Treasury bond rates: How often do Treasury bonds pay interest?

Collect your T-bond interest every six months

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Treasury bonds, or T-bonds, are issued by the U.S. Department of the Treasury in order to raise funds for government functions. Since a T-bond is backed by the full faith and credit of the U.S. federal government, it’s as close to risk-free as an investment can get.


Key insights

  • A T-bond is considered one of the safest investments available and offers steady interest income for investors.
  • You can purchase T-bonds directly from the U.S. Treasury or from your brokerage.
  • Since T-bonds are low-risk investments that offer steady returns, you shouldn’t expect the same potential for capital growth as with investments in the stock market.

How much do Treasury bonds pay?

The interest rate paid by T-bonds fluctuates throughout the year. However, once you purchase a T-bond, it’ll be locked in at that day’s rate. You’ll then earn at that fixed rate for the life of the bond.

Factors that impact T-bond rates include:

  • The perceived health of the economy
  • Federal Reserve policy
  • Demand for Treasurys from other investors

If the economy is perceived to be strong, investors typically seek out higher-risk investments than T-bonds; decreased demand usually leads to increased T-bond rates. If the economy is perceived to be in shaky condition, demand for T-bonds will increase, and their rates may drop.

You can find the current T-bond rates on the TreasuryDirect website.

Given that T-bonds are sold in increments of $100, it’s relatively simple to calculate their interest payments. For example, a Treasury bond with a face value of $1,000 and an interest rate of 4% will earn $40 in annual interest. Over the life of a 20-year T-bond, that would result in overall interest earnings of $800.

» MORE: Interest rates and how they work

When do Treasury bonds pay?

Treasury bonds pay twice a year, which means that every six months you’ll receive an interest payment equal to half of your rate. For instance, if you have a $1,000 T-bond with an interest rate of 3%, every six months you’ll receive an interest payment of $15 — or 1.5% of your T-bond’s value.

If you buy a T-bond directly through the TreasuryDirect site, the interest will be deposited directly into your account. If you buy it through your brokerage, the interest will be deposited into that brokerage account.

If you choose to sell the bond before it matures, and the bond is held in your TreasuryDirect account, you must log into that account and transfer the bond to the financial institution that will facilitate the sale. Check with the financial institution to see how you can sell the bond, as procedures will vary by institution.

T-bonds held in a TreasuryDirect account will automatically be redeemed for cash on the day they mature. However, the process for redeeming T-bonds held with a brokerage or other financial institution varies. Be sure to check with your specific institution to see how to receive your funds.

Should you buy Treasury bonds?

Whether or not you should buy Treasury bonds depends on your personal financial goals and risk tolerance. While a T-bond is a safe investment, it’s not a good option for those looking to see large gains in the value of their investment. Instead, T-bonds are best suited for people wishing to either hedge their portfolio against market risk or bring in guaranteed income.

Furthermore, T-bonds are quite reliable if you plan to hold them until maturity. But if you may want or need to sell them before maturity, their frequent fluctuations in market value can make them as unpredictable as riskier securities, like stocks.

“Investors that are considering Treasurys should only buy them if they plan on holding them until maturity. You can sell them if you want to, but their value will fluctuate,” said Marc Lichtenfeld, chartered market technician and chief income strategist at The Oxford Club.

If you are looking for other low-risk investment options that will provide a comparable level of return, you can also consider high-yield savings accounts (HYSAs), certificates of deposit (CDs) or money market accounts (MMAs).

Investors that are considering Treasurys should only buy them if they plan on holding them until maturity. You can sell them if you want to, but their value will fluctuate.”
— Marc Lichtenfeld, chartered market technician and chief income strategist at The Oxford Club

If you are looking to significantly grow your capital rather than protect it, you may consider investing in the stock market. But remember that while stock market investments can come with higher potential returns, they also come with higher risks.

» MORE: What is a good investment?

How to buy Treasury bonds

If you want to purchase T-bonds, or any other kind of Treasury security, you can buy them directly from the government via the TreasuryDirect site. T-bonds can also be purchased from brokers, but these sales may incur additional fees that aren’t charged by TreasuryDirect.

You can also purchase exchange-traded funds (ETFs) that provide indirect exposure to T-bonds and are traded on the stock market, offering added accessibility and liquidity. Note that ETFs charge additional fees that T-bonds don’t charge.

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FAQ

Are Treasury bonds a safe investment?

Yes. Given that Treasury bonds are backed by the full faith and credit of the federal government, their default risk is extremely small.

Can you sell a Treasury bond before it matures?

Yes, a Treasury bond can be sold before it matures. There is a highly active secondary market for T-bonds, so finding buyers and sellers isn’t too difficult. However, note that selling early may result in capital gains tax.

Does the interest rate on Treasury bonds match inflation?

The interest rate on Treasury bonds doesn’t always match inflation. The inflation rate fluctuates from year to year; a T-bond’s interest rate may match or exceed inflation in one year, and it might fall below the rate of inflation the next.

Do you pay tax on the interest from Treasury bonds?

The interest earned from T-bonds is not taxed at the state or local level. However, federal income taxes apply.

Bottom line

Given that Treasury bonds are backed by the U.S. government, these investments are virtually risk-free and have a very low chance of default.

An investor who buys a T-bond can expect semiannual interest payments for as long as they hold the bond. Interest payments will be deposited directly into your account, providing a steady, albeit modest stream of investment income.


Sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
  1. U.S. Department of the Treasury, “ Treasury Bonds .” Accessed April 19, 2023.
  2. U.S. Department of the Treasury, “ Selling a Treasury Marketable Security .” Accessed March 23, 2023.
  3. Intuit, “ Guide to Investment Bonds and Taxes .” Accessed April 19, 2023.
  4. U.S. Department of the Treasury, “ Tax Forms and Tax Withholding .” Accessed April 19, 2023.
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