An Overview And Comparison: T-Bills, T-Notes, T-Bonds, Tips And Savings Bonds

Google+ Pinterest LinkedIn Tumblr +

Treasury Bills (T-Bills), Treasury Notes (T-Notes), Treasury Bonds (T-Bonds) and Savings Bonds (I Bonds and EE Series) are all U.S. government issues. They are considered the safest investments and pose virtually no risk as they are backed by the Federal government. Though they pay less in returns than regular CD’s, their backing by the Federal government make them the most popular safest forms of investment today. Often T-Bills, T-Notes and T-Bonds are simply called “bonds” or “treasuries.”

T-bills, T-notes, T-bonds and the Savings Bonds I-Bonds series are different security issues offered by the government. In essence, they are loans by the public to the government in order to raise money for the operation of the Fed and to help pay off the national debt. Below is an overview and comparison of these government securities.

* T-billsareshort-term issues which mature in 30 days, 3 months, 6 months and in a year. They do not pay interest but are sold at a discount and can be redeemed by the investor for the “par” or “face value” at their maturity. For an example: if you buy a T-bills at $900.00 each, upon maturity you can redeem them for let’s say $1,000.00 making almost a $200.00 profit on each T-bill. The minimum amount they can be bought for is $100.00 online and are sold in increments of $100.00

* T-Notes are longer termed issues which mature in a period of anywhere from 2, 3, 5, 7 and 10 years. They pay interest every 6 months. The minimum amount which they can be bought is for $100.00 online and can be bought in increments of $100.00

* T-Bonds are even longer termed issues which mature in 30 years but can be redeemed for accrued interest before that time. They pay interest every six months until they mature. When T-bonds mature, you are paid it’s face value. They are bought for a minimum of $100.00 online and can be bought in increments of $100.00.

* TIPS (Treasury Inflation-Protected Securities), provide a hedge against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the CPI (Consumer Price Index). When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. The rate is applied to the adjusted principal; so, like the principal, interest payments (twice a year), rise with inflation and fall with deflation. They are issued in terms of 5,10 and 30 years maturity. They can be purchased for a minimum of $100.00 online and bought in increments of $100.00

TIPS set their interest rates when they are sold. However, the bond’s underlying principal rises and falls with changes in the inflation rate, and as it does so, the amount you’ll receive as interest also changes, but at maturity you’ll always get at least the par value of the bond.

* I – BondsThese are savings bonds which are longer termed which have a maturity date of 30 years. They are an inflation-indexed savings bond and while you own them they earn interest and also provide a hedge from inflation. I-Bonds can be purchased in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000. There is $5,000 maximum purchase in one calendar year per one Social Security Number and can be bought as paper bond certificates. Online they can be purchased for a minimum of $25.00.

 Interest that I-Bonds pay comes in two parts: a fixed interest rate and a variable interest rate. The fixed-rate portion is set when you buy the bond. Remaining interest payments come from the variable-rate portion, which changes twice a year based on inflation, as measured by the Consumer Price Index (CPI). The recent I-Bonds are paying a 1% annual fixed interest rate and a 2.67% annualized variable interest rate. That means the composite rate is 3.67%.

*You can redeem your I Bonds when the bonds are 12-months-old at which time you will receive the purchase price of the bond plus any accrued interest.

**If you redeem an I Bond before 5-years, you will lose 3 months of accrued interest.

* EE/E Bonds – These bonds are sold at 50% of their face value and accrue interest every six months, with a final maturity in 30 years. They are designed to reach face value (so 2x in value) in 17 years. Also available are the Patriot Bonds which designates it’s funds to go help fight the war on terrorism.

* Call 800-4US-BOND for current rate information on all series of U.S. Saving Bonds.

The Auctioning Process

T-bills, T-notes, T-bonds and TIPS are sold at auctions held annually, to both institutional and individual investors. They can be bought for more or less than the face value, depending on demand. For example, when demand is high, bidders will pay more than face value. Bidders know Treasury bills, notes and bonds can be resold on the open market. This means their the price can fluctuate further.

The official website for issuance of these U.S. government securities offers information as to the next auction date, usually also published in many newspapers, about seven to 10 days beforehand.

These issues can be bought through payroll saving plans, local banks, credit unions and brokerage houses as well as through TreasuryDirect.gov. They are without a doubt the most popular, low risk and dependable investments which the public can make and should be considered in any serious portfolio when preserving principal is the purpose.

~~~~~~~~~~~~~~~~~~~~~~

Authored by Beverly Anne Sanchez, 2010

Share.

About Author

Leave A Reply