What Are Treasury Bonds?

By | September 5, 2013

US Treasury Bond - 3D Illustration

If you have ever wondered about what treasury bonds are then this should give you the basic information that you might need. A treasury bond is issued by the US government and they can be purchased through a bank, broker or direct through the government.

Risk

They are a low risk option and a great option to have in any portfolio. The great thing about them being low risk and issued by the government means that at the maturity date you will be paid the face value of the bond. Up until this date every six months you will be paid an interest payment, the amount will be stated in the original agreement at the time of purchase.

Length

The length of time that a treasury bond is issued is thirty years, you might think this is a long time before getting your capital back but if circumstances change you can sell them before this time. It is also possible to buy them at the shortened date and this might give a quicker return than what you might get by buying new.

Price

You can purchase a treasury bond in multiples of $100, and it is a safe bet that if you need to find capital that you can re-sell the bond, but you do have to keep the bond for a minimum of 45 days. With the interest payments every 6 months this gives you the added bonus of a guaranteed income twice per year. This interest is not subjected state or local tax but you will have to declare it for federal income tax purposes. It is important that you do make sure that you are keeping up to date with your taxes and your portfolio because this can be the downfall of any portfolio. Any profit that you make and remove from your portfolio might be subjected to some form of tax, check your local tax office for further details.

Electronic

There are no longer any paper bonds issued they are all issued electronically and they are normally held electronically too. This saves time, bonds do not need to be printed and posted out to their owners. Also with change of ownership this can be time consuming if you are waiting for the post to bring an expected bond. Electronic bonds are easy to use and to transfer and it can be very quickly achieved with the many different online portfolio options that are available.

There are still some paper bonds in circulation, so do not worry if you are in possession of one of these, it is still valid. It will be valid until the day that it matures when you will receive the face value of the bond. It is therefore still possible to purchase a bond that was issued before it went electronic and therefore this too might turn up in the post rather than being deposited in your electric portfolio.

So, a treasury bond is a bond that is low risk and can be bought and sold during the 30 year term, with interest paid twice a year.

 

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