Government bonds are sold directly by the U.S. Treasury, through banks and brokers, or on the secondary market—and the route you choose affects cost, convenience, and the rates available to you
You can buy U.S. government bonds in three ways: directly from the Treasury through TreasuryDirect (a federal website), through a bank or brokerage firm, or on the secondary market where existing bonds trade between investors. TreasuryDirect charges no fees and offers the lowest minimums, but limits you to new Treasury issuances. Banks and brokers offer more flexibility and access to older bonds, but charge commissions or markups. The secondary market lets you buy bonds before maturity but requires you to navigate pricing that changes daily.
Which route makes sense depends on how much you want to invest, how long you plan to hold, and whether you want to pick specific bonds or let someone else manage them. A first-time buyer with $1,000 to $10,000 usually starts with TreasuryDirect. Someone with $100,000 or more, or someone who wants to trade bonds actively, typically uses a brokerage.
Key Takeaways
- TreasuryDirect is free, has no minimum investment, and lets you buy directly from the U.S. Treasury, but you can only purchase newly issued bonds on auction dates.
- Banks and brokers charge fees or markups but offer access to a wider range of bonds, including older issues, and can hold bonds in tax-advantaged retirement accounts.
- The secondary market lets you buy bonds between auction dates and sell before maturity, but prices fluctuate and you pay a markup or commission.
- Treasury bonds, notes, and bills differ by maturity length—bills mature in one year or less, notes in two to ten years, and bonds in twenty or thirty years.
- Interest rates and bond prices move in opposite directions, so buying when rates are high locks in better income, but selling before maturity when rates have risen means taking a loss.
Opening a TreasuryDirect account and buying at auction
TreasuryDirect is a free online platform run by the U.S. Department of the Treasury. You create an account at treasurydirect.gov, link a bank account, and bid on newly issued Treasury securities at scheduled auctions. The process takes about ten minutes and requires only your Social Security number, address, and bank details.
Auctions happen on a fixed schedule: Treasury bills auction weekly, notes auction monthly, and bonds auction quarterly. You place your bid before the auction closes (usually in the afternoon on a Tuesday), and the Treasury notifies you within a day whether you won. If you bid competitively, you accept whatever rate the auction sets. If you bid non-competitively (the simpler choice for most people), you pay the average rate that competitive bidders set, with no risk of being shut out.
Your bonds are held in a TreasuryDirect account and mature automatically. You can sell before maturity through a bank or broker, but you will pay a commission to do so. Most TreasuryDirect buyers hold to maturity and reinvest the proceeds into new auctions.
Buying through a bank or brokerage
Banks and brokerages like Fidelity, Schwab, Vanguard, and E-Trade let you buy Treasury bonds, notes, and bills without creating a separate account. You buy through your existing brokerage account, which means you can hold bonds alongside stocks, mutual funds, and other investments. Brokerages also offer access to bonds issued years ago—not just newly auctioned ones—which matters if you want a specific maturity date or interest rate.
The trade-off is cost. Brokerages charge a commission per transaction (typically $1 to $10) or build a markup into the price you pay. On a small purchase, this can add up to 0.5% or more of your investment. On a $10,000 bond, that might be $50 to $100. On a $100,000 purchase, the same percentage markup is $500 to $1,000, but it often shrinks as a percentage because brokerages negotiate better rates on larger trades.
A major advantage of using a brokerage is the ability to hold bonds in an IRA or other tax-deferred account. TreasuryDirect does not allow this. If you want to buy Treasury bonds inside a retirement account, you must use a bank or broker.
Understanding maturity, yield, and price movement
Treasury securities come in three flavors based on how long until they mature. Treasury bills mature in one year or less and pay no interest—you buy them at a discount and receive full face value at maturity. Treasury notes mature in two to ten years and pay interest twice a year. Treasury bonds mature in twenty or thirty years and also pay interest twice yearly. The longer the maturity, the higher the interest rate, because you are lending money for a longer period and taking on more risk that inflation or interest rates will move against you.
The yield is the annual interest rate you earn. When you buy a newly issued bond at auction through TreasuryDirect, the yield is set by the auction. When you buy on the secondary market through a broker, the yield depends on the bond's age, remaining maturity, and current market conditions. If interest rates have risen since the bond was issued, its price falls (so the yield to a new buyer rises). If rates have fallen, its price rises.
This inverse relationship between rates and prices matters most if you plan to sell before maturity. If you buy a ten-year note yielding 4% and rates jump to 5% the next month, that bond is now worth less because new bonds pay more. If you hold to maturity, you get your full principal back regardless. If you sell early, you take a loss.
Comparing costs across the three routes
| Route | Minimum Investment | Fees | Bond Selection | Tax-Advantaged Accounts |
|---|---|---|---|---|
| TreasuryDirect | $100 | None | New issues only, on auction dates | No |
| Bank or Broker | Varies (often $1,000–$5,000) | $1–$10 commission or 0.1–0.5% markup | New and existing bonds, any maturity | Yes |
| Secondary Market (via broker) | Varies | Commission plus bid-ask spread | Any bond, any time | Yes (through broker account) |
For a $5,000 investment, TreasuryDirect costs nothing. A broker might charge $5 to $50, or build in a 0.2% markup ($10). For a $100,000 investment, TreasuryDirect still costs nothing. A broker might charge $50 to $100, or markup 0.1% ($100). The percentage cost shrinks as the dollar amount grows, but the absolute cost rises.
