How to Buy Government Bonds

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Contributor, Benzinga
November 30, 2022

Whether new to investing or a seasoned investor, you might want to consider buying government bonds. Backed by the U.S. government, you can invest in bonds with low risk and receive periodic payments throughout the bond's term. Government bonds offer versatility with different maturities and interest rates. Whether you want to diversify your portfolio or add a steady income stream, Benzinga walks you through how to buy government bonds.

What Are Government Bonds?

Government bonds are used for debt financing to raise money for day-to-day spending or raise funds for special projects. When you buy government bonds, you are, in essence, lending money to the government with the expectation that you receive periodic interest payments during the life of the bond. When the bond matures, you are paid its face value.

Investors may purchase government bonds at a discount and receive the face value upon expiration. Or you may buy the bond at its face value and receive periodic interest payments over its life.

Government bonds are low-risk investments backed by the U.S. government. They offer a steady stream of periodic interest payments. But as a trade-off for taking on less risk, you may get a lower return than if you were to invest in stock or other securities.

How to Buy Government Bonds

You can purchase government bonds from the U.S. Treasury through TreasuryDirect. Multiple bond options are offered with varying maturities and interest rates, including savings bonds and Treasury marketable securities.

Savings bonds are considered non-marketable. You only purchase these bonds from the government, and you cannot sell them to another investor. U.S. savings bonds are sold at a discount. While you won’t receive periodic payments, you are paid the bond's full value when it matures.

You can buy Series EE or Series I U.S. Savings Bonds online in a few steps;

1.   Open an account with TreasuryDirect.

2.   Once you set up your TreasuryDirect account, you can log in and select BuyDirect.

3.    Choose the type of bonds you want to invest in.

4.    Fill out any remaining information.

You may purchase U.S. Savings Bonds through TreasuryDirect when you set up a Payroll Savings Plan. Here, you decide which type of bond you want to invest in and for how much. Your employer withholds money out of your paycheck and sends in your funds. TreasuryDirect holds your money aside until your balance is large enough to purchase the bond of your choice.

You can also buy Treasury marketable securities through TreasuryDirect. These securities include Treasury bonds, bills, notes, inflation-protected securities (TIPS) and floating rate notes (FRNs). Securities range in length and rates and can be sold or transferred before they mature. 

Treasury marketable securities are sold through an auction. To buy Treasury marketable securities, you can place a non-competitive bid through TreasuryDirect. With a non-competitive bid, you are guaranteed to get the security and amount you want if you agree to accept the discount rate or yield determined in the auction. Just log in to your TreasuryDirect account and follow the same steps above to buy.

If you do not want to buy government bonds directly, you can also place bids to purchase them through an online broker or bank. When you buy bonds through a brokerage or bank, you are purchasing bonds on a secondary market. These bonds are held by other investors who want to sell.

You can place either a non-competitive or competitive bid when you go through a broker or bank. When you bid competitively, you specify the discount rate and yield you want. Unlike a non-competitive bid, you are not guaranteed to get the security or the amount that you want when bidding competitively.  

Where to Buy Bonds

Here are some other brokerages where you can buy bonds online.

Why Buy Government Bonds?

Government bonds are a safe way to invest money and generate a return. You might consider purchasing government bonds if you are looking for:

A steady stream of income: If you want a predictable income stream, government bonds typically pay out interest. Payments are usually made on a semi-annual basis. However, they can be issued monthly or quarterly, depending on the terms of the bond.

Minimal default risk: Unlike stocks and other securities, there is little chance of losing your initial investment — your principal — in government bonds. Government bonds are debt obligations backed by the U.S. government. Since the U.S. government has the financial means to repay its debts, government bonds carry little risk of default.

Exempt from state and local taxes: The interest payments you receive from U.S. Treasury bonds are subject to federal income tax but are exempt from state and local taxes.

Minimal investment: You can buy government bonds directly in denominations as low as $50.

Diversify your portfolio: Market fluctuations, competition and changing consumer preferences can make investing in stocks and other securities risky. By adding government bonds to your portfolio, you may be able to offset some of this volatility. 

Things to Consider With Government Bonds

While government bonds offer security and a steady income stream, there are some minimal risks to consider before you invest.

Low rate of return: Government bonds are essentially risk-free investments as they receive the full backing of the U.S. government. But since your risk of loss is minimal, you receive a lower rate of return than if you invested in stocks or securities.

Risk of inflation: Bonds pay a fixed interest rate until they mature. During inflationary times, rising costs can eat into your fixed income stream's purchasing power.

Interest rate risk: Most government bonds have fixed interest rates. As interest rates rise, investors may find that holding fixed-rate bonds generates less of a return than if they invested their funds elsewhere. 

Frequently Asked Questions


What is the best way to buy government bonds?


The best way to buy government bonds is directly from the U.S. Treasury through TreasuryDirect


Can I buy government bonds at the bank?


You can buy government bonds at the bank. While you must buy Series E.E. and Series I savings bonds through TreasuryDirect, you can purchase treasury bonds, bills and notes through your bank.