The types of government securities available to U.S. investors fall into a handful of families: short-term Treasury bills, medium-term Treasury notes, long-term Treasury bonds, inflation-protected TIPS, Floating Rate Notes, Treasury STRIPS, Series EE and Series I savings bonds, municipal bonds issued by state and local governments, and agency securities from entities like Fannie Mae, Freddie Mac, and Ginnie Mae. Each is a debt instrument, meaning you lend money to a government issuer and get it back later with interest, but the maturities, risk levels, and tax rules differ enough that the choice matters for how much money you actually keep.
Every government security spells out three things: a face value paid back at maturity, an interest rate or discount, and a maturity date. Federal Treasury debt sits at the top of the safety hierarchy because it is backed by the full faith and credit of the United States. Municipal bonds carry somewhat more credit risk. Most Government-Sponsored Enterprise debt sits in between, with an implied but not explicit federal guarantee.
Treasury Bills
Treasury bills are the shortest-term federal securities, with maturities of 4, 6, 8, 13, 17, 26, and 52 weeks.1TreasuryDirect. Treasury Bills T-bills do not pay interest during the term. You buy them at a discount and receive the full face value at maturity. Pay $9,850 for a $10,000 bill and the $150 difference is your return.
The minimum purchase is $100, in $100 increments. Their short duration and deep liquidity make them a common place to park money you will need soon.
Treasury Notes
Treasury notes cover the middle of the maturity spectrum, issued in terms of 2, 3, 5, 7, or 10 years.2TreasuryDirect. Treasury Notes Notes pay a fixed coupon every six months, locked in at auction. The 10-year note is the benchmark most fixed-rate mortgages track. Notes carry more interest rate risk than bills: if market rates climb after purchase, the resale value of your note drops because newer notes offer better yields.
Treasury Bonds
Treasury bonds are the longest-dated federal securities, issued in 20-year and 30-year terms.3TreasuryDirect. Treasury Bonds Like notes, they pay interest every six months. The 30-year “long bond” is watched as an indicator of long-term rate expectations.
Duration risk is the trade-off. A small shift in market rates causes a much larger price swing on a 30-year bond than on a 5-year note. Buy a 30-year bond yielding 4.5% and see rates jump to 5.5%, and the market price falls significantly. Holding to maturity returns the full face value, so this only matters if you might sell early.
Treasury Inflation-Protected Securities (TIPS)
TIPS come in 5-year, 10-year, and 30-year terms and pay a fixed coupon every six months.4TreasuryDirect. Treasury Inflation-Protected Securities (TIPS) What sets them apart is the principal, which adjusts with changes in the Consumer Price Index. When inflation rises, the principal rises, and the coupon (calculated on the adjusted principal) grows with it. At maturity you receive either the inflation-adjusted principal or the original face value, whichever is greater, so deflation cannot wipe out your investment.
The catch is phantom income. The IRS treats the annual increase in TIPS principal as taxable income in the year it accrues, even though you do not receive that money until maturity. Many investors hold TIPS inside IRAs or other tax-advantaged accounts for that reason.
Floating Rate Notes
Floating Rate Notes mature in two years. The rate resets weekly based on the most recent 13-week T-bill auction, plus a fixed spread set at the original auction.5TreasuryDirect. Floating Rate Notes (FRNs) Interest accrues daily and pays quarterly. If short-term rates rise, FRN yields rise with them, sparing you the price declines that hit fixed-rate notes and bonds. If rates fall, so does your income.
Treasury STRIPS
STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. The mechanism takes a regular Treasury note or bond and breaks it into individual pieces: a 10-year note with 20 remaining semi-annual coupons becomes 21 separate zero-coupon securities, one for each coupon date and one for the principal.6TreasuryDirect. Separate Trading of Registered Interest and Principal of Securities (STRIPS) Each piece pays nothing until its specific maturity date, when you receive its face value.
STRIPS are not available through TreasuryDirect. You buy them through brokers and dealers in the commercial book-entry system, with a minimum face amount of $100. They are useful when you need a guaranteed dollar amount on a specific future date. Like TIPS, STRIPS generate phantom income: the annual accretion in value is taxed each year even though no cash arrives until maturity.
Series EE and Series I Savings Bonds
Savings bonds are non-marketable. You cannot sell them to another investor. You buy them directly from TreasuryDirect and redeem them with the Treasury.
Series EE Bonds
EE bonds earn a fixed interest rate set at purchase, currently 2.50% for bonds issued through April 2026. The Treasury guarantees that the bond will double in value at the 20-year mark even if the accrued interest has not gotten it there.7TreasuryDirect. EE Bonds That doubling is equivalent to roughly 3.5% annualized if you hold the full 20 years. The bond then continues earning its stated fixed rate for another 10 years, to a maximum 30-year term.
Series I Bonds
I bonds combine a fixed rate with a variable inflation rate that resets every six months based on the CPI. The composite rate for I bonds issued from November 2025 through April 2026 is 4.03%, built from a 0.90% fixed rate and a 1.56% semiannual inflation rate.8TreasuryDirect. I Bonds Interest Rates The fixed portion stays for the life of the bond. Deflation can reduce the composite rate but not below zero, so the principal cannot shrink.
Purchase Limits and Redemption Rules
You can buy up to $10,000 in electronic EE bonds and $10,000 in electronic I bonds per Social Security Number each calendar year.9TreasuryDirect. How Much Can I Spend/Own? Gift bonds count toward the recipient’s limit. Minor children with linked TreasuryDirect accounts have their own limits.
