Buying and selling Treasuries becomes cheaper and easier

Staying Ahead

October 06, 1997|By Jane Bryant Quinn | Jane Bryant Quinn,Washington Post Writers Group

IF YOU buy Treasury securities, it just got easier. You now have many more options when you invest through the government program called Treasury Direct.

The changes may save you money and will definitely make it easier to buy, sell and reinvest.

Under Treasury Direct, you purchase securities through the Federal Reserve. You pay no fees or commissions, as you would if you bought through a stockbroker or bank.

Here's how the system works:

To buy Treasuries. There's now a single "tender" form to fill in, for all types of Treasury securities -- bills, notes and bonds. Formerly, you needed a separate form for each type.

When you mail in the tender form, you can also authorize the Treasury to deduct the cost of the investment from your account at a bank, brokerage firm or mutual fund. The debit is made on the day your security is issued, so your savings will earn interest without interruption.

Formerly, you had to send in a certified or cashier's check with your order -- which is still OK, if you prefer it. But the new system saves you a trip to the bank as well as several days of lost interest earnings.

The Treasury charges no fees for this electronic debit, but some financial institutions do, so check it out. Also check to be sure that your designated account can be debited electronically.

Your interest earnings are paid directly into your account. Ditto your principal, when your securities mature.

To roll over your investment. You can now reinvest automatically, by Touch-Tone phone. You'll get a reinvestment notice in the mail, and can enter your order any time of the day or night.

To use this service, you have to reinvest in the same kind of security -- bill, note or bond -- and roll over the full amount.

Without a Touch-Tone phone, you can reinvest only the old way: by prearranging rollovers of Treasury bills. Your notes and bonds will be paid at maturity to your account. To reinvest, you'll have to start again from scratch.

To redeem Treasuries at maturity. No change. If the Treasury gets no instructions on reinvestment, the proceeds automatically will be forwarded to your account.

To sell Treasury securities prior to maturity. You mail a form (with a certified signature) to the Chicago Federal Reserve Bank. The Chicago Fed will get you three price quotes from dealers and accept the highest one. Within two business days, the proceeds should be forwarded to your account.

This is the only time that you'll be charged a fee. You pay a flat $34 for every security sold. Treasury Undersecretary John D. Hawke Jr. says the Fed isn't making money on the transaction, just covering its costs.

Formerly, investors who wanted to sell before maturity had to transfer the security to a bank or stockbroker. Banks and brokers charge anywhere from $15 to $60 for the service, so whether you save money by selling through the Fed depends on what your options are.

You'll still want to deal with a bank or broker if you speculate in Treasuries. Speculators buy bonds in hopes that interest rates will fall, in which case they'll be able to sell at a profit.

Banks and brokers let you place orders by telephone and give you immediate buy-and-sell service. They also lend money against your securities, which raises the sum you have available to invest.

It makes no sense at all, however, to use brokerage firms for small orders of short-term Treasury securities. The cost of buying might slash your yield by half a percent on a one-year, $10,000 Treasury bill.

On larger purchases or longer-term securities, however, brokerage fees don't take such a big bite.

If you're interested in Treasury Direct, you can write to the nearest Federal Reserve Bank for a packet of information, call the automated public-information number at the Bureau of the Public Debt at 202-874-4000 or dial up Treasury Direct on

You can also use that Web site to download tender forms and the form for selling Treasuries prior to maturity. Or ask the Fed for these forms by mail.

When you open a Treasury Direct account, you'll be asked for your bank's nine-digit American Bankers Association Routing Transit Number. That's the number on the bottom of any check or deposit slip.

Pub Date: 10/06/97

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