Is it Cheaper to Live on the Top or Bottom Floor of an Apartment Building?

For the past two and a half years, I’ve lived on the upper level of my two-floor condominium apartment building.

On a non-financial basis, it’s worked out very well for us so far.

• Being on the 2nd floor, we have a little more privacy on our balcony as well as from people walking by on the sidewalk outside not being able to see inside our living room.
• In addition, I feel like it’s a little more secure since it would be harder to break in to our windows being elevated off of the ground floor.
• The only half-way negative thing I can think about for living on the second floor has been that it is a little harder to carry in large objects and lots of groceries after big shopping trips.

However, the other day, I got to wondering whether or not living on the bottom level of our two-floor building would actually be less expensive from a financial standpoint than where we live now on the top floor.  The purpose of this post will be to investigate an answer to this question. Let’s get started!

After thinking about this question for a few minutes, I hypothesized that there would be three primary factors that would influence the cost being different for living on different stories of an apartment building: market value of the dwelling (can be rolled up in terms of measurables as monthly rent or condo purchase price), air conditioning, and heating.

Rent/Condominium Purchase Prices and Moving Costs

In my personal experiences renting apartments over the past 4 years and also purchasing my current condominium, I’ve found that apartments on the ground level tend to be more desirable and higher-priced (especially in places with narrow stairways and a lack of an elevator). When I lived in a suburb of Philadelphia, the top floor apartment I had was about $50 per month less than the same unit below me. In addition, in my condo complex, units on the ground floor tend to sell much faster and are also more expensive in terms of listing price.

Of course, all of these experiences were in quiet suburbs or smaller cities, not in the middle of a 20 million person metropolis where street noise might make lower level apartments much cheaper and less desirable.

In trying to find some answers outside of my personal experiences as to how real estate prices and moving costs compare for different stories of the apartment building, I came across the following details:

• While I don’t remember encountering this during my moves to second-level apartments, I came across an article from Yahoo about someone saying that they had to pay the moving company a premium in order to move to an upper level unit because of the increased time and effort it would take.
• A Telegraph article from the UK reported that flat values can decrease by up to a whole 1/3 as you move from ground floor units to 4th floor units

From these findings, it seems to be that it is cheaper to live on the upper floor than the bottom floor as far as real estate prices and rent are concerned. 

Air Conditioning During the Summer Months

The next point of comparison I wanted to investigate between top and bottom floors of an apartment building is the price of cooling the place during the hot summer months. Since most air conditioners these days run on electricity, we’ll measure this price in terms of electricity usage/cost. 

Since 2008, I lived in a bottom floor apartment for 1.5 years, and then two top floor apartments for the remaining time. Although I don’t have exact numbers of my electricity bills prior to July 2010 when I moved in to a 2nd floor apartment, I remember that the electricity costs (for A/C cooling) were a lot lower for a ground floor apartment. Of course, this makes sense from a physical perspective, since density decreases as the average kinetic energy (temperature) of the air molecules increases, causing the hot air to rise to the upper floors in the summer.

In looking around the Internet to try to quantify this price difference, I was surprised to only find one report of actual numbers comparing electricity costs for A/C usage among comparable apartments on different floor levels. This report stated that the person paid an average of $84 per month when living on lower floors vs. $120 per month on the top floor. This represents an annual cost difference of $432.

Because of this evidence and other reports on general guidelines for cooling apartments, it seems that it is cheaper to keep a lower floor apartment air conditioned in the summer months than an upper floor unit. 

In addition, I did find several useful statistics about average cooling and heating costs per year that one should plan for (we’ll use these in a little bit after we cover the heating topic):

• A Zillow report stated that people generally spend about $300 per year on air conditioning, mostly running their A/C from May-September.
• A DailyGreen article stated that the average US household spends $375 per year to keep their air conditioning running.

Heating During the Winter Months

As temperatures decrease further and further during the cold winter months, heating bills can become a very large financial liability for individual households. For this analysis, we’ll consider natural gas heating.

