Treasury Bonds, Bills and Notes

One way you can invest is by lending the U.S. government your money. You do this by buying U.S. Treasury bonds, bills or notes. You can purchase treasuries directly from the federal government at auctions or take the easier route and pay the fees involved to buy them from a bank or brokerage. The Bureau of Public Debt has a government site where you can buy treasuries directly from the government.

The following list contains a description of the U.S. treasuries available:

• Treasury bonds. Treasury bonds are sold by the U.S. government at auction and have a set interest rate for a specific time period that's for a minimum of ten years. The minimum amount they are issued for is $1,000. These bonds are sold at below, as well as above face value, depending upon the set interest rate.
• Treasury bills. Treasury bills (T-bills) are sold by the U.S. government at auction and don't have a set interest rate. Investors purchase these bills for less than face value and when the holding period is over, an investor receives the full face value of the T-bill. T-bills are available in $1,000 increments, with a minimum purchase amount of $1,000. The holding periods of Treasury bills are short-term and include three months, six months, and one year.
• Treasury notes. Treasury notes are sold by the U.S. government at auction and have a set interest rate for a specific time period that ranges from two to ten years. The minimum amount they are issued for is $1,000. These notes are sold at below, as well as above face value, depending upon the set interest rate.

Bills, bonds and notes may be purchased directly from the government online at TreasuryDirect.

Agencies of the U.S. government also issue securities that you can invest in. Also, one form of treasuries is U.S. savings bonds, which are similar to zero coupon bonds in that the interest on these bonds is paid when the bond matures and the bond is turned in (redeemed).

What's the biggest advantage of investing in treasuries? That's easy--there's practically no risk involved. Their safety lies in the fact that they're obligations of the federal government. The chance that the federal government will renege on you is pretty close to nil. In other words, in the world of securities investing, of the various forms of bonds available, U.S. treasuries are as close to a sure thing as you'll ever get.

Did You Know? A recent examination of Alan Greenspan's (the past chairman of the Federal Reserve) portfolio revealed that a big chunk of his investments are held in U.S. treasuries.

Another advantage that treasuries have is that the interest you receive is not taxed at the state or local level. This may help to offset the disadvantage of treasuries, namely that the interest rates that they pay are on the lower end of the scale. However, a low interest rate is to be expected with such a low-risk security.