You can buy government bonds directly from the U.S. Treasury, through a bank or brokerage, or from a bond fund
The simplest route is TreasuryDirect, the Treasury Department's own platform, where you buy bonds straight from the government with no middleman and no fees. You can also buy through a bank, investment brokerage, or bond mutual fund, though each adds a layer of cost or complexity. The choice depends on how much you want to invest, how hands-on you want to be, and whether you prefer a single transaction or ongoing management.
Each route has real trade-offs. TreasuryDirect is free but requires you to set up an account and manage bonds yourself. A brokerage gives you more flexibility and lets you sell before maturity, but charges a commission. A bond fund spreads your money across many bonds and handles everything, but takes an annual fee. Understanding what each costs and what you actually get is the only way to pick the right one for your situation.
Key Takeaways
- TreasuryDirect is free and sells bonds directly to you with no fees, but you must hold them until maturity or pay a penalty to sell early.
- Banks and brokerages charge a commission to buy or sell bonds, but let you trade before maturity and often offer more bond types.
- Bond mutual funds and ETFs charge an annual fee but handle all the buying, selling, and reinvestment for you automatically.
- The minimum investment varies by route: TreasuryDirect starts at $100, brokerages often at $1,000 or more, and bond funds typically at $1,000 to $3,000.
Buying directly from TreasuryDirect
TreasuryDirect is a website run by the U.S. Treasury where you open an account, link a bank account, and buy bonds directly. You pay no commission, no markup, and no annual fees. The Treasury keeps your bonds in an electronic account and handles all the paperwork. When a bond matures, the money goes back to your bank account automatically.
The catch is that TreasuryDirect bonds are meant to be held to maturity. If you need to sell before the bond matures, you can move it to the secondary market through a bank or broker, but you will pay a commission and may get less than you paid if interest rates have risen. You also cannot buy or sell bonds on weekends or federal holidays, and the website can be slow during high-traffic periods.
TreasuryDirect works best if you know you will not need the money until the bond matures and you want to avoid fees. The minimum is $100 per bond, and you can buy Treasury bills (4 weeks to 52 weeks), notes (2 to 10 years), bonds (20 to 30 years), and I Bonds (savings bonds with inflation protection). You set up an account online with your Social Security number and bank details.
Buying through a bank or brokerage
Banks and investment brokerages like Fidelity, Charles Schwab, E-Trade, and Vanguard all sell government bonds. You open an account, deposit money, and place an order just as you would for stocks. The brokerage buys the bond on the secondary market (from other investors or dealers) and charges you a commission, usually $1 to $10 per bond depending on the firm and the bond type.
The advantage is flexibility. You can sell the bond before maturity if you need the cash, though the price will fluctuate based on interest rates. You also get access to a wider range of bonds, including Treasury Inflation-Protected Securities (TIPS), which adjust for inflation, and older bonds that are no longer sold by TreasuryDirect. Many brokerages offer research tools and let you set up automatic reinvestment of interest payments.
The downside is cost. A $1,000 bond with a $5 commission costs you 0.5% right away. If you hold the bond for only a year or two, that commission eats into your return. Brokerages also require a minimum account balance, often $1,000 to $2,500, and some charge account maintenance fees if you do not meet that minimum. Compare commissions before you open an account, because they vary significantly between firms.
Bond mutual funds and exchange-traded funds
A bond mutual fund or bond ETF pools money from many investors and buys a basket of bonds. You own a share of the fund, not individual bonds. The fund manager buys and sells bonds constantly, reinvests interest payments, and handles all the administrative work. You simply buy shares of the fund through a brokerage or directly from the fund company.
The main advantage is simplicity and diversification. You do not have to pick individual bonds, time your purchases, or worry about what happens when a bond matures. The fund does all of that. You also own pieces of many bonds instead of betting on a single one. The downside is an annual expense ratio, typically 0.05% to 0.5% per year for government bond funds, which is deducted from your returns automatically.
Bond funds also fluctuate in price daily, unlike individual bonds held to maturity. If interest rates rise, the fund's share price falls because older bonds paying lower rates become less valuable. If you need to sell shares when rates are high, you lose money. However, if you hold the fund long-term and reinvest dividends, this volatility matters less. Most bond funds have a minimum investment of $1,000 to $3,000, though some allow lower amounts if you set up automatic monthly contributions.
