Bonds, T-bills, CDs and savings: the safer side of a portfolio

What is a bond?

When you buy a bond you lend money. The issuer promises to pay regular interest (the coupon) and return the face value on a set date. Government bonds are generally considered lower risk than corporate bonds, because a government can tax and print its own currency; corporate bonds pay more to compensate for the chance the company fails to repay.

Treasury securities

• Treasury bills (T-bills): short-term, one year or less, sold at a discount and paid at face value.
• Treasury notes and bonds: longer terms, with regular interest.
• I bonds: savings bonds whose rate adjusts with inflation, purchased through the Treasury, with purchase limits and a minimum holding period.

Why bond prices move

If interest rates rise, new bonds pay more, so older bonds paying less become less valuable and their price falls. The longer the bond’s term, the bigger the effect. This is why long-term bond funds can fall sharply when rates climb, and why short-term bills are steadier.

Cash-like options

• High-yield savings accounts: bank accounts paying more interest than standard ones; check that deposits are covered by deposit insurance.
• Certificates of deposit (CDs): lock money for a fixed term at a fixed rate; leaving early usually costs a penalty.
• Money market funds: funds holding short-term debt, often used as the place where brokerage cash waits. They are not bank deposits.

Bond funds

Funds that hold hundreds of bonds, such as broad “aggregate” bond funds (for example BND or AGG), ultra-short Treasury funds (such as SGOV or BIL) or a long-Treasury fund (such as TLT), are examples of the different types. They differ a lot in how sensitive they are to rate changes. This is explanation, not a recommendation.

The yield curve, in one paragraph

The yield curve plots the interest rates on government debt of different terms. Normally longer terms pay more. When short-term rates exceed long-term ones the curve is “inverted”, which has often preceded slowdowns, but it is a signal about expectations and not a reliable timer.

Stocks or bonds?

Stocks have historically offered higher long-run growth with larger swings; bonds have offered lower expected growth with generally smaller swings and income. How much of each depends on your timeline and your ability to tolerate falls, not on a universal formula.

Savings account, bond or stock: match the money to the date you will need it.