For me personally, I have always had natural gas powered forced air heating systems. In my current place, the heating (gas) bill is included in the monthly $214 HOA fee. Of this total amount, $100 is actual HOA fees, and the other $114 pays for sewer, water, trash pickup, and gas/heating. The same HOA and utility fee is paid by all units in our condo complex year-round, irregardless of what level the unit is on. Electricity (includes air conditioning/cooling) is paid separately directly to the power company.

From what I’ve found online, the generally accepted principle is that it is cheaper to heat an upper level apartment during the winter since, theoretically, the hot air from the apartment on the lower floor will rise up in to yours. This of course assumes that the insulation on the roof of your apartment is high quality and won’t leak too much heat.

If we apply this principle to my specific circumstance, we’re actually getting a bad deal with this since our upper floor apartment is more expensive to cool during the summer and the same price to heat during the winter! But, what can ya do right?!

A December 2011 Scientific American article reported that the average US household spends $732 per year to heat their home. 

Conclusion – Is it Cheaper to Live on the Top or Bottom Floor?

From what we’ve seen in this investigation, the upper floor is cheaper in terms of rent/sales price and heating during the winter. We’ve also seen that it is cheaper to cool a lower level apartment during the summer.

So, which is cheaper?

Overall, I was nicely satisfied with the evidence for the difference in rents and real estate prices for apartments on different levels of a building. However, the heating and cooling cost differences were only based on generally-accepted guidelines, gut feelings, and personal experiences, not robust data-based studies. In addition, the evidence presented so far doesn’t answer the question of HOW MUCH you can save for heating and cooling by having a unit on a different level. But, when I sit down and think about it, I imagine that this is because these cost differences depend on so many factors (building construction, insulation, etc) that the data would either be 1) extremely hard to obtain or 2) not all that useful on a more global scale.

However, from the average US household heating and cooling cost data (includes all homes – not just apartments) presented in this post, one interesting conclusion might be provided. For example, we saw from the data that on average, it costs approximately two times as much to heat a house than it does to cool a house over the course of a year ($732 vs. $300-$375, respectively). 

To me, this somewhat tells us that on average, it might be better to avoid increased heating costs. And, if we have to pay more for air conditioning in order to get lower heating/gas bills, then this combined with lower rent/purchase prices makes the upper floor apartment the overall cheaper alternative.   

Of course, another thing I’ve learned from this investigation is that these cost differences probably aren’t as significant as finding a level of the apartment building on which you are most happy with the noise, walking up stairs, views, and other factors.

How about you all? Do you think it’s cheaper to live on the top or bottom floor of multi-unit/family apartment building? What factor would you expect to be most significant in the possible price differential? 

Share your experiences by commenting below!

Steering Clear of Financial Disaster

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The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

Lately, I seem to be hearing about more and more people who are experiencing financial difficulties. It is a situation I can relate to, because that was me a short time ago. My credit card and personal debt had topped $20,000, I had fallen behind with my loan repayments, my rent was late, and then I had my work hours reduced. It was pretty tough, I can tell you; how I wish I had known what I know now, about how to avoid a financial disaster.

Things are OK for me now, but I still have a long way to go before I can be confident I would be able to cope if anything like that happened again. It got me thinking that there are probably lots of people who would benefit from the same information I was given, when I sought help to get out of my financial predicament. So, I was prompted to write this article; I hope it helps you avoid a financial disaster in your life.

Recent statistics show that almost half of Americans are experiencing some financial hardship, mainly due to personal debt levels. I think we have been programmed to believe that we can have everything we want, that using credit is OK and that everything will be alright in the end. Financial responsibility is not a subject taught in school, and most people learn about managing their money the hard way – after a financial disaster.

The main keys to avoiding financial disaster are managing your debt, limiting your reliance on credit, always spending less than you earn, and consistently tracking your money so you know where it goes every month. Let’s walk through these one by one:

Set a Budget

The most important tool to help you manage your finances is the personal budget. I know; I know; you’ve heard it all before, but have you done anything about it? A budget tells you how much money you have, allocates the cash for essentials like bills, food and transport and tells you how much you have left over to spend on incidentals. Your budget is your friend, not your enemy, but you must create one that balances and then you must keep to it. Most people find they have to adjust their spending in some areas when they first do a budget. The best budget is one that allows for an emergency fund and some savings, no matter how small.

