How to Buy Treasuries Directly From the Fed

TreasuryDirect is an electronic marketplace and online account system where investors may hold and conduct transactions in eligible book-entry Treasury securities. The TreasuryDirect system is run by the Bureau of the Public Debt section of the U.S. Treasury Department, a branch of the federal government.

Investors are able to participate in Treasury auctions and purchase debt securities, including U.S. savings bonds directly from the U.S. Treasury. For buying government debt securities, this program is relatively inexpensive and trouble-free.

Read on to learn more about how it works and how you can invest.

Before making any transactions through TreasuryDirect, investors must apply for an account through the online application portal. The process is simple and can be completed in 10 minutes.

Investors must have a valid Social Security number (ot taxpayer identification number), a U.S. address, an email address, a web browser that supports 128-bit encryption and a checking or savings account.

Eligible securities include Treasury bills, Treasury notes, Treasury bonds, Treasury inflation-protected securities (TIPS), etc. Buying is simple. Once you log on, you can access the BuyDirect system. You'll be prompted to select the owner of the security — as many investors buy Treasuries for gifts and other charitable transfers. You'll also select the product type or term, source of funds and the amount of purchase. You can schedule the purchase for whenever you like and how often you like, although dates are subject to availability. The system will allow you to review your order before submitting it.

Securities are generally issued to your account within two business days of the purchase date for savings bonds or within one week of the auction date for Bills, Notes, Bonds, FRNs, and TIPS.

Transfers into TreasuryDirect are permissible and are initiated at the outgoing firm, unlike the ACAT transfer process for broker-to-broker transfers, which are initiated at the receiving firm.

Once T-bills have matured, their proceeds can be easily reinvested. Simply select the "schedule repeat purchases" option and then choose the number of repeat purchases and their frequency after you have finished entering the registration and purchase information for your transaction.

Maturing notes and bonds may also be reinvested.

Your account is subject to a number of restrictions. The minimum purchase amount for savings bonds is US $25 per person and above that is sold in penny increments up to $10,000 per year. For T-bills, notes, bonds, and TIPS, an investor may submit noncompetitive bids from US $100 up to five million for each security type in $100 increments.

(For related reading, see 20 Investments You Should Know: Treasuries.)

TreasuryDirect account holders can also participate in Treasury auctions, which are conducted approximately 200 times per year. The first step in the auction process is the announcement of an upcoming auction, which is generally released four to five business days beforehand. This step discloses the number of bonds that the Treasury is selling, the date of the auction, maturity date, terms and conditions, eligible participants, and competitive and non-competitive bidding close times. Non-competitive bids guarantee that investors will get the full purchase amount of the security at the yield determined during the auction by competitive bidding. Competitive bids specify the yield expected for a security.

The second step of the auction process is the auction date when the Treasury reviews all bids received to ensure compliance with the full set of applicable rules. All compliant non-competitive bids are accepted up until issue day, if properly postmarked. The final step of the auction process is the issuance of the securities. Securities are deposited to owners and payment is delivered to the Treasury on issue day.

(For more insight, see Basics of Federal Bond Issues.)

Treasuries can be held until they mature or sold before. To sell treasuries held in TreasuryDirect, you should transfer them to a bank, broker, or dealer, then ask them to sell it for you.

To transfer Treasuries out of your account, a Transfer Request Form must be completed online or in paper form. This form should indicate the correct routing number, bank name, special handling instructions for your transfer and be submitted to TreasuryDirect. 

To redeem a savings bond electronically, simply click the "Redeem" button found near the bottom of the "Current Holdings" page. You will need to specify whether it is a partial or full redemption and furnish the payment destination where you desire the redemption proceeds to be deposited. The redeem button will not appear on the holdings page if there are no eligible bonds in your account. You can cash paper bonds at most local financial institutions, such as your bank. This is the easiest and quickest way to get access to your money. 

The easiest way to obtain current prices on Series EE, E, I, and savings notes is to use the "Savings Bond Calculator" on the TreasuryDirect website. You will need to enter the series and denomination of your bond, along with issue date. The calculator provides information on the current rate of interest, next accrual date, final maturity date and year-to-date interest earned.

Paper bonds may be converted into electronic book-entry TreasuryDirect securities by trading them for the electronic version of the same series and issue date in a special conversion linked sub-account. Simply notify TreasuryDirect and it will provide an invitation to convert to electronic form.

Your account can be funded with payroll deductions through your employer or direct deposits from your bank. The money will sit in your account and be used to fund future purchases. The balance is known as the "Zero Percent Certificate of Indebtedness" (C of I) feature of your account on TreasuryDirect and, not surprisingly, pays no interest. Also, purchases must be funded by either the C of I or your bank, but not both.

TreasuryDirect offers individual investors the opportunity to purchase Treasury securities directly from the U.S. Treasury. Although there are some limitations, this program is very reasonably priced and simple to use. As a result, the majority of participants seem to be satisfied with the investment services provided.