U.S. Treasury Offerings

 

Basics

Lots of people would love you to invest your money with them, including Uncle Sam (the U.S. Government).  One of the safest types of securities, are the ones offered by the U.S Treasury.  Because they are backed by the Government there’s no real chance of you missing out on a payment.  However, Treasuries values’ fluctuate, just like Corporate Bonds.

The advantages of Treasuries are, risk of default is nil, these bonds are exempt from State and local taxes (but you will still pay capital gains, i.e. any profit you make from a Treasury sale), and you can also buy Treasuries directly and eliminate commissions.

A negative is that because Treasuries are considered safe, the amount of interest they offer is generally less than even AAA-rated Corporate Bonds.

Note:  A Treasury Savings bond might have been your first type of savings since some people give U.S. EE/E Savings Bonds when a child is born.  Bad news, you probably will have to wait till you’re 30 to cash in.  If you see a bond around, the amount on the note is the amount you get (the buyer paid half of that; i.e. a $50 bond payable in 30 years, was bought for $25).  Your relatives/friends knew how to save money too!  Check with your parent(s) to see if you were given one of these bonds.  To learn more about all the U.S. Treasury Offerings go to
http://treasurydirect.gov .

 

 

Treasury Bills (T-Bills)

T-bills are short-term government securities with maturities ranging from a few days to 52 weeks.  Bills are sold at a discount from their face value (par).  The most common T-bills are ones that mature in one, three, or six months.  Minimum purchase is $1,000 up to $10,000.  The rate is determined by a weekly auction of T-bills with 3 & 6 months’ maturities.  The 9 month and 1 year bills have monthly auctions.

Investors buy T-bills for a lower price than their face value (par).  The interest earned is the difference between the purchase price and the par value at maturity.  For example:  if you buy a $10,000 T-bill with an interest of 5%, you would pay $9,950 (the face value minus the interest 5% or $50).  After a year, the government sends you a check for $10,000.

 

Treasury Notes (T-Notes)

These are government securities that are issued with maturities of 2,3,5,7 and 10 years and pay interest every six months (semi-annually).  The notes pay a fixed rate of interest every six months until maturity, when investors receive their face (par) value.  Because of the longer maturity, the yield is usually higher than T-bills.  The notes are sold about once a month at auction.  Minimum purchase is $1,000.

 

Treasury Bonds

These pay a fixed rate of interest every six months until they mature.  They are issued in a term of 30 years.  They can be called in early by the Treasury.

 

 

Treasury Inflation Protected Securities (TIPS)

TIPS are marketable securities whose principal (original investment) is adjusted every six months based on changes in the CPI (Consumer Price Index )
http://www.bls.gov/CPI (see(Economic Indicators & Other Causes That Can Affect Stock Prices Other Than Company News).  TIPS pay interest every six months (twice a year) and are issued with maturities of five, ten, and twenty years.

TIPS provide protection against inflation.  TIPS’ principal value increases if there’s inflation, and decreases if there’s deflation, as measured by the CPI.  When the TIPS mature, you’re paid the adjusted principal or original, whichever is greater.

 

 

Savings Bonds

Savings Bonds are a low-risk savings product that earns interest while protecting you from inflation.  They’re sold at face value.  Check out this table for a comparison of TIPS and Series I Savings Bonds 
http://www.treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm.

EE/E Savings Bonds

EEE Savings Bonds>http://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm  are a secure savings product that pays interst based on current market rates for up to 30 years.  Electronic  EE Savings Bonds are sold at ace value in Treasury Direct.  Paper EE Bons are sold at 1/2 face value.