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TreasuryDirect

Investing in government bonds is a great way to diversify your investment portfolio. This is because your money is backed by the full faith of the U.S. government, so there’s virtually no risk of default. A simple and popular way to purchase Treasury securities is through TreasuryDirect, an online platform that the Treasury Department sponsors. Through TreasuryDirect, you can buy government bonds on a commission- and fee-free basis. If you have questions about bonds or investing in general, speak with a financial advisor in your area.

What Is TreasuryDirect, and How Does It Work?

TreasuryDirect is an online, government-sponsored platform where you can buy federal government securities directly from the U.S. Treasury. You can buy Treasury bills, bonds, notes, savings bonds, floating rate notes (FRNs) and Treasury inflation-protected securities (TIPS) on the platform.

The idea behind TreasuryDirect is to provide a place for individuals and institutional investors to purchase Treasury securities directly from the government without having to go through a broker or another middleman. You can link your TreasuryDirect account to any personal bank account, making for a very streamlined purchasing process.

You can set up an account with TreasuryDirect online in around 10 minutes. All you’ll need to sign up is your email address, Social Security Number (SSN) or Employee Identification Number (EIN), your bank account number and your routing number. Head to the TreasuryDirect website and follow the instructions, and you’ll be ready to start purchasing bonds in no time.

TreasuryDirect Auctions

TreasuryDirect

On TreasuryDirect, securities are available through auctions. Auctions happen regularly, and the Treasury Department will typically give several days notice so that anyone who wants to bid has a chance (more on bidding below). Once it announces an auction, you’ll have until the day of the auction to make your bid. Some securities follow a regular auction schedule. For instance, the 52-week Treasury bill auctions every four weeks, typically on a Thursday. Four-week, eight-week, 13-week and 26-week bills auction on a weekly basis.

A security’s auction will establish its rate (in the case of Treasury bills), yield (in the case of notes, bonds and TIPS) or discount margin (in the case of FRNs). Once it concludes, successful bidders will receive a paperless, electronic security in their TreasuryDirect account.

TreasuryDirect only auctions new securities. If you’re looking to purchase on the secondary market, you’ll need to do so from a commercial bank, investment company, brokerage firm or other financial institution.

Competitive vs. Noncompetitive Auction Bidding

When you bid on Treasury securities, you have the option of submitting a noncompetitive bid or a competitive bid. Most individual investors opt for noncompetitive bidding. With a noncompetitive bid, you are essentially saying you will accept the rate/yield/discount margin at the conclusion of the auction. You are able to spend up to $5 million on a noncompetitive bid.

With a competitive bid, you specify a rate/yield/discount margin that you will accept. Once the auction is over, you’ll receive some, all or none of your bid depending on the rate/yield/discount margin that the Treasury ends up issuing. With a competitive bid, you’re able to bid on a maximum of 35% of the securities being issued.

Once the deadline to submit bids has passed, the Treasury will issue securities to all noncompetitive bidders. Then, it will issue to the competitive bidder with the lowest rate/yield/discount margin and continue up until it runs out of securities. The rate/yield/discount margin at which it stops will be what all successful bidders receive.

Bottom Line

TreasuryDirect

When it comes to investing, it’s crucial to diversify your portfolio. You don’t want to put all your assets in one stock or fund. And even a stock-heavy portfolio that’s mostly in index funds can see a big loss when the market declines. That’s why government bonds can be so attractive. If you’re looking to buy T-bills or other government securities, using TreasuryDirect is the best way to do it. You can easily connect it to your personal bank account. Plus, you won’t have to worry about the extra fees and commissions that come with using a broker.

Tips for Smart Investing

  • If you’re new to investing or you just don’t have time to manage your portfolio, a financial advisor may be able to help you out. Luckily, finding a local financial advisor doesn’t have to be hard. In fact, SmartAsset’s free matching tool can pair you with advisors in your area in five minutes. Get started now.
  • When balancing the risk profile of your investment portfolio, asset allocation is a key factor to pay attention to. Investors who have ample disposable income or are years from retirement may decide to opt for a riskier asset allocation. On the other hand, someone nearing retirement age may want to be more conservative and focus on safer investments. SmartAsset’s asset allocation calculator can help you figure out the arrangement that makes the most sense for you.

Photo credit: ©iStock.com/Anchiy, ©iStock.com/Anchiy, ©iStock.com/shapecharge

Hunter Kuffel, CEPF® Hunter Kuffel is a personal finance writer with expertise in savings, retirement and investing. Hunter is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. He graduated from the University of Notre Dame and currently lives in New York City.
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