Don’t Spend More Than You Earn

You simply cannot continue to spend more than you earn. This is what I had been doing for years, buying what I wanted without any thought as to whether or not I really needed it. I used credit for nearly every purchase, even food and rent, and only ever made the minimum repayments off credit cards. This meant I was just falling further and further behind. What I learned was that credit cards should never be used for essential purchases as these are included in the budget. Also, if you only ever make the minimum repayment amount, the only advantage is to the credit card company, to whom you are paying stacks of extra in interest. Whatever you have bought with your credit cards is actually costing you many times their original value.

Have An Emergency Fund

An emergency fund is essential in every person’s budget, even if you can only manage to put a small amount away from every paycheck. Your emergency fund is just that – for emergencies only and this doesn’t include that new designer-label jacket you saw on sale. If I had had an emergency fund when I had almost no work, my situation would not have been nearly so drastic. The best way to set this fund up is to have a separate account into which a set amount is automatically transferred directly from each pay. Your budget will help you determine how much this will be, but remember, your emergency fund is more important than things like entertainment and dining out.

Save and Invest

Savings is another important category that you need to have in your budget; you need to save something, no matter how small, from every paycheck. This is the only way you can set yourself up for a secure financial future. As you progress through your career, the amount you save should increase; when you have enough funds, it is a good idea to look for ways to invest your savings to make your money work for you. Compound interest makes your money grow faster.

So, look at your financial situation and see if you have the main key points covered. Do you have a budget that balances and you stick to? Do you use cash for essential purchases and limit your use of credit cards? Do you spend less than you earn? Do you track where your money goes? Do you have an emergency fund to tide you over if you are off work? Do you put some money into savings from every pay?

Put these key strategies into your financial management and you will avoid a financial disaster.

So, have you ever had a financial disaster? What did you do to get out of it? What did you learn from it?

Cavalcade of Risk #168 – October 17th, 2012 Edition

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Welcome everyone to the (168th!) October 16th, 2012 edition of the Cavalcade of Risk. The Cavalcade of Risk (or Cav of Risk for short), as is implicated by the name, is a bi-weekly blog carnival that features the top articles regarding risk management. Several of the realms of risk management covered relate to finances, insurance, and health.

My Personal Finance Journey is honored to be hosting the Cav this week! I last hosted this carnival the last week of December 2011 and shared a listing of some of the riskiest business to start up. 

Without further ado, let’s get on with the Carnival. Listed below are this week’s Top 3 Editor’s Picks! Enjoy!

1. Jeff Rose from Life Insurance by Jeff posted about Can You Get Life Insurance with a Depression History, saying, “When applying for life insurance, insurance companies take many things into consideration. One of the things they are most concerned about is the mortality rate of the applicant. What contributes to the mortality rate are the applicant’s lifestyle, health, pre-existing conditions, and mental health as well.”

2. Insurance Coverage Law in Massachusetts posted about, Insurance as a kind of tax, and a foray into socialism and outside my area of expertise.

3. Jason Shafrin from the Healthcare Economist posted about, How does gaining Medicare coverage affect healthcare utilization?, saying, “Do the uninsured increase their utilization of health care services after becoming eligible for Medicare. The answer is yes, but not as much as you think.”

Listed below are the rest of this week’s submissions.

Emily Holbrook from Risk Management Monitor posted about, The Insurance Industry Needs More Dynamic Models, saying, “Simpler, but more dynamic capital models are what the insurance industry needs in order to avoid suffering some of the same problems it did during the financial crisis that began in 2008, according to the Willis Economic Capital Forum (WECF), a Georgia-State-University-based initiative from the academic and analysis arm of Willis Group.”

Jeff Root from Root Life Insurance Blog posted about, Life Insurance with a DUI, saying, “Securing life insurance with a recent DUI on your record can be expensive. Here are some tips to find the most affordable life insurance with a DUI history.”

Super Saver from My Wealth Builder posted about, My Health Insurance Premium is Up Again, saying, “Our health care insurance premiums have been up every year and are up 36.9% cumulatively since Obamacare passed. I wonder when I’ll see the “lower costs” that President Obama promised.”

