Do the Feds Give Bonds? How to Buy Federal Securities

The United States federal government issues debt instruments to fund its operations, from public services to infrastructure projects. These issuances represent a direct loan from investors to the government, offering a secure way to invest. Understanding these securities is an important step for anyone looking to diversify their financial holdings. They are widely available to the public, offering various options to suit different financial goals.

Understanding Federal Debt Instruments

The U.S. Treasury issues various debt instruments, broadly categorized as marketable and non-marketable securities. Marketable securities can be bought and sold in the secondary market after their initial issuance. Non-marketable securities are typically held until maturity and cannot be traded.

Treasury Bills (T-Bills) are short-term debt obligations with maturities of one year or less. They are sold at a discount from their face value, with the investor receiving the full face value at maturity, representing the interest earned.

Treasury Notes (T-Notes) are intermediate-term securities with maturities ranging from two to ten years. T-Notes pay a fixed interest rate every six months until maturity, at which point the principal is repaid. They are a common choice for investors seeking regular income streams.

Treasury Bonds (T-Bonds) represent long-term loans to the U.S. government, typically issued with maturities of 20 or 30 years. T-Bonds pay fixed interest payments semiannually until their maturity date. They are backed by the full faith and credit of the U.S. government.

Treasury Inflation-Protected Securities (TIPS) are designed to protect investors from inflation. Their principal value adjusts with changes in the Consumer Price Index (CPI), and the fixed interest rate is applied to this adjusted principal. TIPS are issued with maturities of five, ten, and 30 years and pay interest every six months. The annual inflation adjustment is considered taxable income by the IRS, even if not received until maturity.

U.S. Savings Bonds, specifically Series EE and Series I bonds, are non-marketable securities purchased directly from the U.S. Treasury. Series EE bonds offer a fixed interest rate and are guaranteed to double in value over 20 years. Series I bonds combine a fixed rate with a variable rate that adjusts every six months based on inflation, offering protection against rising prices. Interest earned on all federal securities is exempt from state and local taxes but is subject to federal income tax.

Acquiring Federal Securities

Individuals can purchase federal securities directly from the U.S. government through TreasuryDirect, an online platform. This direct purchasing method allows investors to bypass brokers and avoid associated fees. TreasuryDirect provides a secure electronic system for buying, holding, and managing these investments.

Establishing a TreasuryDirect account requires personal and financial information. Prospective investors need:
A Social Security Number or Taxpayer Identification Number
A U.S. address
A valid email address
A U.S. bank account with its routing number

The account setup can be completed online. Once confirmed, users receive an account number.

After setting up the account, purchasing securities involves navigating the platform’s “Buy Direct” tab. Users select the security type, such as Treasury Bills, Notes, Bonds, TIPS, or Savings Bonds. For marketable securities, purchases are made through auctions. Investors place a non-competitive bid, agreeing to accept the yield determined at the auction.

When purchasing U.S. Savings Bonds (Series EE or Series I), they are bought at face value directly through the platform. Electronic savings bonds can be purchased in amounts ranging from $25 to $10,000 per series per calendar year. This annual purchase limit applies separately to Series EE and Series I bonds.

Following a purchase, securities are held electronically within the TreasuryDirect account. Interest payments and principal redemptions are deposited into the linked bank account. Marketable securities purchased through TreasuryDirect can be transferred to a brokerage account for secondary market transactions. Savings Bonds can only be redeemed through TreasuryDirect after a minimum holding period, typically one year.