If you are buying inside a retirement account, you have no choice—use a broker. If you are buying a small amount and holding to maturity, TreasuryDirect wins on cost. If you want flexibility to sell early or access older bonds, a broker is worth the fee.
Tax treatment and where to hold bonds
Treasury bonds are exempt from state and local income tax but subject to federal income tax. This makes them especially valuable in high-tax states like California, New York, and Massachusetts, where the state tax savings can be meaningful. If you earn $50,000 in Treasury interest in California, you owe federal tax on it but not the 9.3% California state tax—a savings of roughly $4,650.
You can hold Treasury bonds in a regular taxable account, a traditional IRA, a Roth IRA, or a 401(k), depending on what your employer or bank offers. In a traditional IRA or 401(k), you defer federal tax until you withdraw. In a Roth IRA, the interest grows tax-free and you owe no tax on withdrawals in retirement. In a taxable account, you owe tax on the interest each year, even if you do not sell the bond.
For this reason, many investors hold Treasuries in tax-deferred accounts and keep higher-yielding taxable bonds (corporate or municipal bonds) in regular accounts, where the tax treatment is more favorable. This is a strategy worth discussing with a tax professional if you are investing more than $50,000.
Deciding between individual bonds and Treasury funds
You do not have to buy individual bonds. You can also invest in Treasury bond funds or exchange-traded funds (ETFs), which pool money from many investors and hold a basket of bonds. Funds offer instant diversification, automatic reinvestment of interest, and the ability to buy in with small amounts. ETFs trade like stocks and let you sell instantly. Mutual funds are priced once daily.
The trade-off is that funds charge an annual expense ratio—typically 0.03% to 0.20% per year for Treasury funds. On a $100,000 investment, that is $30 to $200 per year. Individual bonds have no annual fee, but you pay a one-time commission or markup when you buy. If you hold individual bonds to maturity, you pay nothing after purchase. If you hold a fund for decades, the annual fees add up.
Funds make sense if you want to dollar-cost average (invest a fixed amount monthly), if you want to reinvest interest automatically, or if you do not have enough to build a diversified ladder of individual bonds. Individual bonds make sense if you have $25,000 or more to invest, want to know exactly when your money returns, and plan to hold to maturity.
Building a bond ladder to manage interest rate risk
A bond ladder is a strategy where you buy bonds with different maturity dates—for example, one bond maturing in two years, one in four years, one in six years, and one in eight years. As each bond matures, you reinvest the proceeds into a new bond at the long end of the ladder. This approach smooths out the impact of interest rate changes and ensures you always have cash coming due.
If you build a ladder and rates rise after you buy, the bonds you hold lose value on the secondary market—but you do not care, because you are holding to maturity. Meanwhile, when your two-year bond matures, you can reinvest at the new, higher rate. If rates fall, your older bonds become more valuable, but again, you are holding to maturity. The ladder ensures you are not locked into low rates forever.
A ladder typically requires at least $10,000 to $25,000 to build (so each rung is meaningful), and it works best through a broker or TreasuryDirect if you are patient about auction dates. Many investors automate this by buying Treasury bond funds instead, which rebalance automatically.
Frequently Asked Questions
Can I lose money on a Treasury bond if I hold it to maturity?
No. If you hold a Treasury bond until it matures, you receive your full principal back plus all accrued interest, regardless of what happens to interest rates or the bond's market price in between. The only way to lose money is to sell before maturity when rates have risen and the bond's price has fallen.
What is the difference between buying at auction and buying on the secondary market?
At auction (through TreasuryDirect), you buy newly issued bonds at the rate the Treasury sets that day, with no fees. On the secondary market (through a broker), you buy existing bonds from other investors at prices that change daily based on interest rates. Secondary market bonds may offer better rates if they were issued when rates were higher, but you pay a commission or markup.
Do I need a lot of money to start buying Treasury bonds?
No. TreasuryDirect lets you start with $100. Most brokerages require $1,000 to $5,000 for a single bond purchase, though some have no minimum if you buy through a fund. Start small and add more as you learn what works for your situation.
Should I buy Treasury bonds or Treasury bond funds?
Individual bonds work best if you have $25,000 or more, want to know exactly when your money returns, and plan to hold to maturity. Funds work best if you want to invest smaller amounts, reinvest automatically, or prefer not to manage individual bonds. Many investors use both—individual bonds for core holdings and funds for regular contributions.
Are Treasury bonds a good investment right now?
That depends on current interest rates, your time horizon, and your other options. Treasury bonds are the safest investment available because they are backed by the U.S. government, but they pay less than stocks or corporate bonds over long periods. Check the current rates at treasurydirect.gov and compare them to other investments before deciding.