TOP DRAWER ARTICLE

Treasury Direct
by
HL Carpenter

For individual investors, direct from the US Treasury: A convenient way to save.

It’s called Treasury Direct, and it allows you to buy government securities without having to pay a broker or visit your bank.

Here are the basics:

What’s available for on-line purchase? Bills, notes, TIPS, EE bonds and I-bonds.

Treasury bills are short-term investments with a maximum term of 26 weeks. You have to buy them in increments of $1,000, and you receive both principal and interest when the bills mature.

Treasury notes can cover a 2, 3, 5, or 10 year period. They’re sold in $1,000 increments, interest is deposited into your bank account every six months, and your principal is paid back to you on maturity. You can also sell your T-notes prior to maturity.

Treasury Inflation-Protected Securities (TIPS) are issued for 5, 10 or 20 years. The amount of interest you’re paid every six months can change, based on fluctuations the Consumer Price Index. At maturity, you receive the greater of the face value or the inflation-adjusted principal.

EE or I-bonds can be purchased and sold on line at face value. I-bonds are inflation protected, meaning the interest you receive may change. Interest on both bonds is paid to you when the bonds mature.

What about tax liability? Interest income from Treasury securities is exempt from state and local tax but subject to federal taxes. You might also have to pay tax on any increase in the principal amount of TIPS that you own.

Note: Interest may be exempt from tax when certain bonds used for the payment of qualified educational expenses.

How to open an account. To open an account for bills, notes and TIPS, you’ll find instructions and forms at [Broken Link Removed]. To open an account for bonds, visit https://www.treasurydirect.gov/fw/BPDLogin?application=rscreate and fill out an on-line application.

Originally published September 2004.

Last update: January 8, 2011