Investing should be a long-term financial strategy. Some investors are lucky to see returns in the neighborhood of 7% to 10% over a decade. And few investors enjoy appreciable returns after making prudent investments. Even after conducting diligent research and making all the right strategic moves, a lot of investors lose money or lose their investment.
If you are new to investing or are looking for a security with solid returns, debt securities are a great option. Like United States Treasury Bonds.
T-Bonds 101
Treasury bonds are also known as, “T-Bonds.” They are American debt securities that mature over a period of a decade, 20 years, or 30 years. “Maturity,” is a term that refers to the period of time that a security or financial product generates interest. A Treasury bond is a loan that a private citizen extends to the American government.
Treasury bonds are used to finance American federal activities.
So, look at it this way: you are loaning Uncle Sam money to finance the government. Because of this fact, most financial experts agree that U. S. Treasury Bonds are essentially a risk-free investment. Unlike most other investments, you are basically guaranteed to make a return. The United States government can increase taxes and/or revenues to back your returns.
Treasury bonds are electronically issued and are available through Treasurydirect.gov. You can buy them via auction on the website, through noncompetitive bids, or through competitive bids through the secondary market. The secondary market is handled by banks and brokers and features T-Bond owners selling and buying amongst themselves.
When you log onto the site, you can bid through your bank or through a broker. Treasury bonds are auctioned monthly every February, May, August, and November, so check the schedule on Treasurydirect.gov. Reopening bids for additional bonds are auctioned every other month.
Modest, Yet Guaranteed Returns
The minimum bid starts on $100 increments, although the face-value minimum of a Treasury Bond is $1,000. As long as you hold onto them for their 10-year, 20-year, or 30-year terms, then you will receive your principal back as well interest. That is the point of maturity. If you try to cash a 30-year Treasury Bond after 7 years, then you are losing out on 23-years of interest payments.
Interest, which is also known as the, “coupon rate,” is paid out twice a year on Treasury Bonds. The average interest on a 20-year T-Bond is 2.34%, or, 2.54% for a 30-year T-Bond. At auction, the interest rate can go as high as 4.25%. Modest? Yes. Still, your principal and return are virtually guaranteed after maturity.
T-Bills, T-Notes, and T-Bonds
Treasury Bills and Treasury Notes are debt securities, just like Treasury Bonds, but with different maturity dates. Just like T-Bonds, you can buy them via auction on Treasurydirect.gov or through the secondary market. T-Bills are auctioned in multiple week maturities. For example, you can buy them in 4-week, 8-week, 13-week, 26-week, and 52-week maturity terms.
T-Notes maturity terms range from 2-years, 3-years, 5-years, 7-years, and 10-years. To get the most out of your investment, a T-Bond might be your best option. For more information on the distinctions, and the auction process, you can find more information here.
A Safer Investment for a Better Future
A Treasury Bond investment is a prudent way to save money for the future. It’s easy to do, your investment is safe, and your return is guaranteed. Everything you need to know to get started is at Treasurydirect.gov.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.