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.

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.

Most Popular

House Approves $3,000 Child Tax Credit for 2021
Coronavirus and Your Money

House Approves $3,000 Child Tax Credit for 2021

The proposal would temporarily increase the child tax credit to $3,000 or $3,600 per child for most families and have 50% of it paid in advance by the…
February 27, 2021
Third Stimulus Checks Are One Step Closer to Reality – How Much Will You Get?
Coronavirus and Your Money

Third Stimulus Checks Are One Step Closer to Reality – How Much Will You Get?

The House passed President Biden's $1.9 trillion stimulus package. While the bill faces hurdles in the Senate, the provisions authorizing another roun…
February 27, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

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
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021
How Green Are Your Bonds?
Becoming an Investor

How Green Are Your Bonds?

Fixed-income investors can make an environmental impact.
February 23, 2021
Warren Buffett Stocks Ranked: The Berkshire Hathaway Portfolio
stocks

Warren Buffett Stocks Ranked: The Berkshire Hathaway Portfolio

The Berkshire Hathaway portfolio is a diverse set of blue chips and, increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
February 17, 2021