryDirect have Original Issue Discount (OID) tax treatment. The difference between the purchase price and maturity value is treated as interest income for federal tax purposes in the year of maturity (for bills held to maturity), not as a capital gain. This is important because it means T-bill returns are taxed as ordinary interest (reported on Form 1099-INT), not at long-term capital gains rates — even if you held the bill for close to a year. The specific rules are laid out in IRS Publication 1212, Guide to Original Issue Discount Instruments, which also explains accrual rules for bills sold before maturity. We cover the state-tax exemption and the Box 3 reporting mechanics in Section 8 below.[10, 12]

Treasury Notes and Bonds: Semi-Annual Coupons, Yield-to-Maturity, and Secondary-Market Dynamics

Treasury notes and Treasury bonds differ from T-bills in three crucial ways: longer maturities, explicit semi-annual coupon payments, and a much more active secondary market. Notes are issued with maturities of 2, 3, 5, 7, and 10 years, while bonds carry 20-year and 30-year maturities. Both pay a fixed coupon rate, set at auction based on market demand, with interest paid every six months from the issue date. A $10,000 10-year Treasury note with a 4.25% coupon pays $212.50 every six months ($425 per year) and returns the full $10,000 principal at maturity. Because coupon rates are fixed at issue while market yields fluctuate daily, the market price of an already-issued note or bond moves inversely to yield changes — a concept known as price-yield duality.[3, 4]

The concept that ties price and yield together is yield to maturity (YTM). YTM is the annualized return an investor would earn if they bought a bond at today's market price, held it to maturity, and reinvested all coupon payments at that same rate. For a Treasury issued at par (price = face value) and held to maturity, YTM equals the coupon rate. But once the bond trades in the secondary market, YTM and coupon rate diverge. If interest rates rise after issuance, the bond's market price must fall so that its lower coupon plus capital appreciation to par at maturity adds up to the new, higher market yield. The opposite happens when rates fall. This inverse relationship is exactly why long-duration bonds lost roughly 20% of their market value during the 2022 rate shock — a lesson many new Treasury investors learned painfully that year. The historical data for 10-year Treasury yields is available at FRED's 10-Year Treasury Constant Maturity Rate series.[16, 3]

The practical implication for a buy-and-hold investor is that interim price movements don't matter if you plan to hold to maturity. The Treasury will return your face value on the maturity date regardless of what the bond is trading for in the interim — the only risk is opportunity cost if rates rise and you're locked into a lower yield. But for investors who want or need to sell before maturity, interest rate risk is very real. This is why matching your bond maturities to your cash-flow needs is the single most important decision when building a Treasury portfolio. The concept is known as liability matching, and it is the theoretical foundation of ladder, barbell, and bullet strategies discussed in Section 9. Total outstanding marketable U.S. debt — the pool from which all these instruments are drawn — exceeds $27 trillion as of 2026, making it by far the world's largest and most liquid bond market, per the SIFMA US Fixed Income Securities Statistics.[4, 20]

TIPS and Series I Savings Bonds: Inflation-Protected Treasury Securities

Treasury Inflation-Protected Securities (TIPS) are marketable Treasury notes and bonds whose principal adjusts twice yearly in line with changes to the Consumer Price Index for All Urban Consumers (CPI-U), the headline inflation measure published by the U.S. Bureau of Labor Statistics. TIPS are issued in 5-year, 10-year, and 30-year maturities and pay a fixed coupon rate on the inflation-adjusted principal. If the CPI rises 3% over a six-month period, the principal of a $10,000 TIPS increases to $10,150, and the next coupon payment is calculated on the new $10,150 base. At maturity, TIPS return either the adjusted principal or the original face value, whichever is higher — meaning TIPS have a built-in deflation floor. The full mechanics are detailed on the TreasuryDirect TIPS page.[5, 9]

