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• Stephen Cooper

Treasury Bonds

Treasury bonds. Information on investing in treasury bonds.

Since their creation in the US during the early 20th century, bonds have been relied upon to be a secure way in which people can save their money. Bonds are able to ride the tides of a rapidly fluctuating financial market. Treasury bonds are only one example of the types of bonds available. Like all bonds, treasury bonds are guaranteed by the federal government, so any money used to buy them is assured to be returned. Furthermore, treasury bonds are exempt from state and local taxes; however, federal taxes will be deducted from any interest monies earned. But, not all bonds are created equal. Treasury bonds, which have been one of the most prominent players in the bond market, have some legitimate concerns that should be thought about before investing in them.

The major concern that most people have with treasury bonds, also known as T-bonds or "long bonds", is that their maturity dates are long-term. The minimum time in which a treasury bond can mature is ten years. Many treasury bonds, though, don't mature for up to 30 years! Interest is paid on the "loan" every six months, but this is still a long time for money to be sitting in an account.

But, some may ask, "What's the rush? Shouldn't investment be about the long term?" In general, this is true. However, treasury bonds may not be a good investment option for certain people who may only want to invest for a short term (less than five years). Additionally, treasury bonds may be guaranteed by the government, however, there is no assurance that the interest income will pay off well. Treasury bond interest rates do not bounce wildly as other markets do, but they are affected when inflation occurs. The interest rate of treasury bonds falls as interest rates and inflation rises. The longer money sits in an account like treasury bonds, the larger the risk for lower interest income returns.

Treasury bonds are not necessarily a bad investment choice, but think carefully about the timing of when the invested money needs to be obtained, as well as the overall benefits of low risk, long term investment.