Where and how to buy government bonds

You can buy U.S. government bonds directly from the U.S. Department of the Treasury through its website TreasuryDirect.gov, or through a bank or brokerage firm. TreasuryDirect is the simplest route if you want to avoid fees — you open an account online, link a bank account, and purchase bonds with no middleman. If you use a bank or brokerage, you pay a commission or markup, but you get access to a wider range of bond types and older bonds already issued.

The Treasury sells new bonds on a fixed schedule. Treasury bills (short-term bonds) are sold weekly. Treasury notes (medium-term, 2 to 10 years) and Treasury bonds (long-term, 20 to 30 years) are sold on specific dates each month. You can see the exact auction dates on TreasuryDirect before you open an account.

When you buy through TreasuryDirect, you bid at auction or buy at the current offering price. When you buy through a bank or brokerage, you place an order just like you would for a stock, and the firm executes it on the secondary market (where already-issued bonds trade between investors).

Key Takeaways

  • TreasuryDirect.gov charges no fees and is the direct route to buy new bonds from the U.S. Treasury, but you can only buy during scheduled auctions.
  • Banks and brokerages charge a commission or markup but let you buy bonds anytime and access older bonds that are no longer being auctioned.
  • You need a bank account to fund your purchase, and the Treasury will deposit interest payments and your principal back into that account when the bond matures.
  • Government bonds are backed by the U.S. government and carry no credit risk, but their value falls when interest rates rise.

Opening a TreasuryDirect account

To buy bonds directly from the Treasury, you create a TreasuryDirect account at TreasuryDirect.gov. You will need a Social Security number, a valid email address, and a U.S. bank account. The sign-up takes about 10 minutes and requires you to verify your identity — the site will ask for your driver's license number or state ID number.

Once your account is open, you link your bank account. The Treasury will make two small test deposits to that account (usually under $1 each) within a few business days. You log back in, confirm the amounts, and your bank account is verified. After that, you can fund purchases by transferring money from your bank account to your TreasuryDirect account.

You do not need a minimum balance to open the account, but you do need enough money in your linked bank account to cover the bond purchase when you bid. Most Treasury bills, notes, and bonds are sold in increments of $100, so you can start with as little as $100.

Choosing which type of bond to buy

The Treasury issues three main types of bonds, each with a different maturity date. Treasury bills mature in 4 weeks, 8 weeks, 13 weeks, 26 weeks, or 52 weeks — they are the shortest-term option and are sold at a discount (you pay less than face value and receive the full amount at maturity). Treasury notes mature in 2, 3, 5, 7, or 10 years and pay interest twice a year. Treasury bonds mature in 20 or 30 years and also pay interest twice a year.

The longer the maturity, the higher the interest rate the Treasury offers — a 30-year bond pays more than a 2-year note. But a longer maturity also means your money is locked in for longer, and the bond's value will drop more if interest rates rise before it matures.

The Treasury also issues I Bonds (Series I Savings Bonds), which protect against inflation by adjusting their interest rate every six months. I Bonds have a 30-year lifespan but cannot be cashed in for the first year, and if you cash them in before five years, you lose the last three months of interest. I Bonds are sold only through TreasuryDirect and are capped at $10,000 per person per calendar year (plus $5,000 if you use your tax refund).

Understanding the bidding process at auction

When you buy a new bond through TreasuryDirect, you participate in a Treasury auction. You have two choices: bid competitively or non-competitively. Most individual investors bid non-competitively, which means you agree to accept whatever interest rate the auction sets. You place your bid before the auction closes (the important date is usually 1 p.m. Eastern time on auction day), and after the auction, you are told what rate you received.

Competitive bidding is for investors who want to specify the yield they are willing to accept. If the auction sets a lower yield than you bid, you do not get the bond. Competitive bidding requires more knowledge and is rarely used by individual investors buying small amounts.

