The Basics of Treasury Securities
- What are U.S. Treasury securities?
- Why should I buy a Treasury security?
- What types of securities are offered to individual investors?
- What are Treasury bills?
- What are Treasury notes, bonds, FRNS, and TIPS?
- What are U.S. Savings Bonds?
- What types of savings bonds are available?
- How do Treasury bills, notes, bonds, FRNs, and TIPS differ from savings bonds?
- How can I buy a Treasury bill, note, bond, or TIPS?
- What is a Treasury auction?
- How can I find out when an auction will be held?
- How can I participate in an auction?
- How do I submit my bid?
- What is the minimum purchase amount for Treasury securities?
- Do I have a choice as to where my Treasury securities are kept?
- What features does TreasuryDirect offer?
- What features does the Commercial Book-Entry System offer?
- What are STRIPS or zero-coupon securities?
- How can I sell my Treasury security before maturity?
- How do I receive my interest and principal payments?
- What happens when my security matures?
- How can I get more information about Treasury securities?
U.S. Treasury securities are debt instruments. The U.S. Department of the Treasury issues securities to raise the money needed to operate the federal government.
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.
We sell Treasury bills, notes, bonds, FRNs, TIPS, and U.S. Savings Bonds to individual investors.
Treasury bills (or T-bills) are short-term securities that mature in one year or less from their issue date. T-bills are purchased for a price less than or equal to their par (face) value, and when they mature, Treasury pays their par value. The interest is the difference between the purchase price of the security and what is paid at maturity (or what it sells for if it is sold before it matures). For example, if an investor bought a $10,000, 26-week Treasury bill for $9,750 and held it until maturity, the interest would be $250.
Treasury notes and bonds are securities that pay a fixed rate of interest every six months until the security matures, which is when Treasury pays the par value. The only difference between them is their length until maturity. Treasury notes mature in more than a year, but not more than 10 years from their issue date. Bonds mature in more than 10 years from their issue date.
An FRN is a security that has an interest payment that can change over time. As interest rates rise, the security's interest payments will increase. Similarly, as interest rates fall, the security's interest payments will decrease. Treasury FRNs will be indexed to the most recent 13-week Treasury bill auction High Rate prior to the lockout period, which is the highest accepted discount rate in a Treasury bill auction.
Treasury also sells Treasury Inflation-Protected Securities (TIPS). They pay interest every six months and the principal value of TIPS is adjusted to reflect inflation or deflation as measured by the Consumer Price Index - the Bureau of Labor Statistics' Consumer Price Index for All Urban Consumers (CPI-U). With TIPS, the semi-annual interest payments and maturity payment are calculated based on the inflation-adjusted principal value of the security.
Savings bonds are Treasury securities that are payable only to the person to whom they are registered. Savings bonds earn interest for up to 30 years, but you can redeem them after one year.
You can buy two types of savings bonds: the Series EE Bond or the Series I Bond. Read more information about these types of securities and compare I and EE Savings Bonds.
Unlike savings bonds, Treasury bills, notes, bonds, FRNs, and TIPS are transferable, so you can buy or sell them in the securities market. You can buy Treasury bills, notes, bonds, FRNs, and TIPS for a minimum of $100, and you can buy savings bonds for as little as $25.
You can buy Treasury bills, notes, bonds, FRNs, or TIPS at one of the auctions we conduct, or in the securities market. If you want to buy a Treasury security at an auction, set up an account in TreasuryDirect (for noncompetitive bids only) or contact a financial institution, or a government securities broker or dealer.
View upcoming auctions.
Each Treasury bill, note, bond, FRN, or TIPS is sold at a Treasury auction. In these auctions, all successful bidders are awarded securities at the same price, which is the price equal to the highest rate, yield or discount margin of the competitive bids awarded. You can find a complete explanation of the auction process in our Uniform Offering Circular, which is in the Code of Federal Regulations (CFR) at 31 CFR Part 356.
Before each auction, a press release is issued announcing the security being sold, the amount of the security being offered, the auction date, and other pertinent information. This information is available in the Tentative Auction Schedule and from your financial institution, broker, or dealer.
