How to Use TreasuryDirect for Low-Risk Investing

Investing is all about balancing risk and reward. Many investments that offer potentially great rewards, such as stocks, come with tremendous risk, particularly in the short term. The risk of losing 40% of your investment value — as what happened after the 2008 crash — in a single year is enough to make many people very uncomfortable with more aggressive investing.

What other options are out there? There are a number of options for investing with minimal risk, from savings accounts and money market accounts to CDs and corporate bonds, but one very secure option to consider is investing in US treasuries.

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U.S. treasuries are investments sold by the United States Treasury Department. These investments help finance the national debt, as they’re a form of income for the government. They’re extremely secure, backed by the full faith of the U.S. government.

How do you invest in these? It starts with TreasuryDirect.

[ More: When Should I Start Investing? ]

In this article

    What is TreasuryDirect?

    TreasuryDirect is a website operated directly by the United States Department of the Treasury where you can invest in U.S. treasuries and other investments. These investments are sold directly to the public via this website.

    The investments sold on TreasuryDirect are mostly used to finance expenditures of the U.S. government. When you hear about the national debt, this debt is covered through investments sold by the Department of the Treasury, many to individual investors through TreasuryDirect.

    What can you buy on TreasuryDirect?

    TreasuryDirect sells a number of different investments, but of particular note are treasury securities, which come in three flavors based on the length of time until maturity.

    On TreasuryDirect, treasury bills, notes and bonds are sold at auction, but as an individual investor, you submit a non-competitive bid for them. The way this works is that large investors submit competitive bids during an auction for a portion of the investments to be sold. The Department of the Treasury accepts bids on those investments (starting with the highest bid) and then keeps going down the list of bids until all of that portion of the investments are sold. Then, everyone submitting a non-competitive bid (which would include you) gets treasury securities at that price.

    Treasury bills

    Treasury bills are short-term securities that mature in a year or less. These are generally sold at auction at a discount of their face value. So, for example, you might be able to buy a 26-week $100 treasury bill for $99. That bill means that in 26 weeks, the government will pay you $100.

    Treasury notes

    Treasury notes last from one to 10 years years and work a little differently. Not only are they worth their face value at the end of their term, but they also pay a small interest rate along the way. With these, the auction actually sets the interest rate. The selling price and face value are fixed, but bidders bid on what interest rate they’ll accept. So, you might buy one for $100 that will pay you $100 at maturity, but the interest rate you get every six months depends on the result of the auction, as described earlier.

    Treasury bonds

    Treasury bonds are just like treasury notes, except the maturity is between 10 to 30 years. Otherwise, work identically to treasury notes for individual investors, they just mature later.

    Other TreasuryDirect offerings

    TreasuryDirect is also a place to buy other items of interest, such as savings bonds and TIPS (treasury inflation protected securities). What are TIPS, you might ask? They’re just like the treasury options above, except their face value is adjusted over time based on inflation. Since they are also sold at auction, they tend to perform about as well as normal securities on average, as the value of the inflation adjustments ends up incorporated into the purchase price.

    [ Read More: A Teen Guide to Investing in Stocks ETFs ]

    Pros and cons of TreasuryDirect investing

    There are some benefits and drawbacks to investing through TreasuryDirect.

    The biggest benefit is that there are no fees associated with buying through TreasuryDirect. You get exactly what you pay for, with no additional fees incurred for buying a treasury security.

    Another notable benefit is that investing through TreasuryDirect is really easy. It works almost as easily as any online store.

    The biggest drawback is that you can’t sell the securities you buy through TreasuryDirect to other people. You just receive payments from the government as they mature within your TreasuryDirect account, or else transfer those treasuries to a brokerage account elsewhere to sell them, which will incur fees.

    Another drawback comes with the treasuries themselves. They tend to have very low rates of return compared to other investments because they’re so secure. Risk and reward are deeply tied, and with these, you’re at the very low end of both the risk and reward scale. It’s great for very safe investing, but you won’t get rich here.

    If you’re looking for very safe investing where you can just sit on your money and trust that it’s safe, TreasuryDirect is a great option. If you want to buy and sell these treasuries or invest in other things, TreasuryDirect might not be right for you.

    How to sign up for a TreasuryDirect account

    Signing up for a TreasuryDirect account is easy. You just have to provide a few pieces of personal information and it takes about ten minutes.

    1. Start by visiting TreasuryDirect’s account signup page.
    2. Choose the type of account you’re opening, which is an individual account unless you’re investing on behalf of some organization or business.
    3. Provide some personal information, including your full name, your SSN, your email address, and your bank account and routing numbers. The Treasury Department already has this information about you; this just identifies who exactly is buying the treasuries so that nothing unethical is happening.
    4. Finally, set up the details of your account such as your password and security questions.

    That’s it — you’re ready to buy treasuries through TreasuryDirect.

    [ See: Index Funds: What They Are and How They Work ]

    How to buy securities on TreasuryDirect

    As noted earlier, securities on TreasuryDirect are sold by auction, but you submit a noncompetitive bid, which means you agree to buy at whatever rate “wins” the auction. Here’s how you do that.

    1. When logged into the TreasuryDirect website, click on the BuyDirect tab that appears along the top of the screen.
    2. You’ll be offered a number of options as to what kind of treasury security you wish to buy and the date they’ll be available for auction. Choose the one you wish to buy.
    3. You’ll be given prompts to specify the amount you wish to purchase. Type in the amount you wish to purchase (for treasury bills, you specify the total amount you wish to spend). Then, TreasuryDirect will automatically transfer that amount of money from your linked checking account that you designated when you signed up.
    4. That’s it! When the next auction for that type of treasury occurs, you’ll be awarded a number of treasuries equal to the purchase amount you designated.

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.