United States Treasury Securities

MARINETTE, WISCONSIN

U.S. TREASURY SECURITIES

The bank is able to purchase U.S. Treasury securities for our customers. Although this investment is more complex than a certificate of deposit, the process is not difficult. The bank will charge a transaction fee for each purchase of a treasury security. Our current fee is $50 regardless of the size of the treasury issue being purchased by you.

To assist you in determining whether the purchase of a U.S. Treasury security is in your best interest, please review the following information.

Choices Available

The U.S. Treasury issues the following types of securities which are all backed by the full faith and credit of the federal government:

Treasury Bills - Issued for a term of six months or less, T-bills do not bear a stated interest rate. Instead they are sold at a discount from par. The difference between the purchase price of the bill and the amount you receive at maturity represents interest on the bill. T-bills with terms of 13 and 26 weeks are offered weekly. T-bills are sold in multiples of $1,000 with a minimum purchase requirement of $10,000.

Treasury Notes - Issued for a term of one to ten years, notes bear a stated interest rate and investors receive semi-annual interest payments. Two and five year notes are normally issued on the last business day of the month. Three and ten year notes are usually issued every three months during the government's quarterly refunding. This usually occurs in the months of February, May, August, and November. Notes are sold in multiples of $1,000. Those with a term of less than four years have a minimum purchase requirement of $5,000. The minimum for notes with a maturity of at least four years is $1,000.

Treasury Bonds - Bonds are issued with a term greater than ten years (usually thirty years). Bonds were typically issued once every six months on the 15th of February and August.

Purchase Procedures

Treasury securities can be purchased from a bank, broker or securities dealer or they can be acquired directly from the government by opening a Treasury Direct account. The latter option is free, the others generally require a fee for handling the transaction.

A Treasury Direct account can be opened through any Federal Reserve Bank or branch. In addition, an account can be set up by mail by calling the U.S. Treasury Department at (202) 219-3302.

Treasury securities are sold through an auction process with investors submitting bids on the yield they are willing to accept. Most individual investors submit non-competitive bids by using their Treasury Direct account or through a broker or dealer. With non-competitive bids, the investor agrees to purchase the desired security at whatever the weighted average price is for that auction. In the auction process, all non-competitive bids are accepted. In contrast, competitive bidders may have their bids rejected or they may pay a higher (or lower) price for the security than the non-competitive price.

An individual investor can also purchase (or sell) any treasury issue in the after-market. The various maturities of treasury securities are traded daily in the financial markets. The market price for these purchases is generally dictated by the coupon rate on an individual issue and the remaining maturity on the same issue.

Tax Effect

The income from treasury securities is subject to federal income tax but is exempt from state and local income taxes. Because T-bills are sold at a discount rather than paying interest currently, the income from the bills is not taxable until maturity. Therefore, purchasing T-bills that mature after year-end can be an attractive way to create a short-term deferral of income.

Redemptions

Securities held in a Treasury Direct account are paid at maturity by direct deposit into the investor's bank account, unless an election has been made to reinvest the proceeds into new securities. A request to reinvest a T-bill can be made at the time it is originally purchased. Reinvestment arrangements are not available for notes and bonds at the time of original issue. However, owners of these securities (as well as T-bill owners who did not make a reinvestment election) will receive a pre-redemption notice showing the eligible securities, if any, into which a reinvestment may be made. An investor wishing to reinvest simply completes and returns the notice by the date specified. Remember though, electing to reinvest does not delay the tax liability on the interest you have already earned.

Securities held in a bank or broker's safekeeping account are paid at maturity by direct deposit into the investor's bank or brokerage account. An investor wishing to reinvest must communicate their intentions to the bank or broker they originally used to purchase the maturing issue.

More Information

For more information on how to purchase United States Treasury Securities directly from Bureau of the Public Debt, visit U. S. Treasury Direct.

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