Short-term Treasury securities available for as little as $1,000

Staying Ahead

August 31, 1998|By Jane Bryant Quinn

WORRIED about stocks? Have some money you'd like to keep absolutely safe? The federal government has just provided small savers with another choice.

You can now buy short-term and intermediate-term Treasury securities for as little as $1,000. Formerly, you needed $5,000 or $10,000 to play.

Longer-term securities -- maturing in five years and up -- were already available for $1,000. But savers don't always want to lock up their money for that long a time. Now, you can use Treasuries for your shorter-term savings, too.

That is, if you want to. The interest rate on Treasuries is generally similar to what you can earn on comparable bank certificates of deposit. Most banks pay a little bit less on small CDs; a handful pay a little bit more.

Treasuries have an edge in any state that levies its own income tax. Interest on bank CDs is fully taxable. Interest on Treasuries is exempt from state and local tax. You owe only a federal tax.

Nevertheless, the difference between what you earn in Treasuries and CDs is pretty small, in dollar terms, on a $1,000 account. When talking about a safe place for modest cash savings, convenience is the thing you'll want to consider first.

The best way to buy Treasury securities is to open a Treasury Direct account. You can do it by calling or visiting any Federal Reserve bank or branch (check the phone book under "Government Listings" or try the information operator in the nearest major city).

You can also call the automated answering system at the Bureau of the Public Debt at 202-874-4000 (punch 1, then 241 for the documents you need to open an account). Or download the documents from the Internet at

There are no fees for opening this account. When you buy securities, no commissions are charged.

Once you've opened a Treasury Direct account, you'll get a "tender" form. You can use it to order any type of Treasury. There are Treasury bills, maturing in three, six or 12 months; Treasury end notes, maturing in up to 10 years; and Treasury bonds, with longer maturities. These securities all have fixed interest rates.

There are also inflation-indexed Treasuries, maturing in five, 10 and 30 years. These pay a fixed interest rate plus an inflation adjustment, so your real return is guaranteed even if inflation climbs.

Starting on Sept. 16, savers with Direct accounts will be able to buy Treasuries over the Internet, at the Web address given above. In late October, you'll also be able to buy by phone (at 800-943-6864).

For easy payment, you can authorize the Treasury to deduct the cost of your investment from your account at a bank, brokerage firm or mutual fund (although at some mutual funds and brokerage firms, it can't be done). The Treasury charges no fee for this electronic debit, but some financial institutions do.

Investors who don't pay electronically have to mail the Treasury a certified or cashier's check with their order.

Last week, one-year Treasuries were yielding 5.3 percent. At the same time, the average one-year bank certificate of deposit was yielding 4.99 percent, according to the Bank Rate Monitor in North Palm Beach, Fla.

On small deposits, minor interest-rate differences like these don't add up to much. On a one-year, $1,000 investment, the Treasury bill would net you an extra $3.10, pretax, over the CD. That's about 26 cents a month.

One alternative to consider: a CD at a bank that pays an above-average interest rate. You'll find a list free on the Net at Check for "100 Highest Yields."

High-yielding CDs usually require higher minimum deposits than regular CDs -- often in the $5,000 to $10,000 range. For that, you can get 6 percent on a one-year CD and slightly more for longer terms.

Smaller depositors can get those rates at banks that sell primarily on the Internet -- say, Atlanta Internet Bank, at this writing paying 6 percent yields on one- and 2.5-year CDs, with a $2,000 minimum deposit ( The banks are federally insured.

If you're banking by mail, there's TeleBank (800-TELEBANK) -- yielding 5.85 percent for a one-year CD, $1,000 minimum; or Medford Bank (888-MEDFORD), 5.75 percent for a 2.5-year CD, $1,000 minimum. The more money you have, the more these higher yields are worth the search.

Washington Post Writers Group

Pub Date: 8/31/98

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