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.

Advertisement
Advertisement - Article continues below

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

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
July 7, 2020
3 Municipal Bond Funds for Rich, Tax-Friendly Yields
Investing for Income

3 Municipal Bond Funds for Rich, Tax-Friendly Yields

Municipal bond funds allow you to enjoy the benefits of tax-exempt income. By investing CEFs, you can sweeten the pot even further.
July 2, 2020
Is the Stock Market Closed for the Fourth of July?
Markets

Is the Stock Market Closed for the Fourth of July?

Independence Day falls on a Saturday in 2020. As a result, the bond and stock markets are closed for a long holiday weekend. Here's a look at the mark…
July 2, 2020