How to Buy Treasury Bonds and Bills
There are several ways to buy Treasuries. For many people, TreasuryDirect is a good option. However, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange traded funds (ETFs). Treasury money market accounts also offer more convenience and liquidity than TreasuryDirect.
- TreasuryDirect allows investors to buy Treasury bonds and bills directly from the U.S. government.
- It is not possible to open IRAs or other tax-advantaged accounts at TreasuryDirect.
- Investors must transfer bonds from TreasuryDirect to banks or brokerages if they want to sell them before the maturity date.
- Some of the other ways to buy treasuries include ETFs, money market accounts, and the secondary market.
- When you buy bonds on the secondary market through a broker, you can hold them in an IRA or another tax-free retirement account. You can also do this with ETFs.
TreasuryDirect is an electronic marketplace and online account system where investors can buy, hold, and redeem eligible book-entry Treasury securities. The TreasuryDirect system is run by the U.S. Department of the Treasury.
Individual investors with TreasuryDirect accounts can participate in Treasury debt auctions and purchase debt securities including U.S. savings bonds directly from the U.S. Treasury. Opening an account takes about 10 minutes. TreasuryDirect offers a simple and relatively inexpensive way to buy government debt securities.
It is not possible to open tax-advantaged retirement accounts at TreasuryDirect.
Investors must have a valid Social Security number (or taxpayer identification number) and a U.S. address. They also need an email address, a web browser that supports 128-bit encryption, and a checking or savings account.
How to Purchase Treasuries on TreasuryDirect
Eligible securities for TreasuryDirect purchases include Treasury bills, Treasury notes, Treasury bonds, Floating Rate Notes (FRNs) and Treasury Inflation-Protected Securities (TIPS). Buying is simple. Once you log on, you can access the BuyDirect system. You’ll be prompted to select the owner of the security.
Many investors buy Treasuries for gifts and charitable transfers. You’ll also choose the product type or term, source of funds, and the amount to purchase. You can schedule the purchase for whenever you like and how often you like, although dates are subject to availability. The system will allow you to review your order before submitting it.
Securities are generally issued to your account within two business days of the purchase date for savings bonds or within one week of the auction date for bills, notes, bonds, FRNs, and TIPS.
Transfers into TreasuryDirect are permissible and start at the outgoing firm. That is unlike the ACAT transfer process for broker-to-broker transfers, which is initiated at the receiving firm.
Once T-bills have matured, their proceeds are easy to reinvest. Simply select the “schedule repeat purchases” option and then choose the number of repeat purchases and their frequency after you have finished entering the registration and purchase information for your transaction. Maturing notes and bonds may also be reinvested.
Your account is subject to several restrictions. The minimum purchase amount for savings bonds is $25 per person. Above that, savings bonds are sold in penny increments up to $10,000 per year. For T-bills, notes, bonds, and TIPS, an investor may submit noncompetitive bids from $100 up to $5 million for each security type in $100 increments.
How to Participate in Treasury Auctions
TreasuryDirect account holders can participate in Treasury auctions held on a regular schedule throughout the year; in 2021, there were 445 public auctions for $17.79 trillion in Treasury debt securities.
The first step in the auction process is the announcement of upcoming auctions, generally four to five business days before the auction date. The announcement discloses the date of the auction, amount of a security to be auctioned, its issue and maturity dates, terms and conditions, eligible participants, and deadlines for competitive and noncompetitive bids.
Noncompetitive bids guarantee the bidder will get to buy the desired amount of the auctioned security at a price set by competitive bidders in the auction. Noncompetitive bids are limited to $5 million. Competitive bids specify the expected discount rate, yield, or spread for a security and may only be filled in part, or not at all. Most individual investors make noncompetitive bids, while competitive bids typically come from financial institutions.
