There’s no such thing as a physical Treasury certificate. Your purchase is recorded. You get a statement. But you don’t get the thing itself to hold in your hand because there is no “thing itself.” A Treasury certificate has become a concept in the mind and a byte in the computer.
You can buy Treasuries online at TreasuryDirect, through a Federal Reserve Bank, or through a commercial bank or stockbroker. Which to choose depends on the kind of investor you are. (Note that TreasuryDirect is only for personal investing. You can’t buy for your Individual Retirement Account.)
Savers: Buy Through the Fed
When you buy online or through the Fed, you pay no fees or commissions on securities held to maturity. Every penny you earn in yield is yours to keep. The system, called TreasuryDirect, is entirely Web based. Older accounts, now called Legacy Treasury Direct, can still be handled by mail.
With TreasuryDirect, you open an account with the Federal Reserve, which keeps track of all your transactions. You’ll be asked for your bank’s nine-digit American Bankers Association routing transit number. That’s the mystery number on the bottom of any check or deposit slip. Usually it’s on the left; your account number is on the right.
To buy, you authorize the Treasury to withdraw the money from your bank account. Your interest earnings can be paid electronically into your bank or mutual fund account. Ditto the proceeds when your securities mature. If you’ll want to reinvest, check the date when the proceeds will be paid. Tell the Trea¬sury to return to your account that day and withdraw the money again for a new purchase. You can also have the proceeds parked in a non-interest-bearing Trea¬sury security (called a certificate of indebtedness), waiting for reinvestment.
Investors with legacy accounts still have to send a tender form and certi¬fied check for their purchases. However, you can arrange for your maturing Treasury bills to be reinvested automatically, for the same term. You may find it convenient to convert from a legacy account to the new TreasuryDirect, so that you can operate entirely by Web.
If you want to sell a security prior to maturity, you have to mail a form to the Chicago Federal Reserve Bank (page 229 ), which will get three price quotes from dealers and sell for you at the highest bid. The fee for this service: $45.
Speculators: Buy Through Banks or Stockbrokers A speculator buys and sells long-term Treasury bonds, hoping to earn a profit from changes in inter¬est rates. This means selling securities before they mature and at a moment’s notice. Only commercial banks or stockbrokerage firms do that. They also let you order by phone and will lend you money against your securities. Sales commissions: a minimum of $15 to $60 every time you buy or sell. Online brokers may let you buy large amounts of Treasuries free.
It makes no sense at all to use brokerage firms for small orders of short-term Treasury securities. The commission might slash your yield by 0.5 percent on a six-month T-bill. On larger purchases or on longer-term securities, however, brokerage fees don’t take such a big bite.
Buying Zero-Coupon Treasuries They’re bought through stockbrokers. But some firms clip you for a higher price than you should pay. They trap you by quoting a dollar figure—“only $865 for these bonds”—without telling you what the bonds are priced to yield. That might saddle you with an unfairly low rate of return.
A smart investor buys through a discount broker. Ask for both the dollar price and the net yield to maturity after sales charges, which is what the bond pays over its full term.
Federal Reserve Banks
• P.O. Box 55882 Boston, MA 02215 617-973-3000 www.bos.frb.org
• 33 Liberty Street New York, NY 10045 212-720-5000 www.newyorkfed.org
• Ten Independence Mall Philadelphia, PA 19106 215-574-6000 www.philadelphiafed.org
• P.O. Box 6387 Cleveland, OH 44101 216-579-2000 www.clevelandfed.org
• 701 East Byrd Street Richmond, VA 23219 804-697-8000 www.richmondfed.org
• 1000 Peachtree Street, N.E. Atlanta, GA 30309 404-498-8500 www.frbatlanta.org
• 230 South LaSalle Street, Box 834 Chicago, IL 60604 312-322-5322 www.chicagofed.org
• Box 442 St. Louis, MO 63166 314-444-8444 www.stlouisfed.org
• 90 Hennepin Avenue Minneapolis, MN 55401 612-204-5000 www.minneapolisfed.org
• 1 Memorial Drive Kansas City, MO 64198 800-333-1010 www.kansascityfed.org
• 2200 North Pearl Street Dallas, TX 75201 214-922-6000 www.dallasfed.org
• 101 Market Street San Francisco, CA 94105 415-974-2000 www.frbsf.org
From MAKING THE MOST OF YOUR MONEY NOW by Jane Bryant Quinn. Copyright © 1991, 1997, 2009 by Berrybrook Publishing, Inc. Reprinted by permission of Simon & Schuster, Inc.
