The Bureau of the Public Debt operates under the U.S. Department of the Treasury to borrow money on behalf of the federal government. It does so by selling securities such as Treasury bills, notes and bonds. When buyers later redeem the securities, the government repays the loans by paying the owners the purchase price plus interest. Individuals may purchase federal government securities, including bonds.
Treasury bonds are long-term investments purchased in increments of $100. Auction bidding determines the prices and yields. If you purchase with a noncompetitive bid through a broker or online, through TreasuryDirect, you'll receive whatever interest rate the auction determines, but you'll receive the exact bonds you desire, and you'll receive them in the amounts you desire. If you purchase bonds in a competitive auction, on the other hand, you'll do so through a bank or investment broker, and you'll specify the bond amount and yield, or interest rate, you desire. Your bid may be accepted as you presented it, it may be accepted at a lower bond amount and yield or your bid may be rejected. The issue term for Treasury bonds is 30 years, and the bonds pay fixed-rate interest every six months until maturity. The government issues Treasure bonds electronically rather than on paper.
I Savings Bonds
I savings bonds are a liquid investment, which means you may redeem them at any time. The federal government sells electronic I bonds for a minimum of $25 in any denomination. Preset paper bond denominations begin at $50. The bonds earn interest for as long as you own them. If you keep them for at least five years, you earn all the interest they accrue. If you redeem them sooner than five years after purchase, you'll forfeit the most recent three months' of interest. The maximum investment in I savings bonds is $5,000 in any calendar year. As of 2011, you may purchase electronic bonds online and paper bonds at local banks.
EE/E Savings Bonds
Series EE/E bond terms last up to 30 years, during which the bonds continue to earn interest. The rate for bonds purchased after April 30, 2005 is fixed at 1.10 percent through October 31, 2011. The minimum purchase for paper bonds, which you purchase at a local bank as of 2011, is $25 for a bond with a face value of $50 at maturity. The minimum electronic purchase is $25 for a $25 bond worth its face value at the time of purchase. The maximum investment is $5,000 per calendar year. You may redeem an electronic bond for at least face value at any time, but if you redeem it sooner than five years after purchase, you'll lose the most recent three months' of interest. If you redeem a paper bond before maturity, you'll do so at less than face value.
Purchasing Federal Bonds
The federal government plans to discontinue paper bonds as of January 1, 2012. This means banks and brokerages will no longer sell them. Instead, you'll purchase bonds online in electronic form. TreasuryDirect, a U.S. government website, allows individuals to open accounts online to purchase and manage their Treasury investments. The site also allows the conversion of paper bonds to electronic form. If you prefer to automate regular bond purchases, you may enroll in a payroll savings plan through your employer.
- Thinkstock/Comstock/Getty Images