Advertisement
investing

Bond Basics: Treasuries

For safety, Uncle Sam's bonds are the way to go.

Bonds help add diversity to your portfolio and control risk. But they can be complicated. We can help you understand the basics and make bonds work for you.

Securities issued by the U.S. government and its agencies are the choice of many conservative investors because they can't be matched for safety. However, yields on government issues usually run a little lower than on high-grade corporate issues because they are safer. Here's a rundown of the most popular government debt instruments.

Best for Short-Timers: Treasury Bills

T-bills usually mature in one year or less, and new ones are sold weekly. Minimum purchase is $1,000. When first issued, T-bills are auctioned off to the public on a discount basis, and then redeemed at maturity for the full face amount. If the auction determines that the rate is 5%, for instance, a buyer would pay $9,500 for a $10,000 bill, then collect $10,000 when it matures.

Advertisement - Article continues below

In addition to their safety, T-bills, along with other Treasury securities, are exempt from state and local income taxes. They are issued in book-entry form, meaning you don't actually receive any certificates, just a notification that you own them. You can buy them at www.treasurydirect.gov.

Beat Inflation: Treasury Notes

Notes run for two to ten years. You can purchase them directly through a Federal Reserve Bank or branch, or you can have a broker or a commercial bank do it for you. Interest is paid semiannually, the notes are not callable prior to maturity, and the minimum purchase is $1,000.

In 1997, the government started selling Treasury inflation-protected securities, or TIPS for short. These are five- or ten-year notes whose interest is determined by the inflation rate, with the principal adjusted every six months to reflect the change. This can result in less current interest than a standard T-note, but a bigger payoff at maturity. You are guaranteed to stay on top of inflation.

Treasury Bonds

T-bonds generally carry maturity dates more than ten years after issue. Maturities used to be as long as 30 years, but the Treasury department stopped offering 30-year bonds in 2001. Most cannot be called early by the Treasury. Minimum purchase is $1,000.

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Shrink Your RMDs in 2021 and Beyond
annuities

Shrink Your RMDs in 2021 and Beyond

QLACs are a special type of annuity that lets you cut RMDs from your IRAs next year and beyond, reduce the taxes you pay and guarantee more lifetime …
August 6, 2020
How a Second Stimulus Check Could Differ from Your First One
Tax Breaks

How a Second Stimulus Check Could Differ from Your First One

The HEROES Act, which was passed by the House in May, would authorize a second round of stimulus checks. While the new payments would be similar to th…
July 22, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Kip ETF 20: The Best Cheap ETFs
ETFs

Kip ETF 20: The Best Cheap ETFs

You can build a solid core for your portfolio and explore new opportunities with our favorite low-cost exchange-traded funds.
July 28, 2020
Metropolitan West Corporate Bond Has a Bright Future
Making Your Money Last

Metropolitan West Corporate Bond Has a Bright Future

This new-ish corporate bond fund is comanaged by familiar faces.
July 23, 2020