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How To Invest in Treasury Notes

Treasury notes are considered safe investments, as they are a United States debt security. If one is looking to generate a fixed interest rate without increasing their risk exposure, a treasury note, or t-note, may be the right investment choice for you.

If you want to learn more about treasury notes, and how to invest in one, this is the perfect article for you. 

What Are Treasury Notes?

First and foremost, a treasury note is a debt security issued by the United States government. This debt security has a maturity date between two and ten years, and pays a fixed interest rate.

Interest is paid every 6 months, and once the note matures, the face value is paid back in full. 

How Do Treasury Notes Work?

Those who invest in treasury notes provide the United States government with capital to run and fund the Federal Government. The Federal Government promises to pay the investor a fixed interest rate every 6 months, and will pay back the principal investment amount upon maturity. 

Are Treasury Notes a Good Investment?

Understanding if a treasury note is a good investment or not takes a bit of nuance and unpacking. Depending on the investors goals, a treasury note may be a horrible, or terrific, investment option. 

If an investor is looking to generate a great return, a treasury note is likely not the investing route they’re looking for. The interest rate is not great, and higher interest rates exist in different investment vehicles – including dividend paying blue chip companies. 

With that said, a treasury note is a good investment option for those who are not looking to increase their risk exposure. A treasury note is issued by the United States government, and the chance of the note defaulting is slim to none.

However, the low risk naturally comes with a lower rate of return. But, the upside to this is that the interest expense is fixed and you’ll receive payments every 6 months.

This can be a great option for retirement plans, or even used as an alternative to sitting on a lot of cash. 

How Much Does a Treasury Note Cost?

The cost of a treasury note is contingent on the current discount from par amount. Generally speaking, treasury notes sell in $100 increments. 

How Do Treasury Notes Pay Out?

So, how does one make money from investing in a treasury note?

The Federal Government controls the interest rate treasury notes pay. This interest rate can change month over month, although it usually just moves by a few basis points during stable economic times. 

The interest, our coupon rate, is paid every 6 months. Investors can expect to receive the principal value, or face value, back upon note maturity. 

Difference Between Treasury Bills, Bonds, & Notes

The main difference between a treasury bill, bond, or note, is the time duration. 

  • Treasury bills are debt instruments that mature within 12 months. 
  • A treasury note matures within 2 to 10 years. 
  • A treasury bond has maturity between 10 and 30 years. 

3 Simple Steps to Investing in Treasury Notes

Investing in treasury notes certainly has an important role in many portfolios. If you’re looking to start investing in treasury notes, the following 3 simple steps will help you start out on the right foot. 

Open a Brokerage Account & Set Up an Account

The first step you’ll need to take is determine which brokerage you want to use. There are numerous brokerage choices today, here are some of the most popular ones. 

TreasuryDirect

TreasuryDirect is an U.S. government run website that allows investors to invest in treasury bills, notes, and bonds. 

Advantages include:

  • It’s a website run by the government with security as a top priority. 
  • The site also provides a lot of educational information to investors. 

Disadvantages include:

  • The platform/website is limiting. It allows investors to invest in notes, bonds, and treasury bills, but it does not allow investors to invest in any other investment vehicle. 

Vanguard Brokerage 

Vanguard is a very popular and respectable investing company which has been in existence since 1975. 

Advantages of the Vanguard Brokerage include:

  • There is a large mutual fund selection.
  • Low costs! Investors can enjoy commission-free stock and options traders. 

Disadvantages include

  • Overall, the Vanguard platform is very basic. Higher level traders and investors will find the platform to be limiting in the amount of tools the platform provides, and the analysis that can done. 

Fidelity

Fidelity Investment Inc. is a massive brokerage firm with over $10 trillion in assets under management. 

Advantages include:

  • The fee structure is on the lower end. 
  • Fidelity does provide quite a bit of education material.
  • Fidelity also provides a trading platform for those interested in technical analysis and short term investments or trades.

Disadvantages include:

  • Customers have complained about the customer service, and how long it takes to reach someone on live chat. 
  • Many mutual funds come with greater fees and margin rates. 

Charles Schwab

Charles Schwab is another well known and respected brokerage, with over $3 trillion in assets under management. 

Advantages include:

  • As a smaller company, Charles Schwab prides itself on outstanding customer service. 
  • Investors can trade stocks and ETFs without paying a commission.

Disadvantages include:

  • Charles Schwab only provides access to the US and Canadian markets. 
  • Some mutual funds come with a high transaction fee. 

Deposit Your Funds

Once you’ve identified which brokerage is best suited for you and your investing/trading needs, it’s time to deposit funds. Some brokerage firms require a minimum deposit to get the account set up. 

You can deposit money via a checking account and routing number, and generally speaking, this is pretty easy to do. There will likely be a 48-72 hour ‘clearing’ period, or waiting period for your funds to fully arrive in the brokerage account. 

Purchase It!

Now that your funds have cleared, you can begin purchasing stocks, options, treasury notes, mutual funds, or ETFs. Be sure to fully understand exactly what you are investing in, and the risks this investment provides, before executing the trade. 

Educate Yourself Before Investing

The world of investing is a complicated one. There are numerous variables that must be taken into consideration. Such variables include; your risk tolerance, what investment vehicles align with your goals, your expectations, your investing timeline, and your current income and debt levels. 

Before you can make a right investment decision, all of these variables must be taken into consideration. Beyond that, you must educate yourself on the numerous investment options available.

Treasury notes are certainly one route you can take, but it may not be the right route depending on your goals. Stocks can provide the opportunity to earn more money, but that opportunity comes at greater risk. 

Uncertain Where to Begin?

If you find the above variables overwhelming, it may be in your best interest to work with a financial advisor. The right financial advisor can make sense of the complicated investing world, and will take all of these variables into consideration when helping you select the right investment vehicles for you and your goals.

Not only can financial advisors help manage your risk and identify great investing opportunities, they can also save you a great deal of time and energy. Learning to invest is similar to learning a trade.

It takes time, patience, failure, mentorship, and commitment, to improve.