You buy government bonds through a broker, a bank, or directly from the U.S. Treasury, depending on which type of bond you want and how much you're willing to pay in fees
Government bonds are debt issued by the federal government, states, or municipalities. When you buy one, you're lending money to that government in exchange for regular interest payments and the return of your principal at maturity. The path to ownership depends on the bond type: Treasury bonds go through TreasuryDirect or a financial institution; municipal bonds typically go through a broker; and savings bonds have their own dedicated channels.
The main decision is whether to buy directly (lower cost, fewer options) or through an intermediary (more choice, transaction fees). Each route has different minimums, fee structures, and the range of bonds available to you.
Key Takeaways
- Treasury bonds can be bought directly from TreasuryDirect with no fees and a $100 minimum, or through a bank or broker for a wider selection and higher costs.
- Municipal bonds are sold through brokers and financial advisors, not directly from the issuer, and prices vary based on the bond's age and market conditions.
- Savings bonds (Series EE and Series I) are purchased through TreasuryDirect or your bank and cannot be resold on the secondary market.
- The secondary market lets you buy bonds that have already been issued, but prices fluctuate with interest rates and you'll pay a broker commission.
- Your choice of purchase method affects your costs, the bonds available to you, and how quickly you can sell if you need to exit early.
Buying Treasury Bonds Directly Through TreasuryDirect
TreasuryDirect is a free online platform run by the U.S. Department of the Treasury. You create an account, link a bank account, and bid on or purchase Treasury securities at auction. There are no fees, no markup, and the minimum purchase is $100. You hold the bonds in an electronic account and receive interest payments directly to your bank account.
To start, visit treasurydirect.gov, create a login, and verify your identity. You'll need a Social Security number or employer identification number, a valid email address, and a U.S. bank account. Once your account is set up, you can participate in Treasury auctions, which happen on a regular schedule: Treasury bills weekly, notes every month, bonds several times a year, and Treasury Inflation-Protected Securities (TIPS) on their own calendar.
When you bid at auction, you can place a competitive bid (you specify the yield you'll accept) or a non-competitive bid (you accept whatever rate the auction sets). Most individual investors use non-competitive bids because the rate is may provide and the process is simpler. You'll see the auction announcement, the purchase date, and the settlement date before you commit.
Buying Treasury Bonds Through Banks and Brokers
Banks and brokerages like Fidelity, Charles Schwab, Vanguard, and others sell Treasury securities. You can buy new issues at auction or existing bonds on the secondary market. The advantage is convenience and a wider selection; the cost is a transaction fee (typically $0 to $50 per trade, depending on the firm) and sometimes a markup on the price.
The process is straightforward: log into your brokerage account, search for the Treasury security you want (filtered by maturity date and type), and place an order. Settlement usually happens within two business days. You'll see the yield, the price, and any fees before you confirm. Some brokers offer Treasury purchases with no transaction fee as a competitive feature.
The secondary market through a broker is useful if you want to buy a bond that's no longer being auctioned, or if you want to sell before maturity. Prices on the secondary market move with interest rates: when rates rise, bond prices fall, and vice versa. If you buy a bond at a discount (below par value) and hold it to maturity, you'll receive the full face value, but if you sell before maturity, you'll get whatever the market price is at that moment.
Buying Municipal Bonds
Municipal bonds are issued by states, cities, and other local governments. They are not sold directly to the public by the issuer; instead, they're distributed through brokers, financial advisors, and some banks. The bond market for municipals is less transparent than the Treasury market, and prices vary based on the bond's credit quality, age, and current interest rates.
To buy a municipal bond, you'll work with a broker or advisor who has access to the municipal bond market. You can search for bonds by issuer, maturity, yield, and credit rating. Brokers typically earn a commission built into the price you pay, which is not always shown as a separate line item. Ask your broker to disclose the markup or commission before you buy.
Municipal bonds are often purchased for their tax advantages: the interest is usually exempt from federal income tax and sometimes from state and local taxes if you live in the issuing state. This tax benefit is reflected in the yield, which is typically lower than a comparable Treasury bond. The trade-off is that you're taking on credit risk—the issuer must have the financial capacity to pay you back.
Buying Savings Bonds (Series EE and Series I)
Savings bonds are a simpler, more hands-off option. Series EE bonds earn a fixed rate set by the Treasury every six months. Series I bonds earn a rate that adjusts for inflation every six months. Both are purchased through TreasuryDirect or some banks, with a $25 minimum and a $10,000 annual limit per person per bond type.
To buy savings bonds through TreasuryDirect, log in, select the bond type, choose the amount, and authorize the purchase from your bank account. The bonds are held electronically and cannot be resold. You can redeem them anytime after one year, though if you redeem before five years, you forfeit the last three months of interest. Interest accrues monthly and compounds semiannually.