There is a critical tax wrinkle with TIPS held in taxable accounts: the inflation adjustment to principal is treated as phantom income — taxable in the year it is accrued, even though the investor does not actually receive the cash until maturity. This is explicitly addressed in IRS Publication 550, Investment Income and Expenses, which treats the upward inflation adjustment as OID interest reportable annually on Form 1099-OID. As a result, high-bracket investors generally hold TIPS in tax-deferred accounts (traditional IRAs or 401(k)s) where phantom income does not create a current tax liability. TIPS are generally a poor fit for taxable accounts unless the investor has low taxable income or is specifically seeking inflation protection despite the tax drag.[9, 10]

Series I Savings Bonds (I-Bonds) are the non-marketable cousin of TIPS, designed specifically for retail savers. Issued in electronic form through TreasuryDirect, I-Bonds earn a composite rate equal to a fixed rate plus a variable rate that resets every May and November based on CPI inflation. They are taxable federally but exempt from state and local tax, have a purchase limit of $10,000 per Social Security number per calendar year (plus up to $5,000 more from a federal tax refund in paper form), must be held for at least 12 months before redemption, and forfeit three months of interest if redeemed within five years. Beyond the tax advantages, I-Bonds also offer an education expense exclusion: interest can be fully tax-free if used to pay qualifying higher education expenses, subject to income phase-outs. Complete product details are on the TreasuryDirect I-Bonds page.[6, 9]

How to Buy Treasuries: TreasuryDirect vs. Brokerage Accounts — Fees, Liquidity, and Trade-offs

Individual investors have two main pathways to buy Treasury securities: directly from the U.S. Treasury through a TreasuryDirect account, or indirectly through a brokerage account at firms like Fidelity, Charles Schwab, or Vanguard. Each pathway has distinct advantages and trade-offs. TreasuryDirect is the government's own purchase portal, requiring only a Social Security number, a U.S. bank routing number, and an identity verification step. Once open, the account allows you to bid on new auctions for every Treasury security type — bills, notes, bonds, TIPS, FRNs, and I-Bonds — with a $100 minimum and $100 increments. There are no commissions, no account fees, and the government never marks up the price. The downsides are that TreasuryDirect lacks a secondary market (you can only sell securities by transferring them out to a brokerage account first), has a dated user interface, and does not produce a consolidated 1099 across all your investment accounts. For a step-by-step walkthrough of account opening, see the educational materials at Charles Schwab's fixed-income investing primer.[1, 22]

Buying Treasuries through a brokerage account flips the trade-offs. Major online brokers offer both primary-auction participation (the broker submits non-competitive bids on your behalf at no commission) and access to the active secondary market, where you can buy and sell previously issued Treasuries any time the market is open. Brokers produce a consolidated 1099 that covers stocks, bonds, mutual funds, and money-market funds in one document, making tax filing vastly simpler than splitting reporting between a brokerage 1099 and a TreasuryDirect 1099. The main downside is that secondary-market trades on small lots can carry embedded dealer markups of a few basis points, and some brokers charge a small fee for secondary Treasury trades. For a retail investor buying and holding to maturity, these costs are usually trivial. For a large portfolio or for investors who need liquidity to sell before maturity, a brokerage is almost always the better choice.[17, 22]

A practical hybrid strategy many retail investors use is to open a TreasuryDirect account specifically for I-Bonds (which cannot be held at a broker) while keeping marketable Treasuries in their existing brokerage account. This gives you access to the unique tax-advantaged I-Bond while keeping your marketable holdings — T-bills, notes, bonds, and TIPS — in a single consolidated reporting environment. For new savers with less than $10,000 to invest, TreasuryDirect is perfectly adequate; for high-net-worth investors building laddered portfolios of $500,000+, a brokerage is almost always the operational choice. The key point is that there is no "hidden cost" to buying Treasuries — unlike mutual funds with expense ratios, Treasuries have no ongoing fees of any kind regardless of which purchase channel you choose.[17, 18]

Treasury Auctions Explained: Competitive vs. Non-Competitive Bidding for Retail Investors