Louise from the Colorado Health Insurance Insider posted about, Colorado Health Exchange Gets $43 Million Federal Grant, saying, “Senator Michael Bennet hailed the grant award and said that “Hundreds of thousands of Coloradans who now don’t have insurance or who have insurance in the unstable, high-cost individual market will have a range of more affordable options through the new exchange.” It will be great if the exchange results in far more Colorado residents with health insurance to offset the risk of catastrophic medical bills. The federal premium subsidies that will be provided via the exchange should definitely help with that. But as to whether or not the actual premiums charged (which will have to be paid in full by any individual who doesn’t qualify for the federal subsidies) will be significantly lower, I think it might still be too early to know.”

Michael from Financial Ramblings posted about,  Life Insurance: How Much Coverage Do You Need, saying, “This post looks at factors to consider when deciding how much life insurance to buy. My advice: skip the arbitrary rules of thumb that advise buying a multiple of your income and give it some real thought.”

Bob from Christian PF posted about How to buy personal health insurance saying, “With more people being self-employed or working for employers who don’t offer health insurance coverage, the ability to buy personal health insurance is more important than ever. Having the right health insurance coverage — at the best possible price — is one of the most important financial decisions we can make.”

Rebecca Shafer from Workers Comp Roundup posted about, An Independent Claims Audit Can Be The Answer To Poor Claims Handling, saying, “Self-insured employers can have a good safety program, an established return-to-work program and knowledgeable nurse case managers, and still pay way too much on their workers’ compensation claims. Ineffective claims management can wipe out most or all of the cost savings achieved through your efforts to control cost. Whether you have your own claims office, or have a third party administrator (TPA) handling your workers’ compensation claims, poor claims handling will always result in higher claims costs.”

Hank Stern of InsureBlog posted about, Long Term Care and Life Insurance, saying, “What do you get when you combine *two* risk management tools – life and long term care insurance? InsureBlog’s guest blogger is an expert in Long Term Care insurance and explains the pros and cons.”

David @ Excess Return posted about, Hedging Risk Exposure, saying, “When investors assume risk in an asset class that has a premium above a risk free rate of return, the investor could consider hedging the exposure when the returns are better than expected and lock in profits.”

I posted on My Personal Finance Journey about Insurance Agents: Obsolete Relics of the Past or Critical Players on Your Personal Finance Team?, saying, “Following in the footsteps of travel agents, are insurance agents the next casualty of the Internet age? Is there still is a large demand for personal, local insurance agents? Also, do insurance agents add value to individuals’ lives, or do they simply drive up the cost of insurance products/services and will soon befall a similar fate to their travel agent relatives? This post explores these questions and more.”

Well – that concludes this edition. Thanks for tuning in!

You can submit your blog article to the next edition of Cavalcade of Risk (scheduled for the end of October and hosted by Ray at Excess Return) using the handy carnival submission form.

Also, if you are interested in hosting the Cavalcade of Risk in the future, just send Henry (the organizer) an email by clicking here.

***Photo courtesy of http://www.flickr.com/photos/kyz/2894740018/sizes/l/in/photostream/

Paper Towels vs. Hand Dryers – Which is Emperor of the Bathroom?

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During a recent trip to Raleigh, North Carolina, I went to use the bathroom of the restaurant at which my family and I were having lunch. In this restaurant’s bathroom, they had both a hand dryer AND a paper towel dispenser! I was like, “Wow, I guess they couldn’t make up their minds about which method people might like more!”

As a result of this experience, it got me wondering how paper towels and hand dryers stack up against each other when it comes to both the following aspects:

• Which is more popular among consumers?
• Which is cheaper and has a lower amount of environmental impact?
• Which is more effective at drying and being sanitary? 

In today’s post, we’ll explore these questions and try to find some answers! Let’s get started!

Are Hand Dryers or Paper Towels More Popular?

In order to get started answering this question, I first wanted to know which one of our two ‘bathroom drying competitors’ is more popular, among bathroom providers stocking them and also as far as favorites among customers.

The answer to this was very unanimous in that every source I could find stated that paper towels were much more popular among customers and also among janitorial services that service and provide bathrooms.