The auction results are posted the day after the auction closes. You can see the discount rate (for bills) or yield (for notes and bonds) that cleared the auction. Your TreasuryDirect account will show your purchase confirmation, and the Treasury will deduct the purchase price from your linked bank account within a few business days.

Buying bonds through a bank or brokerage

If you have a brokerage account (with firms like Fidelity, Charles Schwab, or Vanguard) or a bank account with bond-trading services, you can buy government bonds anytime without waiting for an auction. You log into your account, search for the bond you want by its maturity date and type, and place an order. The firm executes the trade on the secondary market, where existing bonds are bought and sold between investors.

The cost of buying through a brokerage is higher than TreasuryDirect because the firm charges a commission or markup — typically $1 to $10 per bond, or a percentage of the purchase price. However, you gain flexibility: you can buy bonds that are no longer being auctioned, you can buy at any time (not just on auction days), and you can sell before maturity if you need the money.

When you buy on the secondary market, you may pay more or less than face value depending on whether interest rates have risen or fallen since the bond was issued. If rates have risen, older bonds trade at a discount. If rates have fallen, they trade at a premium. The yield you receive is locked in at the price you pay.

What happens after you buy: interest payments and maturity

Once you own a government bond, the Treasury pays interest directly to your bank account on a set schedule. Treasury notes and bonds pay interest twice a year (usually in March and September, or June and December, depending on the bond). Treasury bills do not pay interest — instead, you bought them at a discount, and the difference between what you paid and the face value is your return.

When your bond matures, the Treasury deposits the full face value into your bank account. If you bought a $1,000 bond, you receive $1,000 back (plus any final interest payment). You can then decide whether to reinvest the money in another bond or use it elsewhere.

If you need to sell a bond before it matures, you can do so through a brokerage or bank, but you will receive whatever the current market price is — which may be more or less than you paid. If interest rates have risen since you bought the bond, you will likely receive less than you paid. If rates have fallen, you will likely receive more.

Tax treatment of government bond interest

Interest you earn on U.S. government bonds is subject to federal income tax but is exempt from state and local income tax. This is a significant advantage over corporate bonds or savings accounts, especially if you live in a state with high income tax.

When you file your federal tax return, you report the interest you received on your bonds as ordinary income. The Treasury will send you a Form 1099-INT in January showing how much interest you earned in the previous year. You include this amount on your tax return.

If you sell a bond before maturity and receive more than you paid, the gain is subject to federal tax (but still exempt from state tax). If you sell at a loss, you can deduct the loss against other investment gains.

Frequently Asked Questions

What is the minimum amount I need to buy a government bond?

Most Treasury bonds, notes, and bills are sold in $100 increments, so you can start with $100. I Bonds have a $25 minimum. There is no maximum per purchase, but I Bonds are capped at $10,000 per person per calendar year through TreasuryDirect.

Can I lose money on a government bond?

If you hold the bond until maturity, you will receive your full principal back — there is no credit risk because the U.S. government backs the bond. However, if you sell before maturity, you may receive less than you paid if interest rates have risen. You will not lose money on the interest you have already earned.

How long does it take to buy a bond through TreasuryDirect?

Opening an account takes about 10 minutes, but verifying your bank account takes a few business days. Once verified, you can place a bid during the next auction. Auctions happen on a set schedule — bills weekly, notes and bonds on specific dates each month. After the auction closes, settlement (when money leaves your account) happens within a few business days.

Should I buy bonds directly from the Treasury or through a brokerage?

TreasuryDirect has no fees and is simpler if you want to buy new bonds and hold them to maturity. A brokerage is better if you want to buy anytime, access older bonds, or sell before maturity. The choice depends on your strategy and how often you plan to trade.

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

You can sell the bond on the secondary market through a brokerage or bank, but you will receive the current market price, which may be less than you paid. I Bonds cannot be cashed in during the first year, and if you cash them in before five years, you lose the last three months of interest as a penalty.