Explained · 9-minute video
The US pays more in interest than for its military. Who gets the money?
In fiscal year 2026 the United States paid $1.14 trillion in net interest on its debt – more than the $916 billion spent by the Department of Defense (Congressional Budget Office, Monthly Budget Review, September 2026). This page tells the story of our video in short and names the source of every figure.
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Forty trillion dollars
On 7 October 2026 total US public debt stood at $40.28 trillion (U.S. Treasury, Debt to the Penny). It first passed $40 trillion on 18 August 2026; one year earlier, on 8 October 2025, it was $37.86 trillion. In fiscal 2026 the government spent about $7.40 trillion and took in about $5.40 trillion, a deficit of about $1.99 trillion (CBO, Monthly Budget Review, September 2026). By our own calculation from the same CBO figures, about 21 cents of every dollar collected went to net interest – roughly $3.1 billion a day.
Why the bill is rising now
Two things push the interest bill up: there is more debt, and the debt is getting more expensive. The average interest rate on marketable US debt was 1.42% in January 2022, 3.02% in September 2023 and 3.52% in September 2026 (U.S. Treasury, Average Interest Rates on U.S. Treasury Securities). Short-term bills became cheaper over those three years, from 5.38% to 3.87%, but notes rose from 2.11% to 3.38%, because cheap debt from the low-rate years keeps maturing and is refinanced at today’s rates. Net interest grew from $475 billion in fiscal 2022 (U.S. Treasury, Monthly Treasury Statement) to $1.14 trillion in fiscal 2026 (CBO). It first exceeded defense spending in fiscal 2024 ($882 billion against $874 billion, Monthly Treasury Statement).
Who holds the debt
Foreign investors held about $9.25 trillion of Treasury securities in July 2026, roughly a quarter of the total (U.S. Treasury, Treasury International Capital). Japan was the largest foreign holder with $1.10 trillion; China held $618 billion, down from $699 billion in September 2025 (TIC). About three quarters of the debt is therefore held inside the United States. The Federal Reserve alone held $4.57 trillion of Treasuries on 7 October 2026 (Federal Reserve, H.4.1) – more than Japan and China combined.
The government owes part of it to itself
Social Security’s trust funds held about $2.47 trillion of Treasury debt and the Military Retirement Fund about $2.13 trillion; the Military Retirement Fund was credited $90 billion in interest in fiscal 2026 (U.S. Treasury, intragovernmental holdings). The Fed has made losses since 2022: its deferred asset stood at –$233.6 billion on 7 October 2026 (H.4.1), and until it is made up the Fed sends no profits to the Treasury. The rest of the debt sits with funds, banks, insurers, pension funds, states and private savers – so many taxpayers are on both sides: they pay the interest and, as savers, receive part of it.
What to watch
Three figures show where the interest bill is heading: the average interest rate on the debt (3.52% in September 2026, U.S. Treasury), net interest compared with defense (about a quarter higher in fiscal 2026, CBO) and the total debt (just over $40 trillion, Debt to the Penny). In its outlook of February 2026 the CBO projected net interest of $2.14 trillion in 2036 (CBO, The Budget and Economic Outlook: 2026 to 2036). Projections change with interest rates and budget decisions.
The figures, updated daily: 10-year Treasury yield · Fed funds rate
Terms in the glossary: National debt · Government bond · Fiscal policy · Federal Reserve
Frequently asked questions
How much does the US pay in interest on its debt?
Net interest was about $1.14 trillion in fiscal year 2026, according to the Congressional Budget Office’s Monthly Budget Review of September 2026 – roughly $3.1 billion a day.
Does the US spend more on interest than on defense?
Yes. In fiscal 2026 net interest of $1.14 trillion exceeded Department of Defense spending of $916 billion (CBO). Interest first overtook defense in fiscal 2024 (U.S. Treasury, Monthly Treasury Statement).
Who owns most of the US government debt?
Mostly holders inside the United States. Foreign investors held about $9.25 trillion in July 2026, roughly a quarter (U.S. Treasury, TIC). The Federal Reserve held $4.57 trillion on 7 October 2026 (H.4.1), and government trust funds such as Social Security hold trillions more.
How much US debt does China hold?
$618 billion in July 2026, about 1.5% of the total and down from $699 billion in September 2025 (U.S. Treasury, TIC). Japan holds more: $1.10 trillion.
Sources
- Congressional Budget Office: Monthly Budget Review: September 2026
- Congressional Budget Office: The Budget and Economic Outlook: 2026 to 2036
- U.S. Department of the Treasury: Monthly Treasury Statement
- U.S. Department of the Treasury: Debt to the Penny
- U.S. Department of the Treasury: Average Interest Rates on U.S. Treasury Securities
- U.S. Department of the Treasury: Treasury International Capital (TIC)
- U.S. Department of the Treasury: Monthly Statement of the Public Debt (intragovernmental holdings)
- Board of Governors of the Federal Reserve System: H.4.1 Factors Affecting Reserve Balances
Percentages, sums and conversions: our own calculations from these sources. DESK is a research tool and not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-11-09.