• A 2008 study of European consumers cited by Wikipedia stated that 63% of respondents preferred paper towels over hand dryers (only 28% of respondents preferred hand dryers). 
• This trend of consumers preferring paper towels over hand dryers was also confirmed by studies reported by Livestrong.com and Kimberly-Clark stating the 55% and 87% of consumers surveyed, respectively, preferred paper towels over the “other” electrical option. 
• Janitorial service companies prefer to stock their bathrooms with paper towels since this provides them with more billable man-hours to clean and restock the restrooms they service. 

Which is Cheaper and More Environmentally-Friendly?

Contrary to the results of the previous question on popularity, hand dryers clearly reign supreme in the categories of cost-effectiveness and environmental responsibility. 

• A 2011 Guardian report stated that paper towels generate a total of 70% more carbon emissions over their lifetime compared to the newest cold-air dryer technologies (Dyson Blade, etc). 
• A Rodale report stated that even though the initial capital costs for a hand dryer is higher ($300-$400 versus $20-$30 for a paper towel dispenser), the increased operating costs for paper towels over electric hand dryers makes the latter more cost effective in the long-run. 
• For example, paper towels cost $23 per 1,000 uses to refill. On the other hand, electric hand dryers only cost $1.47 per 1000 uses for the electricity. 
• In addition, it was reported that hand dryers often last 10 years before replacement is needed and require virtually no maintenance to keep running. 

Which is More Effective at Drying?

Which is Better for Personal Hygiene?

Because of these conflicting results, it’s hard to tell whether one method is superior to the other for cleanliness. 

So, Are Paper Towels or Hand Dryers Better Overall?

From this investigation, we saw that paper towels are both more popular and more effective for drying consumers’ hands. However, hand dryers are cheaper, better for the Earth, and possess about the same level of hygiene.

As such, I think that if I were a business owner, I would insist on installing a high-powered (new technology) hand dryer and NOT having paper towels since paper towels simply drive up my costs.

Even if my customers didn’t prefer the hand dryer to paper towels, I doubt that alone would be enough to prevent them from doing business with me.

How about you all? Do you like paper towels or a hand dryer better for drying your hands?

If you had a business, which would you install for your customers to use?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/marktee/6009596457/sizes/l/in/photostream/

Are You Guilty of Irrational Money Decisions?

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Our Biggest Irrational Money Decision

Spending Big Bucks at a Restaurant and Balking at Grocery Store Prices

Chasing the Lowest Gas Price

How to Combat Your Irrational Money Decisions

***Photo courtesy of http://www.flickr.com/photos/dave_mcmt/278891555/

Should You Need a License to Get a Loan?

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Going Back To School is Different the Second Time Around

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The decision to go back to school

Going back to school affects your finances

How about you all? What is your dream and what are you willing to sacrifice to achieve it?

Share your experiences by commenting below!

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Simple But Scary Truth: Money = Time

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How about you all? When you’re deciding whether or not to purchase something, do you ever consider how much time it will take you to earn that money back at your job? 

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/7214596024/sizes/l/in/photostream/

What’s Your Personal Finance Journey?

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Hi everyone.  I’m Jeff – one of the new staff writers here at My Personal Finance Journey.  I write about finances and saving money while living green over at my site, Sustainable Life Blog.  This is my first post here, so I figured I’d let you all all know about my personal finance journey.

The Beginning – 1st Year of College

My journey starts off around the same time that most peoples’ does – when I went to college and was put in charge of my own finances for the first time.  I didn’t know much about finances (or rather, nothing my parents taught me stuck because I was a teenager who knew everything), and  I didn’t have access to that much cash or credit.  I wasn’t really given enough rope to hang myself with (that would come later).  I paid tuition with my savings, worked in the cafeteria c-store, and went to class. I didn’t do very many things that required money, as most of my needs were taken care of with my student ID.  Things persisted this way for most of my first year of school.  I didn’t spend too much money, but I didn’t earn much either, so I went home during the summer and worked to save up money for future semesters.

