For the greatest safety with your bond investments, you can look to the U.S. government - the most reliable borrower in the world. The U.S. government has never defaulted on a loan, and it would take a truly great catastrophe for the U.S. Treasury to collapse. Simply put, you'll never have to worry about the U.S. not paying you back if you buy some of its bonds.

Since U.S. government bonds are among the safest in world, they always have lower returns than other bonds of the same maturity. And they do have a few risks. For example, you cannot predict the price you'll be able to get for your bonds if you need to sell at some point before maturity.

Another advantage of Treasury bonds is that interest is exempt from local and state taxes (but not from Federal income taxes).

You cannot redeem Treasury bonds before maturity and they do not have call provisions. As soon as the bonds mature, interest payments stop.

You can buy Treasuries through a broker or directly from the federal government, which holds regular auctions that individual investors can participate in. However, if you buy directly from the government, you have to wait till maturity to redeem them. You would then have to use the services of a broker to sell your bond in the secondary markets.

Treasury Bonds, Bills and Notes
The U.S. government issues several different types of bonds through the Bureau of the Public Debt, an agency of the U.S. Department of the Treasury. Treasury debt securities are classified according to their maturities:

- Treasury Bills mature in one year or less.
- Treasury Notes mature in two to ten years.
- Treasury Bonds have maturities greater than ten years.

All these securities are issued in face values of $1,000, though there are different purchase minimums for each type of security.

Generally, the word Treasury is shortened to just the letter "T" when referring to these bonds. Thus, Treasury Bonds are called T-Bonds, Treasury Notes are known as T-Notes, and Treasury Bills become T-Bills.

Treasury Bills come in three maturities. Those with 91-day and 182-day maturities are auctioned by the Treasury each Monday. 364-day Bills are auctioned every four weeks on Thursday, 13 times a year. The interest rates of T-Bills are determined at each auction, depending on what bidders are willing to pay. However, T-Bills do not make interest payments. Instead, they are purchased at a discount of face value. They are the only Treasury securities that sell at a discount.

U.S. Treasury Notes are issued in 2, 3, 5, and 10 year maturities. The 2 year and 5 year Notes are auctioned each month, while the 3 year Notes are issued quarterly, and 10 year Notes are auctioned six times a year. All Notes pay interest twice a year, and expire at par value.

Treasury Bonds are generally issued in 30 year maturities, and pay interest twice a year.

No matter what you're buying, you can often get a better deal when you buy directly. The U.S. Treasury has a special program for individual investors to help cut out the middleman (in this case, your broker) and enable you to purchase T-Bonds, Bills, and Notes.

The program is called Treasury Direct, and it allows you to set up an account to make purchases of Treasury securities at auction, along with all the big players. The main advantage of Treasury Direct is that there are no brokerage fees or other transaction charges when you buy through the program. (There is a $25 per account annual maintenance fee for accounts greater than $100,000.)

To set up a Treasury Direct account, you'll have to fill out an application form that you can download from the program's web site. The minimum investments in Treasury Direct are $10,000 for bills; $5,000 for notes maturing in less than 5 years; and $1,000 for securities that mature in 5 or more years. Interest is paid into your Treasury Direct account, as is the security's par value when it matures.

Another attraction of Treasury Direct is that you can access your account on the Web to check account balances or reinvest a security when it matures.