The U.S. Treasury sells all new marketable securities through a uniform price auction. Bidders submit either competitive or non-competitive bids during a pre-announced window, and the Treasury determines a single clearing yield (the "high yield") at which all awards are made. Anyone who bid at or below the clearing yield receives their full requested amount at the clearing yield; anyone who bid higher gets nothing. This structure ensures that a retail investor who wants to participate — but has no idea what yield to demand — gets the exact same price as Goldman Sachs, PIMCO, and the Bank of Japan. The mechanism, including auction schedules, award announcements, and CUSIP disclosures, is documented at the TreasuryDirect Auctions page.[7, 1]

A non-competitive bid is the right choice for virtually every retail investor. When you place a non-competitive bid at TreasuryDirect, you agree to accept whatever the winning yield turns out to be, with guaranteed allocation up to $10 million per auction per CUSIP. You never have to "outbid" anyone or make a market call. A competitive bid, by contrast, requires you to specify the exact yield at which you are willing to lend — and if the auction clears below your specified yield, you receive nothing at all. Competitive bids are the domain of dealers, primary dealers, and sophisticated institutions that have a view on where rates should settle. For a retail buyer who just wants reliable execution at the prevailing market rate, non-competitive bidding is the correct and default choice.[7]

Auction participation also exposes investors to the when-issued ("WI") market, where traders speculate on the auction outcome before it clears. WI trading is the primary venue where institutional investors discover the probable clearing yield, and WI quotes from the morning of an auction are the best pre-auction indicator of the likely outcome. For retail investors, WI prices are informational only — you cannot buy at WI prices through TreasuryDirect — but they can be useful to estimate how much interest income a given non-competitive bid will produce. Retail investors who want to build a multi-maturity portfolio through a series of auctions should use a planning tool to model projected yields over time. Our compound interest calculator is designed exactly for this: enter the expected yield for each maturity, the dollar amount allocated, and the reinvestment assumption, and see how a rolling T-bill ladder compounds against various alternatives over decades.[7, 15]

Tax Treatment of Treasuries: Federal Taxable, State & Local Tax-Exempt, and Form 1099-INT

The most valuable — and most under-appreciated — feature of U.S. Treasury securities is their state and local tax exemption. Federal law (31 U.S.C. § 3124) explicitly prohibits state and local governments from taxing interest on debt obligations of the federal government, including Treasury bills, notes, bonds, TIPS, and Savings Bonds. For an investor living in California, New York, New Jersey, Oregon, or Hawaii — states with top marginal income tax rates between 9.3% and 13.3% — this exemption translates into a meaningful yield boost. A 4.5% Treasury yield is equivalent to a roughly 5.0% pre-tax yield on a taxable corporate bond for a California resident in the 9.3% state bracket. The IRS treats this exemption in Publication 550, Investment Income and Expenses, and the state-tax exclusion is applied when you file your state tax return.[9, 11]

All Treasury interest is reported on Form 1099-INT, Box 3, which is specifically labeled "Interest on U.S. Savings Bonds and Treasury obligations." This separation from Box 1 (general interest income) is what allows state tax software to apply the exemption automatically. The official IRS instructions for Form 1099-INT clarify that brokers and TreasuryDirect alike must report Treasury interest in Box 3, so even investors holding Treasuries at multiple firms should find consistent reporting. When you file Schedule B of Form 1040, all Box 1 and Box 3 interest is combined for federal purposes, but most state tax forms have a dedicated subtraction line for the Box 3 amount so it flows through correctly.[12, 11]

Three important caveats on the tax treatment. First, Treasury capital gains (from selling before maturity at a price above your cost basis) are not exempt from state tax — only interest income is. Second, the state-tax exemption applies to direct ownership of Treasuries; it does not automatically pass through to mutual funds or ETFs that hold Treasuries unless the fund meets a state-specific "U.S. government obligations" percentage threshold, which varies by state. Third, accrued interest paid when buying a note or bond on the secondary market between coupon dates is deductible from subsequent interest income for the purchaser — a rule explained in detail in IRS Topic 403: Interest Received. These are the kinds of nuances that make it worth consulting a CPA for any portfolio with more than a few hundred thousand dollars in Treasury holdings.[9, 11, 10]

