What Is a Treasury Account and How Does It Work?

A Treasury account allows individual investors to purchase U.S. government securities directly through TreasuryDirect, an online platform from the U.S. Department of the Treasury. This system lets a person buy and hold government debt, from short-term bills to long-term bonds, in a single location without a traditional brokerage firm.

This type of account is distinct from the government’s operational bank accounts or treasury accounts managed within corporations. All securities held within a TreasuryDirect account are in electronic, or book-entry, form, which eliminates the risk associated with physical paper certificates.

Types of Marketable Treasury Securities

A TreasuryDirect account offers access to several types of marketable securities, meaning they can be sold before they mature. One of the most common is the Treasury Bill, or T-Bill. These are short-term debt instruments with maturities ranging from four to 52 weeks. T-Bills are purchased at a discount to their face value, and the investor receives the full face value at maturity. The difference between the purchase price and face value represents the interest earned.

For investors with a longer time horizon, Treasury Notes (T-Notes) are available. T-Notes have intermediate-term maturities, spanning from two to ten years. Unlike T-Bills, these securities pay interest every six months until the note matures, at which point the principal amount is returned.

Treasury Bonds, often called T-Bonds, represent the longest-term investment option, with maturities of 20 or 30 years. Similar to T-Notes, T-Bonds also provide semi-annual interest payments to the holder. The consistent income stream and long duration appeal to those planning for distant financial goals.

Two other specialized securities are also available. Treasury Inflation-Protected Securities (TIPS) are designed to guard against inflation. Available in 5, 10, and 30-year terms, the principal value of a TIPS adjusts with changes in the Consumer Price Index. Interest is paid semi-annually on this adjusted principal. Floating Rate Notes (FRNs) are 2-year securities whose interest payments are not fixed but instead adjust based on the discount rates of 13-week T-Bills.

Information Required for a TreasuryDirect Account

A valid Taxpayer Identification Number is required, which for most individuals is their Social Security Number (SSN), for account setup and tax reporting. Applicants will also need to provide a U.S. address and a functioning email address, which is used for account correspondence and to deliver the account number after approval.

Finally, a U.S.-based bank account, including the routing and account numbers, is necessary. This linked account is used to fund security purchases and receive all interest payments and maturity proceeds.

The TreasuryDirect Account Opening Process

The TreasuryDirect account application is designed to be completed online in a single session. The online application process involves entering the previously gathered personal, contact, and bank information. It is important to use the navigation buttons within the application itself rather than the browser’s back or forward buttons, as doing so can terminate the session.

As part of the setup, the applicant will create a password and select security questions for future account verification. A personalized image and caption are also chosen as an additional security feature to help the user confirm they are on the legitimate TreasuryDirect site during future logins. After submitting the application, an email containing the new TreasuryDirect account number is sent.

Managing Account Holdings and Transactions

Once an account is established, it serves as a dashboard for managing all investment activities. The primary function is the purchase of securities through a system of auctions for new issues of T-Bills, T-Notes, T-Bonds, TIPS, and FRNs. An investor places a non-competitive bid, meaning they agree to accept the interest rate determined at auction, and the funds are debited from their linked bank account on the issue date.

All payments from securities, such as semi-annual interest or the principal at maturity, are automatically deposited into the investor’s linked bank account. Account holders also have the ability to reinvest proceeds. They can set up instructions to automatically use the funds from a maturing security to purchase a new security of the same type and term. For example, the proceeds from a maturing 52-week T-Bill can be rolled over into a new 52-week T-Bill, which allows for continuous compounding. The account portal provides a clear view of all current holdings, their values, and any pending transactions or reinvestments.

Tax Reporting for Treasury Account Earnings

The interest earned from securities in a Treasury account is subject to federal income tax but is exempt from all state and local income taxes. To facilitate tax reporting, TreasuryDirect issues an annual tax statement. This document is the IRS Form 1099-INT, which details the total amount of taxable interest paid to the account holder during the calendar year.

The form consolidates interest from all securities held in the account, including notes, bonds, and matured T-bills. Account holders can access their Form 1099-INT for the relevant year through the tax documents section of the TreasuryDirect portal.