Taking a Wrong Turn

The second year was really where I started to veer off track. There was now rent to pay, utilities, and food.  Of course, I knew the lights didn’t come on for free, but I was not good at estimating how much my share would be.   Instead of being cautious, I went out a lot to eat with friends, and overspent a bit, but was able to let it slide because of the prevailing college mindset of “You’ll have a good job that will pay for all of that after you graduate”.  This really was the motto for the next few years, as I let my finances spiral out of control.  Every time I looked at them, I knew I was in the hole but didn’t know where to start to dig myself out, so I just kept digging, hoping something would magically change.  I used my credit card for everyday things as well as “emergencies” (which, looking back, was simply my failure to plan), and the debt racked up.  The money that I had saved for tuition gave out junior year. I was a victim for not starting to save soon enough as well as tuition increases (prices doubled when I was in school), so I took out a student loan for the last year.

The worst time for my finances was my senior year and right before grad school, as I was almost maxed out on my cards and did not have a job lined up.  With the move to my new city to start grad school, I looked at it as a fresh start, and thought that the first thing I’d tackle was getting my finances in order.  This was mid 2007 and I fell into the world of PF blogging, starting with heavyweights like Get Rich Slowly and The Simple Dollar.  I could not believe what I was learning by reflecting on my own habits and mistakes. After I got a job with the university that year (which paid for all semesters but the first one, which I had to take out a student loan for), I was able to pay off one of my credit cards, but left a balance on the other one and kept some in savings because “everyone had credit card debt.”  How dumb was that?  I kept money in savings earning 4% while paying 10% interest – I still kick myself for doing that.

Getting Back on Track

In grad school, my mindset changed, and I started to look towards the future knowing that eventually I’d need to get a job, most likely have to move for a job, and started saving for it.  By November of 2008, I had almost $3k in savings – which was more than I’d ever had in my life!  The economy was tanking and there was uncertainty everywhere, and one night during Thanksgiving break I almost pushed my whole 3k into Ford stock – which was trading at 96 cents at the time.  I asked my dad what he thought and he said, “Don’t risk anything you can’t afford to lose.”  I listened to him because I knew that I’d need the money in 5 months to move.  Unfortunately, I should have ignored him, as I could have had my savings increase by 4x in 5 months, and a whole lot more now. But I learned an important lesson from the situation about money.  Risking it all and losing it would have meant that I would have had to go home with my tail between my legs and live with my parents, when I’d rather move in with my then girlfriend (now wife) and work at a job I was lining up.  I had everything lined up perfectly.

After grad school, I had 2 solid years of living like a student and integrating good financial habits behind me. I was excited to get into the real world and earn a real income so I could pay down the debt that I had  accumulated during my time as an undergrad.  Unfortunately, the downturn took its grip, and my position was eliminated before I even got started; my dreams of stable finances were going out the window before I could even reel them in. I went back to my grad school job for a while as a contractor, but it was a 50 mile drive each way. Gas was eating away at my debt repayment money, but I was still making progress.

Eventually, I got a new job with benefits, but kept the old one. The only catch was this job was also 50 miles 1 way drive from where I lived – and not in the same town as my old job.  I decided to go to nights at my old job and work full time at the new job.  I was making money, driving a ton, and didn’t have much free time to go out and spend money, so I was able to make some great headway on my debts.  I paid off 3 credit cards (with balances ranging from 1-4k), 1 small student loan from grad school (~3k), and my student loan from senior year of undergrad with the help of my parents (~9k).  I kept this up for about two years, but it was beginning to make me tired and I missed hanging out with my girlfriend outside of the house.

I was applying for new jobs at the time so I wouldn’t have to drive anymore.  After 25+ applications with various companies in my town, I finally landed a job.  I was making more money, and  finally felt ‘financially secure’ as I backed away from my debt cliff.  I was also able to cut out driving from my daily routine, which has saved me tons of money as well.  I started saving and backed off of debt repayment for a while, and proposed to my girlfriend a few months later.

My journey is not just mine anymore as my wife and I merge our finances as a couple and have bought a house.  We’ve spent the last few months updating the house (it is 94 years old), and are looking forward to the years to come, as our personal finance journey continues and evolves.

How about you all? What do you consider to the most significant ‘turning point’ in your personal finance journey?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/katielips/15985952/sizes/o/in/photostream/

Buying Government Securities Through Treasury Direct

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The following post is by MPFJ staff writer, Kevin Mercadante, who is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

If you’re looking for a way to escape turmoil in the financial markets, there’s no better place to be than cash. If you’re looking for cash-type investments, there’s no better and safer place to be than in U.S. Treasury securities. And, if you’re looking to buy and hold U.S. Treasury securities, there’s no better way to do it than with Treasury Direct.

