To buy Treasury notes, you have two paths: open a free account at TreasuryDirect.gov and buy directly from the U.S. government, or place the order through a bank or brokerage account you already have. Either way, the minimum is $100, purchases must be in $100 increments, and every note is sold through a government auction rather than at a fixed price. Notes come in 2-, 3-, 5-, 7-, and 10-year terms, pay a fixed rate every six months, and return the full face value at maturity.1TreasuryDirect. Treasury Notes
Choosing Between TreasuryDirect and a Broker
TreasuryDirect is the government’s own portal. There are no fees, and your notes are held directly with the Treasury. The downside is that it’s a separate account from the rest of your investments, and the website has some quirks: using your browser’s back or forward buttons will kick you out of your session.
A brokerage account puts Treasury notes alongside your other holdings. Most major brokers list upcoming Treasury auctions under a “Fixed Income” or “New Issues” section, and most charge no commission on primary-market Treasury purchases (confirm with your own broker). The trade-off is that if you later want to move the note to TreasuryDirect or to a different broker, that takes additional paperwork.
For a first-time buyer who already has a brokerage account, going through the broker is usually the simpler route. TreasuryDirect makes more sense if you want a dedicated home for government securities or plan to buy consistently over time.
Opening a TreasuryDirect Account
To open an individual TreasuryDirect account, you need four things:
- A Social Security Number
- A U.S. address of record (foreign addresses are not accepted)
- A U.S. checking or savings account that accepts ACH debits and credits; you’ll enter the routing and account numbers so the system can pull funds and deposit interest
- An email address for notifications
The setup is guided field by field on the registration page.2TreasuryDirect. Open an Account The ACH requirement for the linked bank account is set in federal regulation.3eCFR. 31 CFR Part 363 – Regulations Governing Securities Held in TreasuryDirect
Not every application goes through automatically. If the system can’t verify your identity online, you’ll be asked to complete FS Form 5444, sign it in front of a certifying officer at an insured bank or credit union (a notary public will not do), and mail it to the Treasury Retail Securities Site in Minneapolis.4reginfo.gov. TreasuryDirect Account Authorization FS Form 5444 That can take weeks. If you’re aiming at a specific auction, start early.
Placing the Order
Inside TreasuryDirect, log in, click the “BuyDirect” tab, choose “Notes,” and pick the term: 2, 3, 5, 7, or 10 years. Enter the amount in $100 multiples. The system shows you the upcoming auction date and confirms which bank account will be debited.5TreasuryDirect. Buying a Treasury Marketable Security
At a brokerage, the flow is similar. Find the fixed-income or new-issues section, select the Treasury note by term or maturity date, enter your purchase amount, and submit. The broker transmits the order to the auction for you.
Non-Competitive vs. Competitive Bids
Individual buyers submit non-competitive bids. You’re agreeing to accept whatever yield the auction produces, and in exchange you’re guaranteed to receive the full amount you requested, up to a $10 million cap per auction.6eCFR. 31 CFR 356.12 – What Are the Different Types of Bids and Do They Have Specific Requirements or Restrictions Competitive bidding, where you specify the exact yield you’ll accept and risk being shut out, is the domain of dealers and institutions. For a retail buyer, non-competitive is the right choice.
When Auctions Happen
Each note term follows a roughly monthly cycle, so there’s almost always an auction coming up within a few weeks:
- 2-year and 5-year notes: announced in the second half of each month, auctioned a few business days later
- 3-year notes: announced in the first half of each month
- 7-year notes: announced in the second half of each month
- 10-year notes: original issues in February, May, August, and November, with reopenings in the other months
The Treasury announces each auction a few days in advance with the term, amount offered, and auction date.7TreasuryDirect. General Auction Timing
What You Actually Pay
You may not pay exactly $100 per $100 of face value. The auction sets a coupon rate (the fixed interest the note will pay, rounded to the nearest one-eighth of a percent) and a yield (the return buyers demanded). When the yield is higher than the coupon, you pay less than face value; when the yield is lower, you pay more. TreasuryDirect gives an example of a 7-year note with a 1.375% coupon and a 1.461% high yield selling at about $99.43 per $100 of face value.8TreasuryDirect. Understanding Pricing and Interest Rates Whatever you pay, you get the full face value back at maturity.
You won’t know the final coupon or price until after the auction closes.
Settlement and Interest Payments
Settlement happens on the issue date, typically within a few business days of the auction for most notes. 10-year notes generally settle on the 15th of the auction month.7TreasuryDirect. General Auction Timing On settlement day, the purchase amount is pulled from your linked bank or brokerage account, and the note appears in your holdings.
Interest lands in the same linked account every six months automatically.1TreasuryDirect. Treasury Notes At maturity, the face value goes back to your bank account unless you’ve scheduled reinvestment.
Reinvestment and Beneficiaries
TreasuryDirect lets you set the proceeds of a maturing note to roll into a new note of the same type and term. You can schedule this at purchase or later, but once the maturing security enters its “closed book” period near maturity, you can no longer schedule, edit, or cancel the reinvestment. If no matching auction lines up, the reinvestment is canceled and the cash returns to your bank.9eCFR. 31 CFR 363.205 – How Do I Reinvest the Proceeds of a Maturing Security Held in TreasuryDirect
At the time of purchase, you can also add a beneficiary (labeled “POD,” payable on death) or a co-owner. A POD designation keeps control with you during your lifetime and passes the security automatically at death; a co-owner can manage the security while you’re alive and takes full ownership if you die.10TreasuryDirect. Registering Your Savings Bonds It takes a few seconds and spares your heirs from probate on that asset.
Selling Before Maturity
You aren’t locked in. Treasury notes trade actively on the secondary market, though you can’t sell directly through TreasuryDirect. To sell a note held there, you first transfer it to a brokerage account using FS Form 5511, initiated from the “Manage Direct” tab; you’ll need your broker’s wire name, routing number, and account details.11TreasuryDirect. Transferring From One System To Another Notes bought through a broker can be sold from that account without the transfer step.
The price you get depends on where interest rates have moved. If rates have risen since you bought, your fixed coupon looks less attractive and the market price falls below what you paid. If rates have fallen, the note is worth more. The Treasury secondary market is highly liquid, so transaction costs are typically low, but you’re exposed to price risk any time you sell before maturity. Gains or losses on a sale are capital gains or losses for federal tax purposes: long-term if you held longer than a year, short-term otherwise.
Tax Treatment
Interest on Treasury notes is subject to federal income tax but exempt from state and local income tax. That exemption is written into federal law for all U.S. government obligations.12Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation In a high-tax state, that pushes Treasuries ahead of corporate bonds or CDs paying the same nominal rate on an after-tax basis.
Each January you’ll receive a Form 1099-INT for the prior year’s interest. TreasuryDirect generates it electronically; a brokerage will fold it into your consolidated 1099. The payer must furnish the form by January 31.13IRS. General Instructions for Certain Information Returns