FastFacts: Treasury Securities

The basics: When you buy a Treasury security you’re lending money to the United States government. There are three types of Treasury securities:

• Treasury bills, which require minimum investments of $10,000, have a maturity of one year or less and are issued at a discount from their face value. Bills pay no interest before maturity. Instead, the difference between the purchase price of the bill and the amount that’s paid at maturity, or when a bill is sold prior to maturity, is the interest earned on the bill.

• Treasury notes bear a stated interest rate and make semiannual interest payments. Notes with maturities of less than five years sell in minimum amounts of $5000. Notes with maturities between five and ten years are sold in minimum amounts of $1000.

• Treasury bonds, issued in minimum denominations of $1,000, mature in ten years or longer.

Taxes: Treasury securities, issued by the federal government, earn interest that’s subject to all federal taxes, but exempt from state and local income taxes.

The risks: Treasury securities are considered completely safe from credit risk because the full faith and credit of the U.S. government back the payment of principal and interest. However, just like other bonds, Treasuries are subject to interest rate risk. So if you sell a Treasury before it matures, it may be worth more or less than you paid for it.

How to buy: You can buy individual Treasury securities through financial institutions and brokerage firms, or commission-free through the Bureau of the Public Debt’s Treasury Direct System. You can also invest in Treasuries through a mutual fund if you have a limited amount of money to invest, or if you want to invest small amounts regularly.

For more information: Visit the Bureau of Public Debt website (www.ustreas.gov) for comprehensive information about Treasury securities.