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Why You Should Consider Treasury Securities for Your Portfolio

Individual investors may choose from a variety of Treasury securities: Treasury bills, notes, and bonds, Floating Rate Notes (FRNs), Treasury Inflation-Protected securities (TIPS), and U.S. Savings Bonds. Although each has its own features, advantages, and interest formulas, all share one important quality for anyone wanting a diversified portfolio — Treasury securities are safe and secure, backed by the full faith and credit of the United States government.

Benefits of Treasury Bills, Notes, Bonds, FRNs, and TIPS

Investors can purchase Treasury bills, notes, bonds, FRNs, and TIPS through their bank or broker or directly from the Treasury. The Treasury sells bills, notes, bonds, FRNs, and TIPS initially at auction. Once these securities have been issued, investors can buy or sell them in the commercial market at prevailing prices.

Treasury bills are short-term investments issued with maturities of a year or less. They are sold at a discount from their face value (par). The difference between the original purchase price and what the Treasury pays you at maturity (par) is interest. This interest is exempt from state and local income taxes but must be reported as interest income on your federal tax return in the year the Treasury bill matures.

Treasury notes are issued with maturities from two to ten years, and have fixed interest rates set at the time of auction. Owners of Treasury notes receive interest payments every six months which must be reported as interest income on their federal tax return for the year received.

Treasury bonds are long term investments that have a maturity of 10 years or more from their issue date. A Treasury bond pays interest every six months until it matures. When a Treasury bond matures, you are paid its face value.

Floating Rate Notes (FRNs) pay varying amounts of interest quarterly until maturity. Interest payments rise and fall based on discount rates in auctions of 13-week Treasury bills. FRNs are issued with a maturity of two years.

We also offer Treasury Inflation-Protected Securities (also commonly known as TIPS). TIPS receive both interest and an adjustment of principal for inflation, which must be reported for federal income tax purposes the year it is received.

Interest from notes, bonds, FRNs, and TIPS is exempt from state and local income taxes.

Benefits of U.S. Savings Bonds

Savings bonds are registered securities. You may purchase them in electronic or paper form. Principal and earnings from savings bonds are backed by the full faith and credit of the U.S. Treasury. If paper savings bonds are lost, stolen or destroyed they can be replaced without loss of accrued interest.

Series EE Bonds earn a variable interest rate that changes every six months based on market yields on Treasury securities. I Bond rates include a fixed rate set at the time of purchase for the 30-year life of the bond, plus an inflation adjustment that changes every six months.

Series EE and I bonds can be redeemed at any time after the initial 12-month holding period, and will continue to earn interest for up to 30 years from their issue date. This gives customers a high degree of liquidity, and the flexibility to manage their savings to meet their individual needs.

Savings bonds are easy to buy and affordable. The simplest way is through a TreasuryDirect account, which allows customers to buy electronic EE and I bonds in any amount of $25 or more by electronic debit from a savings or checking account. Customers can also buy electronic savings bonds through payroll direct deposit where they work. An annual purchase limit of $10,000 purchase price, applies to each series.

Interest from savings bonds is exempt from state and local income taxes. Federal income tax on interest, including the I Bond inflation adjustment, may be deferred until the bonds are redeemed, up to 30 years for I and EE Bonds.