The second step of the auction process is the auction itself. On the auction date, the Treasury reviews all bids received for compliance with applicable rules. Compliant noncompetitive bids must be received by the close time stated in the auction announcement, typically 11 a.m. ET on the auction date for Treasury bills, and noon ET for other securities.
The final step of the auction process is the issuance of the securities. Securities are deposited to investor accounts, and payment is delivered to the Treasury.
Transferring Treasuries Through TreasuryDirect
Treasuries can be held until they mature, or sold before that time. To sell Treasuries held in TreasuryDirect, you should transfer them to an account with a bank, broker, or dealer, then ask them to sell them for you.
A Transfer Request Form must be completed online or on paper to transfer Treasuries out of your TreasuryDirect account. This form should indicate the correct routing number, bank name, and any special handling instructions for your transfer.
To redeem a savings bond electronically, click the “Redeem” button found near the bottom of the “Current Holdings” page. You will need to specify whether it is a partial or full redemption and furnish the payment destination where you want the redemption proceeds deposited.
The redeem button will not appear on the holdings page if there are no bonds eligible for online redemption in your account. You can redeem paper bonds at most local financial institutions, such as your bank. That is the easiest and quickest way to get access to your money.
Other Ways to Buy Treasuries
Some of the other ways to buy Treasuries include ETFs, money market accounts, and the secondary market.
Buying Treasuries as ETFs
It is possible to buy Treasuries through ETFs at most brokerages. ETFs are bought and sold like stocks, and many qualify for commission-free trades. Investors can choose among government bond ETFs focused on short-term Treasuries, long-term Treasuries, TIPS, and FRNs.
Many Treasury ETFs have modest fees; some of the largest funds offer expense ratios as low as 0.15% annually, making them a very affordable investment option.
Treasury ETFs can be held in IRAs and other tax-advantaged retirement accounts.
Buying Treasury Bills Through the Money Market
You can also buy Treasury bills by investing in a Treasury money market mutual fund. Such funds typically have low fees and low yields limited by rates on the shortest-term Treasury bills.
The U.S. Treasury’s Office of Financial Research tracks the investments of U.S. money market mutual funds in the aggregate and by financial institution.
Buying Treasuries in the Secondary Market
Buying Treasuries in the secondary market is easier than most people think. Many brokerages give their customers full access to the bond market, but fees vary. If buying and selling Treasuries is important to you, many of the best brokerages offer free trading for Treasury bonds.
Even better, you completely avoid the annual fees of ETFs and the money market. Buying standard U.S. government bonds is easier than buying most other bonds because all you need to know is the time to maturity. TIPS can be trickier to trade.
When you buy bonds on the secondary market through a broker, you can hold them in an IRA or another tax-free retirement account. Buying on the secondary market also makes it easier to sell Treasury bonds at a later date.
How Do You Buy and Sell Short Term Treasury Bills?
You can buy short-term Treasury bills on TreasuryDirect, the U.S. government’s portal for buying U.S. Treasuries. Short-term Treasury bills can also be bought and sold through a bank or broker. If you do not hold your Treasuries until maturity, the only way to sell them is through a bank or broker.
How Many Treasury Bills Can You Buy?
The maximum amount of Treasury bills that you can buy in a single auction is $5 million if the bids are noncompetitive or 35% of the offering amount for competitive bids.
How Do You Buy T-Bills Online?
You can buy T-bills online directly from the U.S. government at TreasuryDirect. Alternatively, you can also buy T-bills through a bank or broker. Bills are issued weekly through an auction bidding process.
How Do You Buy Canadian Treasury Bills?
You can buy Canadian Treasury bills from a financial institution or from a broker. The minimum investment for purchasing a Canadian Treasury bill is CA$1,000.
The Bottom Line
Treasuries are a great way to diversify your investment portfolio and reduce its risk, since U.S. Treasuries are backed by the full faith and credit of the U.S. government. Treasuries are an important part of a retirement portfolio for many savers because they are liquid, low-risk, and provide an income stream.