US Debt Interest Tops $1 Trillion, Passing Defense

TL;DR: Net interest on the national debt reached $1.05 trillion in fiscal 2026, up from $970 billion, according to Treasury data reported by Yahoo Finance. It's the first year above $1 trillion, and it tops the $956 billion spent on national defense. For accredited investors, it raises the bar every private deal has to clear.

What did the Treasury report show?

The government spent more on interest than on the military, and the deficit grew alongside it. Yahoo Finance reports that the fiscal 2026 federal deficit hit $1.99 trillion, up 12% from $1.78 trillion in 2025. Net interest ranked behind only Social Security at $1.67 trillion and Medicare at $1.07 trillion.

The pace matters as much as the total. The Peterson Foundation says interest payments ran 8.4 percent above fiscal 2025. Fortune adds that revenue grew 3% to $5.4 trillion while spending grew 6% to $7.4 trillion. Interest is growing faster than the money coming in to pay it.

Fiscal 2026 item	Amount	Source
Federal deficit	$1.99 trillion	Yahoo Finance
Net interest	$1.05 trillion	Yahoo Finance
Net interest, fiscal 2025	$970 billion	Yahoo Finance
National defense	$956 billion	Yahoo Finance
Social Security	$1.67 trillion	Yahoo Finance
Medicare	$1.07 trillion	Yahoo Finance

Interest sits third among the big budget lines, and above the military.

Why is the interest bill rising?

The debt is larger, and it costs more to carry. Yahoo Finance notes the debt passed $40 trillion in August, and Moneywise reports that the average interest rate for gross interest costs sits at 3.53%, "which has climbed steadily since 2021, when it sat at 1.6%." More debt, at a higher rate, adds up fast.

The Peterson Foundation says interest costs hit an all-time high of $476 billion in 2022 and have roughly doubled since.

Where does it go from here?

The official projection points up. According to the Peterson Foundation's tracker, the Congressional Budget Office projects net interest payments of $16.2 trillion over the next decade if current laws stay the same, rising to $2.1 trillion a year by 2036. Rates and borrowing will move that number in either direction.

We've covered the same squeeze before, in US Debt Hits $40 Trillion. Yields Make It Worse and in Federal Deficit Hits $2 Trillion in Fiscal 2026. The new report confirms the direction those pieces described.

What does it mean for an accredited investor?

Treasuries are the benchmark private deals get measured against, and the number to use is today's Treasury yield, not the 3.53% blended average above, which reflects debt issued years ago. When the government pays more to borrow, a sponsor's projected return has to beat a higher risk-free alternative before the lockup, the fees and the sponsor risk are even counted. Wall Street's menu sells the spread over that yield. Your job is to ask what's left after fees and what you give up in liquidity.

Leverage is where the downside hides. A sponsor who borrows, in real estate or private credit, refinances at whatever rates prevail when the loan comes due. If you're a limited partner, you can't renegotiate that. Higher refinancing costs come out of distributions first, and a sponsor under pressure may delay or gate payouts. Our look at BDC debt issuance in 2026 and at private credit for retail investors shows where that leverage sits.

Common mistakes

The first mistake is treating a record headline as a timing signal. A single fiscal-year total says nothing about when yields or markets will turn.

The second is comparing a sponsor's projected return to a Treasury yield without subtracting fees and illiquidity. A projected return is marketing until completed deals show what investors actually received.

The third is mixing up interest measures. Net interest, gross interest and interest paid to trust funds are different numbers, so confirm which one a headline uses.

FAQ

How much more is interest than defense? Yahoo Finance reports net interest of $1.05 trillion against $956 billion for national defense, and the difference is simple subtraction.

Does a higher interest bill change private investments? It raises the Treasury benchmark that private returns are judged against. The downside questions stay the same: who the sponsor is, what the fees are, and when you can get your money out.

What happens if I need my money back in year three? In most private funds, you can't count on getting it. Lockups, redemption gates and secondary-sale discounts are set by the fund's documents, so read the liquidity terms before you wire anything.

Should I time private investments around Treasury data? No. A fiscal-year total doesn't say when yields will move. Judge each deal on sponsor, structure, fees and liquidity, in that order.

What to do today

Open the Treasury's monthly statement, find the net interest line, and write down the current 10-year Treasury yield. Then take the projected return on any private deal you're weighing and subtract fees. If what's left doesn't clearly beat that yield after the lockup, pass. For the next debt or rate number and what it changes for private deals, sign up for the free AIN briefing.

Educational content only. Not investment, tax, or legal advice. Not an offer or solicitation to buy or sell securities. Past performance does not guarantee future results. Private-market investments are illiquid and involve risk of loss, including total loss of capital. Consult qualified advisers. Angel Investors Network is not a broker-dealer or investment adviser.