Treasuries are considered the safest of all debt instruments,
and the interest paid out by Treasury bonds is generally exempt
from state and local income taxes (but not federal taxes).
Treasury bonds come in the following forms:
Treasury Bill
$1,000 minimum purchase
Maturity dates from 90 days to 1 year
Purchased at a discount
Treasury Note
$1,000 minimum purchase
Maturity dates from 2 to 10 years
$5,000 minimum purchase for notes with 2 or 3 years
maturity
Treasury Bond
$1,000 minimum purchase
Maturity dates from 10 to 30 years
Pays out highest interest
Zero-Coupon Bond
Purchased at a steep discount
Pays out compounded interest at maturity--not at regular
intervals
Owner owes taxes on credited interest
Savings Bond
Pays no interest
Comes in different series (e.g. EE, HH)
Can be purchased in small amounts
Nontransferable and not traded
New Series I guarantees your return will outpace inflation
Say you purchase a 3-year bond yielding 7% for $10,000.
You will receive $700 a year for the next 3 years, and
then get your full $10,000 back when the bond matures.
The combination of interest received plus principal
constitutes what is called your total return.