Considered the safest bond type, government bonds are backed by the U.S. Treasury. Interest is taxed at the federal level but not at the state and local level.
There are two main types of government bonds.
Savings Bonds: These bond types defer paying out interest until the bonds are redeemed. A portion of I-Bonds' interest adjusts along with inflation rates
Treasury Bonds: The maturity of the security determines what type of Treasury you (or your fund) own. A Treasury bill has a maturity of one year or less. A note has a maturity of two to 10 years. A bond has a maturity of more than 10 years. TIPS have a fixed interest rate, but investors' principal adjusts along with inflation rates. Because TIPS investors pay taxes on the interest income as well as on the inflation adjustments to their principal, it's best to hold TIPS in tax-deferred accounts.
Mortgage-Backed Bonds >>