Where to buy government bonds

You can buy U.S. government bonds directly from the Treasury Department through TreasuryDirect, a free online platform at treasurydirect.gov. You do not need a broker or pay a commission. You set up an account with your Social Security number, link a bank account, and place orders during the Treasury's auction windows — which happen on a fixed schedule for each bond type.

You can also buy government bonds through a bank or brokerage firm like Fidelity, Charles Schwab, or Vanguard. These firms charge a fee (usually $0 to $50 per transaction, depending on the firm), but they handle the paperwork and let you buy bonds that have already been issued on the secondary market — meaning bonds that other investors are selling. This route is simpler if you already have an account with a broker, but it costs more than buying directly from Treasury.

A third option is a bond mutual fund or exchange-traded fund (ETF) that holds government bonds. You buy shares in the fund rather than individual bonds. This spreads your money across many bonds and is useful if you have a small amount to invest, but you pay annual fees to the fund manager.

Key Takeaways

  • TreasuryDirect lets you buy new bonds directly from the U.S. Treasury with no commission, but you can only buy during scheduled auctions and must hold the bond for at least one year.
  • Banks and brokerages charge a fee but let you buy bonds that are already issued and sell them whenever you want, with no holding period.
  • Treasury auctions happen on a published schedule — bills every week, notes every month, bonds every few months — and you place your bid before the auction closes.
  • You need a bank account linked to TreasuryDirect or a brokerage account to buy bonds; you cannot buy them in person or by mail.
  • Government bonds are backed by the U.S. government and carry no default risk, but their value falls when interest rates rise.

How Treasury auctions work

When you buy a new bond directly from Treasury, you are bidding in an auction. The Treasury announces the auction date, the bond type (bill, note, or bond), the amount available, and the auction important date — usually a few days away. You log into TreasuryDirect, enter the amount you want to buy, and submit your bid before the important date.

You can bid "competitively" (you name the interest rate you will accept) or "non-competitively" (you accept whatever rate the auction sets). Most individual investors bid non-competitively because it guarantees your bid will go through. After the auction closes, Treasury announces the winning rate, and your account is charged on the settlement date — usually a few days later.

The auction schedule is fixed. Treasury bills are auctioned every week. Notes are auctioned monthly. Bonds are auctioned every few months. You can see the full schedule on treasurydirect.gov. If you miss one auction, another will happen soon.

Understanding the different bond types

Treasury bills (T-bills) mature in four weeks to one year. You buy them at a discount — meaning you pay less than the face value — and receive the full face value when they mature. For example, you might pay $9,800 for a $10,000 bill, and the $200 difference is your interest. Bills are the shortest-term bonds and carry the lowest interest rates.

Treasury notes (T-notes) mature in two to ten years. You pay face value upfront and receive interest payments twice a year. A $10,000 note at 4% pays you $200 every six months for the life of the note, then returns your $10,000 at maturity. Notes offer higher rates than bills because you are lending for longer.

Treasury bonds (T-bonds) mature in 20 or 30 years. They work the same way as notes — you pay face value, receive semi-annual interest, and get your principal back at maturity — but the longer time frame means higher interest rates. A 30-year bond locks in today's rate for three decades, which is useful if you think rates will fall, but risky if rates rise because the bond's value will drop if you need to sell before maturity.

I Bonds (Series I Savings Bonds) are inflation-protected. The interest rate adjusts every six months based on inflation. You must hold them for at least one year, and if you sell within five years, you lose the last three months of interest. I Bonds are bought only through TreasuryDirect and have an annual purchase limit of $10,000 per person.

Setting up a TreasuryDirect account

Go to treasurydirect.gov and click "Open an Account." You will need your Social Security number, a valid email address, and a U.S. bank account (checking or savings). Treasury will verify your identity by asking security questions based on your credit history.

Once your account is open, you link your bank account for purchases and redemptions. Treasury will make two small test deposits to your bank account — usually within a few days — and you confirm the amounts in TreasuryDirect to verify the account is yours. After that, you can place bids in auctions.