With Treasury Direct, you can buy and hold U.S. Treasury Securities directly from the U.S. Government in denominations as small as $100.

How to buy through Treasury Direct

You start by setting up an account on Treasury Direct called a Treasury Securities Account, and you can do this by clicking “open an account” on the website. You’ll be required to provide your Social Security number, email address, and bank account and bank routing numbers.

Purchasing a Treasury bill is called “bidding”, and they’re purchased at a discount. The difference between what you pay—the discount—and the bill’s face value is your return, or interest paid at maturity. For example, the face value of a bill is $1,000, but you purchase it for $990. When the bill matures, you’re paid the $1,000 face value which includes your purchase price of $990, plus $10 which represents the interest portion.

There are two types of bids you can use, but when you use Treasury direct, you can only use a non-competitive bid. Under this type of bid, you accept what ever discount the discount rate is as determined by the Treasury auction. You will be guaranteed to receive the security you want in what ever quantity you choose.

The second type of bid is a competitive bid, and this is available only through a bank, broker or dealer. Under this type of bid, you specify the discount rate you want. You may or may not get the discount you want and even if you do, it may be less than what you want.

When you buy a security, the funds for the purchase are withdrawn from your bank account. And when the security matures, the funds will automatically be deposited back into your bank account. You can also set up your Treasury Direct account to automatically roll over funds from one security to another at maturity.

Types of Treasury securities available through Treasury Direct

With a Treasury Direct account, you can purchase the following Treasury securities:

1. U.S. Savings Bonds
2. U.S. Treasury bills (in maturities of 4, 13, 26 and 52 weeks)
3. U.S. Treasury Notes (in maturities of 2, 3, 5, 7 and 10 years)
4. U.S. Treasury Bonds (30 year maturities)
5. TIPS – Treasury Inflation Protected Securities

Selling your Treasuries

When you buy Treasury securities through Treasury Direct, you will have to hold them until they mature if you hold them with Treasury Direct after purchase. Though it’s easy to buy Treasuries through Treasury Direct, the program is set as a way to buy and hold the securities to maturity.

Selling is trickier, but no worse than how you would handle it anywhere else you would sell them. In order to sell a Treasury security that is being held with Treasury Direct, you will either need to move it out of the program, or you can sell it in the account through the Federal Reserve Bank of Chicago (there will be a fee for this). Treasury Direct itself does not act as a secondary market for its securities.

Why not go through a bank, broker, or mutual fund?

There are different accounts you can buy Treasury securities through, but Treasury Direct has some strong advantages over the alternatives.

• No transaction fees. Some institutions charge fees for handling treasury transactions, but even those that don’t skim will skim some out. An institution can instead buy the securities at a given price then sell them to you at a slightly higher price. Mutual funds typically have management fees and other fees that they charge on your account, even if it’s a “no load” fund. No matter how it’s handled, you will pay some sort of fee for the service. With Treasury Direct, there is no fee—you’re dealing direct. Considering today’s extremely low interest rates, a fee that’s no more than a small sliver of 1% can make a difference, especially over the long run. 
• No risk of institutional failure. Since you aren’t using an intermediary to buy and hold your securities, there is no risk of institution failure. The securities are held with the US Treasury, which are backed by the full faith and credit of the United States Government. 
• Set your own maturity allocations. This applies mostly to mutual funds, but when you invest in treasuries through a mutual fund, your maturity allocations will be established by the fund—you’ll have no ability to change that. But let’s say that you believe that interest rates will soon rise, and instead of having the 20% allocation in 26 week treasury bills the mutual fund has, you want to have 80%. With Treasury Direct, you can do that. In fact, you can have any allocation you like. And here’s something else about mutual funds: very few are true pure plays. A fund that invests primarily in Treasury securities may also hold small positions in derivatives and other non-Treasury investments.

Have you ever used Treasury Direct for your fixed income investments? If so, did you find the system pretty easy to navigate? 

If not, what do you use as a ‘house’ for your fixed income investments?

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