You can participate in an auction by submitting a bid for the security you want to buy. You can bid either noncompetitively or competitively, but not both in the same auction.
If you bid noncompetitively, you'll receive the full amount of the security you want at the return determined at that auction. Therefore, you don't have to specify the return you'd like to receive. You can't bid noncompetitively for more than $5 million in a single auction. Most individual investors bid noncompetitively.
If you bid competitively, you have to specify the return - the rate for bills, yield for notes, bonds, and TIPS, or discount margin for FRNs - that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. However, you can bid competitively for much larger amounts than you can noncompetitively.
You may bid directly through TreasuryDirect (except for Cash Management Bills), TAAPS (with an established account), or you can make arrangements to purchase securities through a broker, dealer, or financial institution.
The minimum amount that you can purchase of any given Treasury bill, note, bond, FRNs, or TIPS is $100. Additional amounts must be in multiples of $100.
All Treasury securities are issued in what is called "book-entry" form - an entry in a central electronic ledger. You can hold your Treasury securities in one of three systems: TreasuryDirect, Legacy Treasury Direct (existing accounts only), or the Commercial Book-Entry System. TreasuryDirect and Legacy Treasury Direct are direct holding systems where you have a direct relationship with us. (NOTE: Legacy Treasury Direct is being phased out.)
The Commercial Book-Entry System is an indirect holding system where you hold your securities with your financial institution, government securities broker, or dealer. The Commercial Book-Entry System is a multilevel arrangement that involves the Treasury, the Federal Reserve System (acting as Treasury's agent), banks, brokers, dealers, and other financial institutions. So, in the Commercial Book-Entry System, there can be one or more entities between you and the Treasury.
TreasuryDirect provides a web-based environment for buying and holding Treasury bills, notes, bonds, FRNs, and TIPS, as well as savings bonds. You cannot purchase Cash Management bills in TreasuryDirect. The TreasuryDirect website can be used to open an account, conduct most transactions, and access account information. Online services are available 24 hours a day, seven days a week. You designate the financial account or accounts into which we make payments and from which we make withdrawals. There are no fees charged when you open an account or buy securities. TreasuryDirect permits accounts for both individuals and various types of entities including trusts, estates, corporations, partnerships, etc. See Learn More about Entity Accounts for full information on the registration types.
In the Commercial Book-Entry System, you'll maintain your relationship with your financial institution, broker, or dealer and potentially pay fees for their services. The Commercial Book-Entry System allows you to easily buy and sell securities as well as use them for collateral. You can also hold Treasury securities in stripped form, known as STRIPS or zero-coupon securities, in the Commercial Book-Entry System.
STRIPS, also known as zero-coupon securities, are Treasury securities that don't make periodic interest payments. Market participants create STRIPS by separating the interest and principal parts of a Treasury note, bond, or TIPS. For example, a 10-year Treasury note consists of 20 interest payments - one every six months for 10 years - and a principal payment payable at maturity. When this security is "stripped," each of the 20 interest payments and the principal payment become separate securities and can be held and transferred separately. STRIPS can only be bought and sold through a financial institution, broker, or dealer and held in the Commercial Book-Entry System.
If you hold your security in the Commercial Book-Entry System, contact your financial institution, government securities dealer, broker, or investment advisor. Normally there is a fee for this service. If you hold your security in TreasuryDirect or Legacy Treasury Direct, you can transfer it to an account in the Commercial Book-Entry System.
In TreasuryDirect and Legacy Treasury Direct, the U.S. Treasury makes interest and principal payments directly to the financial account you choose. In the Commercial Book-Entry System, Treasury's interest and principal payments may flow through several institutions on their way to you. For example, a payment could go from the Federal Reserve to a large bank to a smaller bank to your bank or broker before it gets to you.
When your security matures, payment of the principal and the final interest payment are made through TreasuryDirect, Legacy Treasury Direct, or the Commercial Book-Entry System. Rather than take payment of the principal, customers of TreasuryDirect can choose to roll the principal into another security by scheduling the security to reinvest.
For more information about Treasury securities, visit Treasury Marketable Securities.