Comparing costs across routes
| Route | Minimum Investment | Upfront Cost | Annual Cost | Can Sell Early |
|---|---|---|---|---|
| TreasuryDirect | $100 | None | None | Yes, but with commission on secondary market |
| Bank or Brokerage | $1,000–$2,500 | $1–$10 per bond | None (unless account fee) | Yes, anytime |
| Bond Mutual Fund | $1,000–$3,000 | None | 0.05%–0.5% of assets | Yes, anytime |
| Bond ETF | Price of one share (often $50–$100) | Brokerage commission | 0.03%–0.4% of assets | Yes, anytime |
The cheapest route for a buy-and-hold investor is TreasuryDirect, because there are no fees at all. If you have $10,000 to invest in a 10-year Treasury note and hold it to maturity, you pay nothing. Through a brokerage, you might pay $5 to $10 in commission. Through a fund, you pay 0.1% to 0.5% per year, which adds up to $10 to $50 over 10 years on a $10,000 investment.
However, if you think you might need to sell before maturity or want professional management, the extra cost may be worth it. A brokerage gives you the option to sell without penalty. A bond fund removes the need to research and pick individual bonds. The right choice depends on your timeline, how much money you have, and how much time you want to spend managing the investment.
Setting up a TreasuryDirect account
Go to treasurydirect.gov and click "Open an Account." You will need your Social Security number, email address, and a U.S. bank account. The site will ask you to create a login and password, then verify your identity by answering security questions based on your credit history. This process takes about 15 minutes.
Once your account is open, you link your bank account for deposits and withdrawals. You can then browse available bonds, choose the type and maturity you want, and enter the amount. The Treasury withdraws the money from your bank account and credits the bond to your account. You can buy bonds during the Treasury's auction schedule, which happens on a set calendar for each bond type.
Your bonds appear in your TreasuryDirect account as electronic records. You do not receive a paper certificate. When the bond matures, the principal and final interest payment are deposited directly into your linked bank account. If you want to sell before maturity, you move the bond to the secondary market through a broker, which involves a separate transaction and a commission.
What to know before you buy
Government bonds are considered very safe because they are backed by the U.S. government's ability to tax and print money. However, they are not risk-free. If you buy a long-term bond and interest rates rise, the bond's market value falls. If you need to sell before maturity, you will get less than you paid. This is called interest rate risk, and it affects all bonds equally, regardless of where you buy them.
Inflation also erodes returns. If you buy a 10-year Treasury note paying 4% and inflation averages 3%, your real return is only about 1%. Over 10 years, that matters. Some investors buy I Bonds or TIPS instead, which adjust for inflation, though they have their own trade-offs and restrictions.
Tax treatment varies by bond type. Interest from Treasury bonds is taxed at the federal level but not by most states, which makes them attractive to residents of high-tax states. However, you still owe federal tax on the interest each year, even if you do not receive the money until the bond matures. Keep records of your purchases and interest payments for tax time.
Frequently Asked Questions
Can I buy government bonds through my retirement account?
Yes. If you have an IRA or 401(k), you can buy individual Treasury bonds or bond funds through the brokerage that holds your account. Interest and gains inside a retirement account are not taxed until you withdraw the money, which can make bonds more attractive in a retirement account than in a regular taxable account.
What is the difference between a Treasury bill, note, and bond?
They are all government debt, but they mature at different times. Treasury bills mature in less than a year, notes mature in 2 to 10 years, and bonds mature in 20 to 30 years. Longer-term bonds usually pay higher interest rates because you are lending the money for longer. All three are available through TreasuryDirect and brokerages.
If I buy a bond through a brokerage, do I have to hold it until maturity?
No. You can sell a bond through a brokerage anytime the market is open. The price you get depends on current interest rates and the bond's credit quality. If rates have risen since you bought it, you will get less than you paid. If rates have fallen, you will get more. This is why bonds bought through brokerages are more flexible but also more volatile than bonds held to maturity.
Are bond ETFs better than bond mutual funds?
Bond ETFs typically have lower expense ratios (0.03% to 0.2%) than bond mutual funds (0.1% to 0.5%), but you pay a brokerage commission to buy or sell ETF shares. Bond mutual funds have no trading commission but higher annual fees. For long-term investors, ETFs usually cost less. For investors making small regular contributions, mutual funds may be simpler.
What happens if I need to sell my TreasuryDirect bond early?
You can move the bond to the secondary market through a bank or broker and sell it there. You will pay a commission and receive whatever the current market price is. If interest rates have risen, the price will be lower than what you paid. There is no early withdrawal penalty like with savings bonds, but you do absorb the market loss.