Entrepreneurs and business owners alike sometimes must expand their assets in the form of investments. One of the most secure ways to do this is by investing in Treasury marketable securities, which are backed by the Full Faith and Credit of the United States. It is a secure way of investing because it is highly regulated and protected by the United States Department of the Treasury.
What Does Marketable Mean?
The word marketable means that not only can you transfer the security to someone else but you can also sell that security before it matures, or reaches the end of its term. Meanwhile marketable securities are more popular, the U.S. Treasury also issues non-marketable bonds. These bonds are non-marketable because each is registered to one person’s social security number and one cannot sell or transfer them to anyone else.
What Are the Different Types of Treasury Marketable Securities?
There are different types of Treasury marketable securities: (1) treasury bills, (2) treasury notes, (3) treasury bonds, (4) floating rate notes (FRNs), (5) treasury inflation-protected securities (TIPS), and (6) separate trading of registered interest and principal of securities (STRIPS).
Treasury bills are short-term securities that normally last from 4 weeks up to 52 weeks; these bills are sold at face value or at a discount from the face value. Normally when they mature, you are paid back the face value you invested. Treasury notes are government securities that can mature in either 2, 3, 5, 7, or 10 years, depending on what you choose; these long-term investments allow you to earn interest every 6 months.
Treasury bonds are also long-term investments that can mature in between 20 to 30 years while also paying interest every 6 months. FRNs are securities that are issued for a term of 2 years and pay interest every 3 months.
TIPS are marketable securities whose principal, the amount you originally invest, is adjusted by changes in the Consumer Price Index (CPI). TIPS pay interest every 6 months and are issued in terms of 5, 10, and 30 years. For example, you can buy a TIPS that matures in 5 years and disburses every 6 months and let’s say you invested $100,000 and the CPI is 6.5%, the principal will be adjusted to that amount. STRIPS, similarly to notes, bonds, and TIPS, allow you to hold and trade individual interest and principals of your investment; however, given the possible complexity of STRIPS, they are normally only held and sold through brokers, dealers, or other financial institutions.
Do You Have to Pay Taxes on Treasury Securities?
Meanwhile your Treasury securities are exempt from state and local income taxes, you are still required to declare federal taxes on any gain or loss on your Treasury securities; however, this is normally done once you or your company have formally received the profit, either via disbursement or at the end of the securities’ maturity date.
