U.S. Treasuries Become More Affordable - new, smaller-denomination Treasury securities as investment alternative for small businesses - investment alternative for small businesses - Brief Article

Nation's Business, Feb, 1999 by Peter Weaver

Before you decide to park company funds in certificates of deposit, take a look at the new, smaller-denomination Treasury securities. Their interest rates are typically higher than those of CDs, they offer a tax break, and they can be purchased over the Internet.

The minimum denomination for Treasury bills, with maturity dates from three months to 12 months, has dropped to $1,000 from $10,000 to make it easier for small investors to participate. The minimum denomination for Treasury notes, with maturities of 24 months and 36 months, has dropped to $1,000 from $5,000.

T-bills and T-notes have recently been earning three-quarters of a percentage point more in interest than bank CDs. As a bonus, interest on Treasury securities is exempt from state and local taxes.

"These short-term Treasury securities are now a good investment alternative for small businesses because you can get a safe parking place for money that may be needed within a few months," says Kay Jeffers, a CPA who is president of the National Society of Accountants, based in Alexandria, Va.

Jeffers, who heads Jeffers Accounting and Business Services in Sheridan, Wyo., says she has agriculture clients who have large incomes in the fall when crops and livestock are sold. "These people have to pay a lot of bills in the winter and early spring when money isn't coming in," she says, "and the short-term T-bills give them an alternative to buying CDs at the bank."

Barbara Warner, a Bethesda, Md., financial planner, believes the new, low-denomination, easy-access Treasury securities could give banks a wake-up call to make their own investment offerings more competitive. "If banks know you can go online and shift deposits into Treasury bills and notes," Warner says, "they may compete harder to keep your business."

To buy Treasury securities, you must first set up an account, You can do so--and also make purchases--via the Internet, at www.treasurydirect.gov, or by calling a toll-free number, 1-800-943-6864.

You can also set up an account and buy Treasury securities at Federal Reserve System banks or branches, says Peter Hollen-bach, a spokesman for Treasury's Bureau of the Public Debt in Washington, D.C. "Your bank should have the phone number and the address" of the nearest location, he says. For general information, call (202)874-4000.

There are two potential processing costs. If your account holds more than $100,000 worth of securities, there's a $25 annual fee. And there's a $34 fee for selling any T-bill or T-note before its maturity date, regardless of the face amount.