Both EE and I bonds require a minimum one-year holding period. Redeem either before five years and you forfeit the last three months of earned interest.10TreasuryDirect. Cash EE or I Savings Bonds After five years, no penalty applies. That makes savings bonds a poor fit for money you might need in the next year and a reasonable fit for medium-term savings.
Municipal Bonds
Municipal bonds are issued by state and local governments, cities, counties, and special districts to fund public projects like schools, roads, and water systems. They come in two main varieties. General obligation bonds are backed by the issuing government’s taxing power. Revenue bonds depend on income from a specific project such as highway tolls, water utility fees, or facility rents; if that project underperforms, bondholders bear the risk. Revenue bonds generally carry higher yields to compensate.
Municipal defaults are rare but not impossible. Investment-grade munis have historically defaulted at a fraction of the rate of similarly rated corporate bonds.
The Tax-Equivalent Yield Advantage
The biggest draw for municipal bonds is tax treatment. Interest on most munis is exempt from federal income tax.11Office of the Law Revision Counsel. 26 USC 103 – Interest on State and Local Bonds If you buy a bond issued within your state of residence, the interest is typically also exempt from state and local income taxes, the so-called double exemption.
The comparison formula is simple: divide the muni yield by one minus your marginal tax rate. If you are in the 35% federal bracket, a 3.5% muni yield is equivalent to about 5.38% from a taxable bond (3.5 รท 0.65). The higher your tax rate, the more valuable the exemption becomes.
One boundary worth knowing: private activity bonds, where more than 10% of the proceeds benefit a private business, may lose some tax advantages.12Office of the Law Revision Counsel. 26 USC 141 – Private Activity Bond; Qualified Bond Interest on certain private activity bonds can trigger the Alternative Minimum Tax, which is becoming relevant to more taxpayers as AMT phase-out thresholds tighten starting in 2026.
Agency and GSE Securities
Agency securities are issued by federal agencies and Government-Sponsored Enterprises: privately owned corporations chartered by Congress to support specific lending markets. The most prominent GSEs are Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, all focused on housing finance.
A distinction that trips up many investors: most GSE debt does not carry the full faith and credit of the U.S. government. Fannie Mae and Freddie Mac have operated under federal conservatorship since the 2008 financial crisis, and the government has provided direct financial support, but Congress has never explicitly guaranteed their obligations. The market treats them as having an implied guarantee.
Ginnie Mae is the exception. Mortgage-backed securities issued by the Government National Mortgage Association do carry the full faith and credit guarantee of the United States.13Ginnie Mae. Funding Government Lending Ginnie Mae debt is nearly equivalent to Treasury obligations in credit risk, though it carries prepayment risk that Treasuries do not: homeowners can refinance and return your principal earlier than expected.
Agency securities generally yield a bit more than comparable Treasuries to compensate for slightly higher risk and lower liquidity.
How to Buy Government Securities
You can buy government securities when they are first issued in the primary market or from other investors in the secondary market.
Treasury Auctions
New Treasury securities are sold through regular auctions. Competitive bids specify the yield you will accept, and the Treasury fills bids from the lowest yield up until the offering is subscribed. Non-competitive bids state the dollar amount you want and accept whatever yield the auction sets.14TreasuryDirect. Buying a Treasury Marketable Security
For individual investors, non-competitive bids are the practical choice. They are guaranteed to be filled and receive the same yield as institutional buyers. You place them through TreasuryDirect, the government’s online platform.15TreasuryDirect. Additional Auction Related FAQs The minimum purchase for bills, notes, bonds, TIPS, and FRNs is $100.
Secondary Market
Once issued, government securities trade actively through an over-the-counter network of dealers and brokers. Any standard brokerage account gives you access to buy or sell Treasuries, munis, and agency debt. Prices fluctuate with interest rates, credit conditions, and supply and demand. If you sell before maturity, you may receive more or less than you paid. When you buy in the secondary market, you owe the seller accrued interest, which is reimbursed to you when the next full coupon hits your account.
Tax Treatment by Security Type
Tax rules vary sharply by issuer, and a lower-yielding bond with favorable tax treatment can put more money in your pocket than a higher-yielding alternative.
Treasury Securities
Interest from Treasury bills, notes, bonds, TIPS, and FRNs is subject to federal income tax but exempt from all state and local income taxes. Your financial institution reports the interest on Form 1099-INT each year.16Internal Revenue Service. Topic No. 403 – Interest Received For T-bills, the “interest” is the discount received at purchase. For TIPS and STRIPS, the annual increase in value is taxable in the year it accrues, not when you receive it at maturity.
Municipal Bonds
Most municipal bond interest is exempt from federal income tax, and bonds purchased from issuers in your home state are usually exempt from state and local taxes as well.11Office of the Law Revision Counsel. 26 USC 103 – Interest on State and Local Bonds Exceptions apply for private activity bonds and arbitrage bonds, where part or all of the interest may be taxable.12Office of the Law Revision Counsel. 26 USC 141 – Private Activity Bond; Qualified Bond
Capital Gains and Losses
If you sell any government security before maturity for more than your adjusted cost basis, the profit is a taxable capital gain. Sell for less and you have a capital loss you can use to offset other gains. Assets held one year or less produce short-term gains taxed at ordinary income rates. Assets held longer than one year qualify for long-term capital gains rates, which for 2026 are 0%, 15%, or 20% depending on taxable income.17Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets You report these transactions on Form 8949 and Schedule D.18Internal Revenue Service. Schedule D Form 1040 Capital Gains and Losses
Capital gains rules apply equally to Treasuries, munis, and agency securities. Even if your muni interest was tax-free, a capital gain from selling that bond before maturity is fully taxable.