How to Purchase Government Bonds
Financial services experts have long pointed to government bonds as a smart way to diversify your investment portfolio. While the return rates are lower than what you might find with higher-risk investments, government bonds offer guaranteed returns and make for a smart, secure choice.
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Things You'll Need
- Capital
- Investment broker, bond dealer or financial services professional (optional)
Instructions
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Buy Government Bonds
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Understand the difference between a competitive bid and a non-competitive bid. A competitive bid declares that you will only accept a bond guaranteeing a yield at a predetermined threshold. Competitive bids are slightly less secure, but tend to yield a higher return. However, they can only be placed through a third party, such as a bank, bond dealer or broker.
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Know that a non-competitive bid means you will accept whatever interest yield is attached to your bonds at the moment of sale. If you want to purchase your government bonds directly, you will have to submit a non-competitive bid.
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Submit a non-competitive bid directly at the U.S. government's Treasury Direct website (see Resources below). While you can also use a bank, dealer or broker to make a non-competitive bid, you will save commission fees if you do it yourself. Remember that commission fees can add up if you are making a big investment.
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Open an account with a full-service or discount brokerage, and purchase your government bonds through them. While you will pay fees, you may get a better interest rate in return. Keep in mind that many brokerages require a minimum bond investment, generally in the range of $5,000.
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Purchase shares in a mutual fund that specializes in bond investment if you are unable to afford the minimum commitment required by a discount or full-service brokerage. While mutual funds, by their very nature, are less secure than government bonds, you stand a good chance of enjoying similar returns if you choose your mutual fund wisely with the help of a financial services professional.
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Tips & Warnings
Deal with your usual financial institution if you want to submit a competitive bid for government bonds. They will charge a commission, but it is more likely to be reasonable than what you'll find as a new customer somewhere else.
Beware of brokers who tell you that they don't charge a commission fee for purchasing your government bonds. Instead, they just mark up going market rates. Protect yourself by knowing what rate current quotes are at and evaluating your broker's mark-up against it.
