Newspaper article St Louis Post-Dispatch (MO)

Treasuries What They Are, How to Buy Them, Why They Can Be a Good Deal

Newspaper article St Louis Post-Dispatch (MO)

Treasuries What They Are, How to Buy Them, Why They Can Be a Good Deal

Article excerpt

Savers of the world, you have nothing to lose but low yields.

Treasury securities - those ultrasafe, relatively liquid havens for your cash - once again have the edge over savings accounts and certificates of deposit.

Bank rates have been so slow to rise, in fact, that investors can get 35 percent to 40 percent higher returns by buying government securities with similar maturities.

For example: A six-month CD recently paid an average annual return of 3.32 percent. A six-month Treasury bill, meanwhile, yielded 4.61 percent. On a $10,000 investment, that could mean an extra $64.50 in your pocket.

There are three ways to buy government securities: from a bank, from a brokerage or directly from the government.

Buying through a bank or brokerage is simpler; it also allows you to shop for older securities that may pay slightly higher rates.

Buying from the government involves some footwork but saves you the $25 to $50 fee that commercial institutions charge.

On smaller denominations and for shorter maturities, that fee can eat up most of your gain: A $10,000 three-month T-bill now earns $28 more than a similar certificate of deposit, so the $39 fee charged by discount brokerage Charles Schwab would put you behind $11.

There are three types of Treasury securities:

Bills, which have a $10,000 minimum and are issued in three-month, six-month and one-year maturities.

Notes, with a $5,000 minimum and two- to 10-year maturities.

And bonds, which start at $1,000 and last from 10 to 30 years.

Treasuries are sold at regularly scheduled auctions, which are announced in newspaper business pages.

Three-month and six-month T-bills are sold most Mondays, while one-year bills are sold every fourth Monday.

A guide on how to buy Treasuries directly appears elsewhere on this page.

If you're buying a Treasury bill, the Treasury will send you a refund check after the auction; the amount is known as the discount.

If the average yield on a one-year bill is set at 5.26 percent, for example, the Treasury will send you a check for $500. The $500 represents a 5.26 percent return on your effective purchase price: $9,500. …

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