Savings bonds are issued at face value, so a $100 bond costs $100. With Series EE, you know the rate upfront. With Series I, the rate changes based on inflation data released by the Bureau of Labor Statistics every May and November. Series I bonds are popular during high-inflation periods because the rate rises with inflation, protecting your purchasing power.
Understanding Bond Prices and the Secondary Market
When you buy a bond at issuance, you pay the face value (par). But bonds trade on the secondary market at prices above or below par depending on interest rates and the bond's credit quality. If you buy an existing bond from another investor, you may pay more or less than the original face value.
Bond prices move inversely to interest rates. If you buy a bond yielding 3% and interest rates rise to 4%, that bond becomes less attractive, so its price falls. If you hold it to maturity, you still get your full face value back, but if you sell before maturity, you'll take a loss. Conversely, if rates fall, the bond's price rises, and you could sell it for a gain.
The secondary market is where you can exit a bond position early, but it comes with costs: broker commissions, bid-ask spreads (the difference between what a buyer will pay and what a seller is asking), and the risk that you'll sell at an unfavorable price. Treasury bonds are highly liquid and straightforward to sell; municipal bonds are less liquid and may take longer to move.
Comparing Costs and Minimums Across Purchase Methods
| Purchase Method | Minimum Investment | Transaction Fee | Bond Selection | Resale Option |
|---|---|---|---|---|
| TreasuryDirect | $100 | None | New Treasury auctions only | No secondary market access |
| Bank or Broker | Varies (often $1,000) | $0–$50 per trade | New issues and secondary market | Yes, with market prices |
| Municipal Broker | Varies (often $5,000) | Commission built into price | Municipal bonds only | Yes, with market prices |
| Savings Bonds (TreasuryDirect) | $25 | None | Series EE and Series I only | No resale; redemption only |
TreasuryDirect is the lowest-cost option for Treasury securities if you're buying at auction and holding to maturity. A broker is worth the fee if you want secondary market access, a wider selection, or the convenience of a single account for multiple bond types. Municipal bonds almost always require a broker, and the cost is embedded in the price you pay.
The choice between these methods depends on how much you're investing, how long you plan to hold, and whether you might need to sell early. For small amounts or long holding periods, TreasuryDirect saves money. For flexibility and variety, a broker makes sense despite the fees.
What Happens After You Buy
Once you own a bond, you receive interest payments on a regular schedule—usually semiannually for Treasuries and municipals, and monthly for savings bonds. The interest is deposited to your bank account (for TreasuryDirect) or credited to your brokerage account (for broker purchases). You'll receive a 1099-INT form at tax time reporting the interest income.
At maturity, the bond issuer returns your principal. If you bought through TreasuryDirect, the money goes to your linked bank account. If you bought through a broker, it's credited to your brokerage account. If you want to sell before maturity, you can do so through your broker at the current market price, which may be higher or lower than what you paid.
Savings bonds work differently: you can redeem them anytime after one year through TreasuryDirect or your bank. The redemption value includes all accrued interest. If you redeem before five years, you lose the last three months of interest as a penalty.
Frequently Asked Questions
Can I buy government bonds with just $100?
Yes, through TreasuryDirect. Treasury securities have a $100 minimum, and savings bonds have a $25 minimum. If you buy through a bank or broker, the minimum is often higher—typically $1,000 or more—and you'll pay a transaction fee.
What's the difference between buying at auction and buying on the secondary market?
At auction, you buy new bonds directly from the Treasury at the set price and rate. On the secondary market, you buy bonds that have already been issued, and the price fluctuates based on interest rates and demand. Secondary market purchases usually involve a broker fee or commission.
Do I have to hold a government bond until it matures?
No. You can sell most bonds before maturity through a broker at the current market price. Savings bonds are an exception—they cannot be resold and can only be redeemed through TreasuryDirect or your bank after one year. If you sell a Treasury or municipal bond early, the price may be higher or lower than what you paid, depending on interest rate changes.
Are government bonds taxed?
Treasury bond interest is subject to federal income tax but exempt from state and local taxes. Municipal bond interest is usually exempt from federal tax and often from state and local taxes if you live in the issuing state. Savings bond interest is subject to federal tax and state tax, though you can defer federal tax until redemption.
What if I need to sell a bond before maturity and the price has dropped?
You can still sell it, but you'll receive the current market price, which may be less than you paid. The loss is real if you sell, but if you hold the bond to maturity, you'll receive the full face value regardless of the price you paid. This is why bonds are generally considered lower-risk than stocks—you have the option to wait out price fluctuations.