Short-term Discount Securities
Treasury bills at issue are available with terms of four, 13, 26 and 52 weeks. Bills do not pay interest, but instead are purchased at a discount to the face value. For example, you would pay $99,000 for a $100,000 26-week T-bill, for a yield of 2 percent annually. You earn the $1,000 discount as the interest for owning the bill with its half-year term. Treasury bills are marketable securities, which means you can buy existing bills in the secondary market or sell a bill you own before it matures.
Buy Direct and TreasuryDirect.gov
Set up an account on the TreasuryDirect.gov website and you can purchase Treasury bills through an auction process and earn the yields determined through the auction. As an individual investor, you order bills with a "non-competitive" bid to earn the average of the winning yields set by competitive bids entered by large financial institutions bidding millions of dollars. A TreasuryDirect account will be linked to a bank account. When you purchase bills, the cost will be drawn from the linked bank account. The proceeds from matured Treasury securities get deposited in the account. Through TreasuryDirect, you can only buy when bills are auctioned and you must keep them until they mature.
A Brokerage Account Gives Flexibility
You can buy Treasury bills through any brokerage investment account. The broker will submit orders for the auction or buy bills for you in the secondary market. Brokers typically earn fees by marking up the price when you buy or sell. In the example, if you buy the $100,000 T-bill through a broker, you may be charged $99,025, with the broker adding the $25 as a mark-up. If you sell a bill, you will receive slightly less than the amount the broker receives in the secondary market. Through a broker you can buy bills maturing in almost any week over the next year.
Check With Your Banks
Some banks offer Treasury security purchase services. Its most likely that a bank will handle orders to buy at the Treasury's auction. You will then keep the bills until maturity. Check with your bank to see if you can buy Treasury securities through your local branch. Ask if the bank only handles auction purchases or will also buy buy and sell Treasuries in the secondary market.