Treasury bonds are debt issued by the U.S. Department of the Treasury, and you buy them directly from the government at auction or through a bank or brokerage
A Treasury bond is a loan you make to the federal government. You give the Treasury money now, they pay you interest over time, and they return your principal at maturity. Unlike stocks, bonds have a fixed return and a may provide end date. The government backs them, so the credit risk is essentially zero — but the trade-off is lower returns than you might get from other investments.
Homeowners often consider Treasuries because they're stable and don't require picking individual companies. The catch is that interest rates matter: if rates rise after you buy, your bond's value falls (though you still get your full principal back if you hold to maturity). If you need the money before maturity and rates have risen, you'll take a loss selling on the secondary market.
Key Takeaways
- You can buy Treasury bonds directly from TreasuryDirect.gov with no fees, or through a bank or brokerage for convenience.
- Treasury bonds mature in 20 or 30 years, while Treasury notes mature in 2 to 10 years and Treasury bills in less than a year — choose based on how long you can lock up the money.
- You bid a price at auction, and the Treasury sets the interest rate; if you want to buy between auctions, you'll pay a markup through a secondary market.
- Holding Treasuries to maturity means you get your full principal back regardless of interest rate changes, but selling early can result in a loss if rates have risen.
The three ways to buy Treasury bonds
TreasuryDirect is the government's own platform. You create an account at TreasuryDirect.gov, link a bank account, and bid on bonds at auction. There are no fees. Auctions happen on a set schedule — for example, 30-year bonds auction every February, May, August, and November. You bid a price (or bid "noncompetitively" to accept whatever rate the auction sets), and if you win, the Treasury withdraws the money from your bank account and holds the bond in an electronic account.
A bank or brokerage like Fidelity, Vanguard, or your local bank will also sell you Treasuries. They charge a small fee or markup, but you don't have to wait for an auction — you can buy any business day. This is more convenient if you want to buy between auction dates or if you prefer a single account for all your investments.
The secondary market is where existing bonds trade between investors. If you want a specific bond that's already been issued, you buy it from another investor through a broker. Prices fluctuate based on interest rates. This route is less common for first-time buyers because prices can be hard to compare and you're paying a markup.
Understanding maturity dates and interest rates
Treasury bonds come in three flavors based on how long until the government pays you back. Treasury bills mature in less than a year. Treasury notes mature in 2 to 10 years. Treasury bonds mature in 20 or 30 years. The longer the maturity, the higher the interest rate the government offers — because you're lending money for longer and accepting more risk that inflation will erode its value.
When you buy at auction, you don't know the interest rate in advance. The Treasury sets it based on what investors bid. If you bid competitively, you're saying "I'll pay up to this price," and if your bid wins, you pay that price and receive whatever interest rate results. If you bid noncompetitively, you accept whatever rate the auction produces. Most individual investors bid noncompetitively because it's simpler.
Once you own the bond, the interest rate is locked in. If market rates rise, your bond's value falls (because new bonds pay more). If you hold to maturity, you get your full principal back and all the interest you were promised. If you sell early, you take whatever price the market offers, which could be less than you paid.
How much money you need and what it costs
The minimum purchase is $100 at TreasuryDirect, and you can buy in $100 increments up to $5 million per auction. Most brokerages have similar minimums. There are no ongoing fees at TreasuryDirect. If you buy through a bank or brokerage, you'll pay a one-time fee or markup, typically $25 to $50 or a small percentage of the purchase price — ask before you buy.
Interest is paid twice a year directly to your bank account. For a 30-year bond paying 4%, a $10,000 bond would pay you $200 every six months. When the bond matures, the Treasury deposits your $10,000 principal plus the final interest payment.
Tax treatment of Treasury interest
Interest from Treasury bonds is subject to federal income tax but exempt from state and local income tax. This makes Treasuries slightly more attractive if you live in a high-tax state, because you avoid state tax on the interest. However, you still owe federal tax on it, so Treasuries are not a tax shelter.
If you hold the bond in a tax-advantaged account like an IRA or 401(k), the tax on interest is deferred or eliminated depending on the account type. Many homeowners buy Treasuries inside retirement accounts for this reason.
What happens if you need the money before maturity
You can sell a Treasury bond before it matures through a broker or your bank. The price you receive depends on current interest rates. If rates have risen since you bought, your bond is worth less (because new bonds pay more interest). If rates have fallen, your bond is worth more. The difference can be significant — a 30-year bond is especially sensitive to rate changes.
For example, if you bought a 30-year bond at 4% and rates rise to 5%, you'd have to sell at a discount to find a buyer. The exact loss depends on how much rates moved and how much time is left until maturity. This is why Treasuries are best suited to money you won't need for years.
Treasuries versus other homeowner investments
Treasuries are safer than stocks or corporate bonds because the U.S. government backs them. You know exactly what you'll earn if you hold to maturity. The trade-off is lower returns — current Treasury rates are typically lower than stock market returns over long periods, though they're higher than savings accounts.
If you have an emergency fund, a high-yield savings account often makes more sense because you can access the money instantly. If you have money you won't need for 5 to 10 years and want predictable income, Treasury notes might fit. If you're in retirement and want steady income with minimal risk, Treasury bonds can be part of a balanced portfolio.
Frequently Asked Questions
Can I buy Treasury bonds if I'm not a U.S. citizen?
You need a Social Security number or Individual Taxpayer Identification Number to open a TreasuryDirect account. Non-citizens with an ITIN can buy Treasuries. Check TreasuryDirect.gov for current requirements, as rules can change.
What's the difference between buying at auction and buying on the secondary market?
At auction, you bid a price and the Treasury sets the interest rate. On the secondary market, the interest rate is already set and the price fluctuates. Auctions happen on a schedule; secondary market purchases happen any business day. Auctions have no fees; secondary purchases include a markup.
If I buy a Treasury bond and rates fall, can I sell it for a profit?
Yes. If interest rates fall after you buy, your bond becomes more valuable because it pays more interest than new bonds. You can sell it on the secondary market for more than you paid. The longer the maturity, the bigger the price swing when rates change.
Do I have to hold a Treasury bond until maturity?
No. You can sell any time through a broker or bank. If you sell before maturity, you get whatever the market price is at that moment. If rates have risen, you'll take a loss. If rates have fallen, you'll make a gain.
Are Treasury bonds a good investment for a down payment fund?
No. If you need the money in less than five years, Treasuries are risky because rising rates could force you to sell at a loss. Use a savings account or money market fund for money you'll need soon. Treasuries work better for money you won't touch for a decade or more.