Provided by the federal government of the United States, treasury bonds are a way to invest and grow your money over time. While there are multiple types of treasury bonds and a few simple stipulations, the overall concept of treasury bonds is relatively easy to comprehend.
Treasury bonds are a way to invest your money that ensures security and flexibility for your investment. They are a subset of the marketable securities that the United States government offers investors as a way for the federal government to finance its debt. Interest payments are made semi-annually and the money is only taxed at the federal level.
The current 30-year Treasury Bond rate is around 3.5%
The smallest denomination of treasury bonds available is $100 and the maximum purchase amount is $5 million. Treasury bonds are sold during government auctions through either competitive bids or non-competitive bids. Competitive bids involve stating the rate that the bidder will accept. That bid will or will not be accepted depending on how that bid compares to other bids. The rate of the bond is set at the lowest possible rate that will allow all the bonds available at that auction to be sold.
A non-competitive bid ensures that the investor will get the bond regardless of the auction results, however, the investor must accept the treasury bonds regardless of what the coupon rate is set at during auction.
Terms and Taxes
Treasury bonds are issued in a term of thirty years and they continue to accrue interest until the bond matures.
Although interest income is exempt from state and local taxes, it is still subject to federal taxation. This makes treasury bonds a particularly attractive investment for those who reside in states without an income tax such as Texas, Florida, and Nevada, and also for those who live in states with big income taxes for those with high income like California and New Jersey. (Although Californians may do better from a tax perspective with California municipal bonds.)
Treasury bonds can be used to diversify your investment portfolio, help finance an education or to supplement a retirement income.
Auctions for treasury bonds occur eight times each year: February, May, August and November are original issue auctions and March, June, September and December feature re-openings, which are additional amounts of previously issued securities. All treasury bonds are now issued electronically and no new paper bonds are issued.
If you would like to place a non-competitive bid on a treasury bond, you may go through Treasurydirect.gov, but if you want to place a competitive bid, you have to instead go through a bank, broker or dealer to place the bid and acquire your bond.