|
Dear Dr. Don,
Where should I purchase short-term Treasury securities?
-- Isabel Inquires
Dear Isabel,
The where is easy; the why is quite a bit harder.
For most retail accounts, the best place to buy Treasury securities is through a TreasuryDirect account. There's no commission to buy, and a reasonable ($45) commission if you need to sell before the security reaches final maturity, although that shouldn't be a problem with short-term Treasuries like the three-month, six-month or one-year Treasury bill, or T-bill.
In 2008, the Treasury Department even reduced the minimum denomination for purchases from $1,000 to $100.
U.S. Savings bonds are Treasury securities, too. Series EE and Series I savings bonds have a minimum holding period of one year and an early redemption penalty of three months' interest if you sell anytime in years one to five. I bring it up because, right now, the yield on savings bonds is much higher than the yield on short-term T-bills.
Here's an excerpt from the most recent interest rate announcement on the TreasuryDirect site.
Nov. 3, 2008
The Bureau of the Public Debt today announced an earnings rate of 5.64% for Series I Savings Bonds, and a fixed rate of 1.30% for Series EE bonds, issued from November 2008 through April 2009. Earnings rates for I bonds and fixed rates for EE bonds are set each May 1 and November 1. Interest accrues monthly and compounds semiannually. Bonds held less than five years are subject to a three-month interest penalty. Both series have an interest-bearing life of 30 years; the EE bond fixed rate applies to a bond's 20-year original maturity.
Compare that to recent rates on U.S. Treasury bills:
 |
| Recent Treasury bill rates |
|
|
|
|
| Source: Bloomberg.com Dec. 4, 2008 |
If you're looking for safety of principal, head for the CD market and find a nice, safe, FDIC-insured CD. You can shop rates locally or nationwide using Bankrate's Compare Rates feature. A CD is backed by a full faith and credit pledge of the U.S. government, just like a U.S. Treasury security.
|
