US Treasury securities, also known as Treasurys, are investments that typically come with low risk and guaranteed returns. When someone invests in US Treasury securities, they are in effect lending money to the federal government. In turn, the government pays them interest on their loan.
There are two types of US Treasury securities:
- Treasury marketable securities. These are investments a person may give to someone else or sell before it matures. Treasury marketable securities include Treasury bills, Treasury notes, Treasury bonds, Treasury inflation-protected securities (TIPS), and Floating rate notes (FRN)
- Treasury non-marketable securities. These investments are registered to an individual’s Social Security number, and as such, cannot be given to another person or sold before maturity. These are also known as US Savings Bonds, and there are currently two types of these Treasury securities available: EE Bonds and I Bonds.
How do Treasury securities work?
When someone purchases US Treasury securities, they lend money to the government for a fixed period. In exchange for using their money, the government pays periodic interest to the investor. At the end of the agreed-upon term for the Treasury security, the government returns the full principal amount originally invested.
Interest earned from Treasury bills, notes, and bonds are exempt from state and local income taxes. However, interest earned from Treasury securities is subject to federal income taxes.
