The U.S. Department of the Treasury sells or issues several types of investments that can fall under the general description of bonds. For the majority of Treasury bond types, maturity is a straightforward concept. For a couple of Treasury types, what happens when a bond matures gets a little more interesting. Although your Treasury investment may not mature for years, a little knowledge now will avoid surprises then.
Treasury Security Maturity Dates
Treasury securities are often referred to under the general heading of Treasury bonds even though an individual security may officially be a bill, note or bond. The range of T-bills, notes and bonds are marketable securities sold by the Treasury Department through an auction process. Each issue of a security has a set maturity date. Bills are issued with terms of 13, 26 or 52 weeks; notes reach maturity in two, four, five, seven and 10 years, and bonds mature in 30 years. For example, the five-year Treasury note issued on April 1, 2013, matures on March 31, 2018. Any bill, note or bond you purchase will be partially defined by the date it matures.
When you buy a T-bill, note or bond the purchase will be for a certain face amount of the bond. For example, you may decide to a $50,000 five-year note through your broker. That $50,000 face amount is the maturity value or amount of money you will receive when the note matures. The note will pay you semi-annual interest payments for the period from your purchase date until the maturity date. The price you pay can be more or less than the face amount, depending on the bond's interest rate and prevailing market rates. Short-term Treasury bills do not pay interest: You them at a discount to the face value and your return is the amount of the discount.
Treasury Inflation Securities
Treasury Inflation Protected Securities have a set maturity date like any other Treasury security, but the value at maturity will be different from the value at the time of purchase. The Treasury updates the value of TIPS daily by the rate of inflation as measured by the Consumer Price Index. When your TIPS mature, the amount you get will be the original face value increased by the amount of inflation since issuance. TIPS are sold with five-year, 10-year and 30-year maturities, and pay interest semi-annually.
U.S. Savings Bonds
U.S. savings bonds are non-marketable securities sold by the Treasury. Instead of paying out interest like other types of Treasurys, a savings bond accrues interest and the value grows until the bond is cashed in. A savings bond will earn interest until it reaches final maturity 30 years after the month it was purchased. At that point the bond stops earning interest and an IRS Form 1099 is sent to the owner so taxes can be paid on the accumulated interest. There is no requirement to redeem a 30-year-old savings bond, but it no longer earns interest and you still must pay the taxes on the earnings.
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