DEFINITION of Treasury Direct
Treasury Direct is the online platform through which investors can purchase federal government securities directly from the U.S. Treasury. Treasury Direct sells Treasury bills, notes, bonds, Treasury inflation-protected securities (TIPS), and savings bonds, all of which are backed by the full faith and credit of the U.S. government and are used to finance the federal debt.
BREAKING DOWN Treasury Direct
The online Treasury Direct trading system eliminates banks, brokers, and dealers as middlemen, saving investors money on commissions and fees. Investors can still purchase Treasury securities through these traditional channels if they wish.
Treasury securities are sold through an auction process, and this process establishes a security’s rate and yield. Investors can place either competitive or non-competitive bids. Competitive bidders specify the rate, yield, or discount margin that the investor will accept; non-competitive bidders agree to accept the rate, yield, or discount margin that the auction establishes. At the auction’s close, the Treasury first issues securities to all non-competitive bidders, then to competitive bidders from lowest to highest bid, until it has issued the total amount of securities provided for by that auction. All accepted bidders receive the terms of the highest accepted offer. The minimum required investment in the Treasury Direct market is $100.
The online Treasury Direct system is the main portal through which the U.S. Treasury sells its securities. In effect the Treasury Direct website is the only way investors can purchase an redeem Treasury securities directly from the U.S. Department of the Treasury in paperless electronic form. Through the website, money can be deposited from and withdrawn to personal bank accounts, and repurchase of securities can be rolled over as the currently held securities mature. The types of Treasury securities available through Treasury Direct include:
- Treasury bills
- Treasury notes
- Treasury bonds
- Series I savings bonds
- Series EE savings bonds
- Treasury Inflation-Protected Securities (TIPS)
Only new issues can be bought through Treasury Direct. Treasury securities typically follow a schedule to release new issues; new issues are referred to as on-the-run Treasuries. For example, the 52-week bill is auctioned every four weeks at which time the previously existing 52-week bills will only be available for trading in the secondary market. Treasuries issued before the most recently issued bond or note of a particular maturity are referred to as off-the-run Treasuries as they are taken off Treasury Direct.
To open a Treasury Direct account, investors must have a Social Security number or taxpayer identification number, a U.S. address, a checking or savings account for transferring funds to and from a Treasury Direct account, an email address, and a secure Web browser and Internet connection. Individuals, institutions, corporations, partnerships, limited liability companies (LLCs), sole proprietors, estates and trusts can also have Treasury Direct accounts.
Find out how your tax refund can go directly towards the purchase of Treasury Direct securities; check out What are the benefits of splitting my tax refund?