Treasury Bonds

There are several ways you might consider saving for your college education.  There are a variety of student loan programs, including the Stafford and PLUS loan programs.  However, there are other means of saving for college, especially if you have some time on your hands.  Treasury bonds might be a good option.  Treasury bonds are sold by banks, brokers and dealers.  Keep reading to learn more about how they work.

Two Types of Bids

Treasury bonds are a little different than your regular savings bonds.  The price and yield for treasury bonds are determined at auction.  The price may be greater than, less than, or equal to the face value of the bond.

Two types of bids are accepted at auction:

  • Noncompetitive bids: You agree to accept the interest rate determined at auction.  With this type of bid, you are pretty much guaranteed to receive the bond that you want and in the full amount that you want.
  • Competitive bids: You specify the yield you are willing to accept.  However, your bid may be:
    • accepted in the full amount you want if your bid is equal to or less than the yield determined at auction
    • accepted in less than the full amount you want if your bid is equal to the high yield, or
    • rejected if the yield you specify is higher than the yield set at auction

Formats for Bonds

Treasury bonds exist in two formats.  Older bonds are usually in paper format.  But today, they can exist in electronic format, too.  Paper bonds can now be converted to electronic bonds, making things a lot easier to manage.

Converting Paper Treasury Bonds to Electronic Form

If you hold paper treasury bonds, you might consider converting them to electronic form to manage them better.  It’s a pretty simple process and Treasury Direct walks you through the process step-by-step.

  1. Take a look at your treasury bond.   Complete the assignment on the back of each bond by writing in "To the Secretary of the Treasury for conversion and deposit into Legacy Treasury Direct."
  2. The account number in the assignment on the back of each bond if you're transferring into an existing account in Legacy Treasury Direct.  If you don’t already have an account, you can complete a form online to open your account.
  3. Have everyone who owns the bonds to sign the bonds in the presence of a certifying individual of a financial institution.  By the way, a notary public is not an acceptable certifying individual, so go to your bank.
  4. Submit your bonds to the customer services department of Treasury Direct.

Points to Remember About Treasury Bonds

  • The yield on a treasury bond is determined at auction.
  • The term for treasury bonds is 30 years.
  • Bonds are auctioned four times each year in February, May, August, and November.
  • Bonds are no longer sold in paper form, but only in electronic form.  However, if you hold older, paper bonds you can easily convert them to electronic form.
  • Bonds are sold in increments of $1,000 and the minimum purchase amount is $1,000.
  • You can hold your treasury bond until it matures or you can sell if before maturity.