Treasury vs Corporate Bonds: Is the Extra Yield Worth It?
Anyone weighing a bond investment eventually chooses between Treasury and corporate bonds. Treasuries are backed by the US government, so default risk is near zero, but yield is lower. Corporate bonds carry real default risk and pay more to compensate. That yield gap is the credit spread — wider means more perceived risk. There's a tax wrinkle too: Treasury interest skips state tax, while corporate interest is fully taxable.
This calculator takes your principal, both rates, holding period, and federal and state tax rates, then shows the credit spread alongside after-tax interest and the extra premium from choosing corporate. Higher yield isn't automatically better — lower-rated issuers carry more default risk, so weigh rate against credit rating.
Frequently Asked Questions
The yield gap between a Treasury bond and a riskier corporate bond — wider means more perceived risk.
Yes, at both federal and state level, while Treasury interest skips state and local tax.
Not necessarily — higher yield often means higher default risk, so check the credit rating too.