Cut out the Middleman: Invest in Bonds Directly

Brent Pittman —  03/08/2012

Bonds have been around for a while.

Did you know that you can invest in bonds without going through a broker or other middleman that charges fees?

You can! I recently learned about this option, though I haven’t the spare cash to buy any yet.

It is great to have options when investing and staying away from fees is always a good thing!

What is a Bond?

A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.-Investopedia

As always with investing, make sure that you understand where you are putting your money. Make sure to check with your financial advisor to make sure bonds fit into your overall investing strategy. If you need to choose an financial advisor read this first- How do you Choose an Investment Professional?

Invest Directly

Go directly to the source for government bonds- The U.S. Government of course! treasurydirect.gov

1) To open an account you’ll need these handy: social security number, banking information, driver license, and email address. This is only for electronic bonds, no paper versions here as of Jan 1, 2012.

2) Choose what type of bonds you want to buy. Here are a few options:

  • I-Bonds- This is an intriguing bond, especially now as it as a hedge against inflation. Within the I-bond is portion that pays a fixed rate and a portion that pays a annual variable rate based on the inflation rate. This is a 30 year bond with penalties if you cash out before 5 years.
  • Treasury Inflation-Protected Securities (TIPS)- TIPS are a more advanced version of I-bonds and are bought and sold on the market. The return rate depends on the specific auction. You can purchases TIPS through financial institutions and ETF’s, though you’ll have to pay fees.
  • EE/E Bonds- This is a fixed rate bond and can be designated specifically for education. Purchasing EE bonds online will no longer get a bonus for holding, only for paper. If you purchase $50 face value, the redemption is also $50.

3) Set up automatic payroll deductions- If this is a way you’d like to save/invest, then make it a no brainer. You can set up automatic payroll deductions from your weekly or bi-weekly check. Click here to set up an automatic savings program to buy bonds on a regular basis.

Are buying bonds directly the right decions for you? Perhaps not now or ever, but it’s good to know you have options. Ask you financial advisor about it at your next meeting.

Would you ever purchase bonds directly as part of your savings/investment plan? 

Photo Credit Mark Holloway (Creative Commons)

Related posts:

Brent Pittman

Posts Twitter Google+

Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.
  • MIke

    I have looked into investing into bonds thru a middleman but that scares me. Doesnt the middleman have to be licensed?

    • Mike,

      If you’re going through a financial advisor, then yes. I’m not sure I 100% understand your question.

  • Pingback: Just How Bad Can Inflation Get? | On Target Coaching()

  • Katie, 
    You might need to be a little more aggressive about your kids college, mixing in high % of stock mutual funds. Thanks for stopping by! 

  • I didn’t know it’s possible to invest in bond without a broker! I invest in stocks but not in bonds because I was too afraid, and I was afraid because I had little knowledge. Thanks Brent! 

    • I didn’t know until recently either. As always I’d discuss with your financial advisor before delving into something new.
      Brent Pittman
      Financial Coach and Blogger
      C 424-298-0676
      T @ontargetcoach

  • Bichon Frise

    We would recommend a bond fund.  You can find just about any flavor one desires for minimal fees (0.1%+).  This also affords you the flexibility to get in or out at anytime, has a professional watching over your assets and without the hassle buying bonds directly from the treasury (although, not a major hassle).  Just our opinion. 

    • Thanks for commenting! I might go with a bond fund also if I was to go bond route. I am intrigued with the idea of directly investing and paying 0 fees.
      Brent Pittman
      Financial Coach and Blogger
      C 424-298-0676
      T @ontargetcoach