Buying Uncle Sam's paper. Treasury Direct takes hassle out of buying T-bills

Stock market forecaster Robert Prechter helped push the Dow Jones industrial average into a record one-day dive last week by telling subscribers to his newsletter it was time to ``get out of stocks completely.'' He wasn't worried about a crash, he said, since he figures the Dow will hit bottom after a drop of another 100 points or so. But where did he suggest investors put their money in the meantime?

``Right now, I prefer to put my money into Treasury bills,'' he told an interviewer from a television business program. Considering what's been happening to interest rates lately and the upward direction Mr. Prechter and other experts see them going in the near future, that's probably not bad advice, at least, for some of your money. Last week, for example, six-month Treasury bills went up half a point, to 7.30 percent.

Fortunately, buying Treasury bills - and the rest of the United States government's debt instruments - is easier than it was the last time interest rates made a sustained upward move.

Until about a year ago, Treasury bills, notes, and bonds either had to be bought directly from the Treasury Department, through a branch of the Federal Reserve Bank, or through a broker. The easiest route, of course, was the broker, who could make your purchase for you and keep a consolidated record of all your holdings and their maturity dates. The broker could even sell them for you before maturity, if you needed your money or thought you could get a better return elsewhere.

The problem is, brokers charge commissions of $25 to $50 for each transaction. For an investor buying half a million dollars' worth of Treasury bonds, that charge is like a piece of lint on a tweed coat: It's there, but hardly worth worrying about. But for someone who's only buying $10,000 worth of six-month Treasury bills, the commission becomes very noticeable.

There have been drawbacks to buying Treasuries from the Treasury, too. Besides the paper work involved in submitting a bid for every auction in which you wanted to participate, each Treasury security was treated as a separate account, with separate interest payments and separate tax statements.

To pull all this paper work together and make it easier for investors - and the Internal Revenue Service - to keep track of one's US government holdings, the Treasury Department introduced Treasury Direct last year. Eventually, it will put all securities on a consolidated statement. You won't receive a fancy certificate from the government; your holdings will be nothing more than blips on a computer, although you will receive periodic statements so you can compare its numbers with the blips, if necessary.

With Treasury Direct, you can make automatic renewals more easily; you can also arrange to have one periodic payment combined from all your securities; and payments can be wired directly into your checking account, so a government check can't be stolen or lost in the mail.

Since Treasury Direct was started, some people who already held Treasury securities have had some problems with it. Before, if you wanted a Treasury bill renewed, you just put a check on a card and sent it to the Treasury. But try that under the new system - without having set up a new Treasury Direct account first - and the renewal won't go through.

Instead, you will be ``cashed out'' when your Treasury bills mature, and the account will be closed.

To avoid that, existing Treasury security holders have to do the same thing as those who have never owned them before: fill out a new, fairly simple form and send it back to the government. People who already own Treasuries should have received the form and instructions by now. After investors receive their new Treasury Direct account number, they can ask to have the securities they own transferred to the new account. This is the only way the renewal will go through, and it should be done well before the securities mature.

If you haven't owned any Treasuries before, you can get a brochure and application for Treasury Direct by calling any one of the 12 Federal Reserve Banks or one of their 24 branches around the country. That's the fastest way to get started, Treasury officials say. But if you're too far away from a Fed bank to call and you don't mind waiting awhile, write the Bureau of the Public Debt, Dept. F, Washington, DC 20239. If you send in one of the standard tender forms to buy Treasury securities, an account will be opened for you automatically.

It is possible to open more than one Treasury Direct account and have the proceeds wired to separate banks, or to different accounts at the same bank. This would be useful for people who have accounts for their children or older relatives, or who just don't like the idea of tying all their fortunes to one bank.

You can still buy Treasuries through a broker, including outstanding securities from the secondary market. If you might not hold some until maturity, this may be the route to take with bonds, for example, since securities held in Treasury Direct have to be transferred out of the government account and into a brokerage account to be sold on the secondary market, which can take time.

If you have a question that would make a good subject for this column, send it to Moneywise, The Christian Science Monitor, One Norway St., Boston, MA 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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