Your bonds are held in book-entry form, meaning they exist only as electronic records in your TreasuryDirect account. You do not receive a physical certificate. You can view your holdings, check interest payments, and manage redemptions all through the website.

What happens when your bond matures

When a bond reaches its maturity date, Treasury automatically deposits the principal into your linked bank account. For bills and notes, this happens on the maturity date. For I Bonds, you can hold them up to 30 years, but you can redeem them anytime after one year (with a three-month interest penalty if redeemed within five years).

If you want to sell a bond before it matures, you cannot do so through TreasuryDirect — you can only hold until maturity. If you need to sell early, you must have bought the bond through a broker instead. Brokers let you sell on the secondary market, where the bond's price changes based on current interest rates. If rates have risen since you bought, the bond will be worth less; if rates have fallen, it will be worth more.

You can reinvest the proceeds from a matured bond into a new auction, or withdraw the money to your bank account. There is no requirement to reinvest.

Taxes on government bond interest

Interest from Treasury bonds is subject to federal income tax but exempt from state and local income tax. This is a major advantage over corporate bonds or savings accounts, especially if you live in a high-tax state.

You report the interest on your federal tax return. For bonds held in TreasuryDirect, Treasury sends you a Form 1099-INT each January showing the interest you earned in the previous year. You include this amount as income on your tax return. The interest is taxed at your ordinary income tax rate, not at the lower capital gains rate.

If you sell a bond before maturity through a broker and the sale price is higher than what you paid, the gain is taxed as a capital gain. If the price is lower, you have a capital loss that can offset other gains.

Risks and considerations

Government bonds carry virtually no default risk — the U.S. government has never failed to pay a bond. However, they do carry interest rate risk. If you buy a 10-year note at 3% and interest rates rise to 5%, your bond is now worth less because new bonds pay more. If you hold until maturity, you get your full principal back, but if you need to sell early, you take a loss.

Bonds also carry inflation risk. If inflation rises faster than your bond's interest rate, your purchasing power falls. A 2% bond is a poor investment if inflation is 4%. Regular Treasury bonds do not adjust for inflation; I Bonds do, but they have lower starting rates and purchase limits.

The longer the bond's maturity, the greater the interest rate risk. A 30-year bond's value swings much more than a 2-year note when rates change. If you think rates will rise, shorter bonds are safer. If you think rates will fall, longer bonds offer higher returns.

Frequently Asked Questions

Can I buy government bonds if I do not have much money?

Yes. TreasuryDirect lets you buy bonds in increments as small as $100. If you want to own many bonds with a small amount of money, a bond ETF or mutual fund is a better choice because it spreads your money across dozens of bonds and costs less per transaction.

What is the difference between buying a bond at auction and buying on the secondary market?

At auction, you buy a new bond directly from Treasury at the official rate. On the secondary market, you buy a bond that someone else is selling, and the price reflects current interest rates. Auction purchases have no commission; secondary market purchases charge a fee. Auction bonds must be held at least one year; secondary market bonds can be sold anytime.

How do I know what interest rate I will get?

At auction, you do not know the exact rate until after the auction closes and Treasury announces the results. If you bid non-competitively, you accept whatever rate wins. If you bid competitively, you name your minimum acceptable rate, but your bid might not go through if the auction rate is lower. Treasury publishes historical rates on its website so you can see what similar bonds have paid recently.

What happens to my bond if I need the money before it matures?

If you bought through TreasuryDirect, you cannot sell the bond early — you must hold until maturity. If you bought through a broker, you can sell on the secondary market, but the price depends on current interest rates and may be lower than what you paid. I Bonds can be redeemed after one year, but you lose three months of interest if redeemed within five years.

Are government bonds a good investment right now?

That depends on current interest rates and your financial goals. When Treasury rates are high, bonds offer competitive returns with no default risk. When rates are low, bonds may not keep pace with inflation. Compare the bond's interest rate to inflation forecasts, your other investment options, and how long you can afford to lock up your money.