A bond, according to Webster's dictionary, is an interest-bearing
certificate issued by a government or business promising to pay
the holder a specified sum on a specified date.
Bills, notes, and bonds
Treasury bills, notes and bonds and U.S. savings bonds are excellent,
risk-free ways to preserve your principal, get pretty good returns
and keep your investments relatively liquid.
The government sells Treasury securities -- bills,
notes and savings bonds. In addition, U.S. Treasury bonds are available
on the open market. All of these are debt instruments sold to raise
money to operate the government and pay off debt. Treasury securities
are safe investments because they're backed by the U.S. government.
The minimum amount required to buy a Treasury bill
or note is $1,000. Savings bonds can be purchased for as little
Treasury bills (T-bills) are short-term securities
that mature in one year or less. You buy them for less than par
(face) value. When the bill matures, you receive par value. For
example, you might buy a $10,000 26-week T-bill for $9,750. If you
hold it until maturity, you'll be paid $10,000. That extra $250
is the interest you earned.
Treasury notes mature in two to 10 years.
Treasury bonds were issued in maturities of 10 to
30 years, but the Treasury stopped issuing fixed-principal bonds
in October 2001. Many of the bonds are still outstanding and earning
a fixed rate of interest semi-annually. If someone cashes a bond
before maturity, you can buy what's left of that bond on something
called the secondary market. A broker can help you make the purchase.
Both notes and bonds pay a fixed rate of interest
every six months until the security matures. Par value is repaid
when the security matures.
Treasury bills, notes and bonds are transferable --
you can buy or sell them in the securities market.
Treasury bills and notes are sold through competitive
and noncompetitive bidding at more than 150 auctions held throughout
the year. Many newspapers report auction schedules. You can also
find auction schedules on the government Web
Auction dates are announced seven to 10 days before
the auction. The Web site also has detailed information on how bids
are placed. There are no fees when you buy Treasuries directly from
You can also buy Treasuries on the securities market
through a broker or dealer. If you choose that method, you'll pay
a commission and perhaps a transaction fee.
The income you earn on Treasuries is exempt from state
and local taxes.