The Treasury Ladder Strategy: Rolling Maturities for Predictable Income

A Treasury ladder is a portfolio of Treasury securities with staggered maturity dates, structured so that one rung (or "slice") matures at regular intervals. The classic retail ladder uses 4-week, 13-week, 26-week, and 52-week T-bills arranged so that a bill matures roughly every 10 to 13 weeks, producing steady cash flow without ever locking up capital in a single long maturity. As each bill matures, the proceeds are reinvested into a fresh 52-week bill, keeping the ladder permanently in place while also capturing whatever current yield the market offers. A five-rung ladder of $20,000 per rung (totaling $100,000) will, once fully established, produce a $20,000 maturity every 10 weeks, giving the investor both predictable liquidity and exposure to a blended average of prevailing short-term yields.[17, 22]

Alternatives to the ladder include the barbell strategy, which allocates half the portfolio to very short (4-week or 13-week) bills for liquidity and half to longer (10-year or 30-year) bonds for yield — skipping the middle; and the bullet strategy, which concentrates all maturities at a single future date, typically to match a specific known liability like a tuition payment or a down payment on a house. Each has trade-offs. The ladder offers smoothest cash flow and lowest reinvestment risk per rung. The barbell offers the highest yield but is more sensitive to rate changes at both ends of the curve. The bullet is the most exact match for a specific future cash need but leaves you exposed to sharp reinvestment risk if your liability is not perfectly known. The CFA Institute curriculum on fixed income treats all three strategies in depth.[19]

A ladder's main risk is reinvestment risk: when a rung matures during a period of falling rates, the new bill you buy to replace it will carry a lower yield than the old one. This is the mirror image of the interest-rate risk that hurts long-duration bondholders in a rising-rate environment. A ladder trades away some of the upside of catching a yield peak in exchange for dramatically reduced downside when rates spike. For retirees and near-retirees whose primary goal is steady income and principal preservation, that trade-off is almost always worth making. Kitces.com publishes an extensive research library on bond laddering for retirees that retail investors will find valuable.[23, 22]

Treasuries vs. CDs, Money Market Funds & High-Yield Savings: Which Is Right for You?

For investors parking cash they don't need immediately, the four main choices are Treasury bills, bank Certificates of Deposit (CDs), money market mutual funds, and high-yield savings accounts (HYSAs). Each offers a different mix of yield, liquidity, credit risk, and tax treatment. T-bills win on state-tax exemption and credit safety (backed by the U.S. government rather than FDIC insurance). CDs offer yields that are often slightly higher than T-bills but are fully state-taxable, carry FDIC insurance up to $250,000 per depositor per institution, and impose early withdrawal penalties if you need the cash before maturity. Money market mutual funds offer daily liquidity and are subject to SEC 2a-7 reform rules that allow redemption gates and liquidity fees during stress events. HYSAs offer instant liquidity and FDIC insurance but variable rates that can drop the moment the Fed changes policy. Consumer resources are available from the CFPB consumer tools portal.[18]

To compare these options on a like-for-like basis, use the tax-equivalent yield (TEY) formula. A taxable yield of X% is equivalent to a Treasury yield of X% × (1 − state tax rate). For a California resident in the 9.3% state bracket, a 4.50% T-bill yield is worth roughly the same as a 4.96% CD yield on an after-state-tax basis. If the CD only yields 4.60%, the T-bill is a better deal despite the nominally lower rate. This kind of comparison is especially important for high-net-worth investors in the top federal and state brackets, where the combined marginal rate can exceed 45%. For lower-bracket investors in states with no income tax (Florida, Texas, Washington, etc.), the state-tax advantage disappears and the choice reduces to nominal yield and liquidity preferences.[9]

The Real Risks of Treasury Investing: Interest Rate, Reinvestment, Inflation, and Opportunity Cost

