Government bonds are one of the safest places to park cash. This is because they are backed by the full faith and credit of the U.S. government, so there’s virtually no risk of default. The tradeoff for safety, of course, is low interest rates. But you can at least cut any fees or commissions by buying Treasury securities directly through TreasuryDirect, the U.S. Treasury’s online platform. If you think you can handle more risk for a higher return, you may want to consider corporate bonds or even stocks. For help, speak with a financial advisor in your area.
What Is TreasuryDirect, and How Does It Work?
TreasuryDirect is the U.S. Treasury’s online platform for buying federal government securities. You can purchase 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.
On TreasuryDirect, Treasury bills, Treasury notes, Treasury bonds, TIPS and FRNs are available through auctions. (You simply buy savings bonds —Series I and Series EE — at face value.) 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.
If you’re looking for a safe place to park your cash, you may want to consider T-bills or other government securities.
Since your return will be lower than the return of riskier investments, using TreasuryDirect is smart, since it cuts out the middleman — and eliminates any commissions and fees.
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.
- With the right asset allocation, you can balance risk with reward. For example, investors who are decades from retirement can take on more risk for the historically higher reward of stocks than bonds. On the other hand, someone nearing retirement may want to shift their portfolio weight more to bonds than stocks. SmartAsset’s asset allocation calculator can help you figure out the mix that makes the most sense for you.
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