Treasuries are often called "risk-free," but the more precise term is "default-free." They carry zero credit risk because the U.S. Treasury can always print dollars to repay dollar-denominated debt. But default risk is only one of several risks, and Treasuries are very much exposed to the others. The biggest is interest rate risk: the price of an outstanding Treasury note or bond falls when market yields rise. The magnitude of that price move is measured by duration — a mathematical weighting of the timing of future cash flows. A 10-year Treasury note has a duration of roughly 8 to 9 years, meaning a 1% rise in yields causes roughly an 8–9% drop in price. A 30-year bond has a duration around 18 years — meaning an 18% price drop for each 1% rate rise. This is exactly what happened in 2022, when long Treasuries had their worst year in modern history.[16, 19]

Reinvestment risk is the mirror image. Short-dated Treasuries (T-bills and short notes) must be rolled at maturity into new issues, and if rates have fallen since the original purchase, the new yield will be lower. A retiree who builds a ladder around 5% T-bill yields in 2026 and then watches the Fed cut rates dramatically by 2028 would find each maturing rung replaced at a lower yield, gradually compressing the ladder's total income. Inflation risk is the gradual erosion of purchasing power: even a Treasury paying 4.5% loses real value if inflation averages 5% over the holding period. TIPS and I-Bonds are the specific cure for this risk, but nominal Treasuries offer no protection. Finally, opportunity cost is the risk that stocks dramatically outperform over the same period — a Treasury investor who locks in 4% in 2026 will watch in frustration if the S&P 500 compounds at 10% per year over the following decade. These risks are covered comprehensively in the FINRA Bonds investor education pages.[17, 21]

Treasuries in Retirement Accounts and Asset Location: Where to Hold Which

Asset location — the question of which assets belong in which account — is one of the few places where taxable investors can earn meaningful after-tax "alpha" without taking more risk. The general principle is that tax-inefficient assets belong in tax-advantaged accounts, and tax-efficient assets belong in taxable accounts. Because Treasury interest is federally taxable but state-exempt, the optimal placement depends on the investor's state of residence. For a California, New York, New Jersey, Oregon, or Hawaii resident, holding plain Treasuries in a taxable account captures the state-tax exemption, which would be lost if held inside an IRA (where all distributions are ordinary income regardless of source). For a no-income-tax-state resident, the answer flips: there's no state benefit to preserve, so Treasuries can go in the tax-deferred account where they defer federal tax on interest. This nuance is captured well in Kitces.com's asset-location analysis.[23, 9]

TIPS are a special case. Because the inflation adjustment to TIPS principal is taxable as phantom income in the year accrued even though cash is not received until maturity, TIPS should almost always be held inside a tax-deferred account. The only exceptions are very-low-income investors whose marginal rate is zero, or investors who need inflation protection specifically in a taxable account for estate-planning purposes. For retirement decumulation, Treasuries form the foundation of the "bond bucket" in the bucket strategy: you hold 2 to 5 years of anticipated spending in Treasuries laddered to mature when needed, while the rest of the portfolio remains in equities. This approach is covered in depth in our companion articles on sequence of returns risk and retirement withdrawal strategies.[9, 23]

Common Mistakes When Investing in Treasuries — and Frequently Asked Questions

The three most common mistakes retail investors make with Treasuries are (1) confusing the discount rate with the investment rate, leading to an understatement of actual T-bill yields; (2) holding TIPS in a taxable account without understanding the phantom income problem; and (3) comparing a T-bill yield to a CD yield without adjusting for the state-tax exemption, which can dramatically change the answer. A fourth mistake, common among investors who bought long-duration Treasury ETFs like TLT in 2020 when yields were near 0%, is mistaking price volatility for credit risk and panic-selling after a rate-driven drawdown. In all four cases, the fix is educational: understand how the instrument actually works before you buy it, and match the maturity to your actual cash-flow needs. Our compound interest calculator lets you model these scenarios quantitatively before committing capital, so you can see how a planned ladder performs under different rate assumptions.[2, 16]