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Can I buy bonds online?
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November 12, 2001: 12:06 p.m. ET
Stocks online are easy to find; where are the bonds?
MONEY columnist Walter Updegrave
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NEW YORK (CNN/Money) - There are plenty of sites where retail investors like myself can buy stocks on the internet, but I haven't seen comparable services for bonds. Are there any available?
As recently as a few years ago, shopping for bonds was a real drag. Information on prices and yields was scarce, so individual investors like you were pretty much had to deal with flesh-and-blood bond brokers, many of whom added hefty premiums to their prices. That's changing, though, as an expanding number of websites allow you to sift through databases of thousands of bonds so you can search for issues that meet your needs and even have a decent shot at getting them at competitive prices. Here's a quick rundown of your choices:
Treasury bonds
The easiest way to create a portfolio of individual bonds is to buy new two, five or 10-year U.S. Treasuries directly from the federal government at their regular Treasury bond auctions. (Until recently, 30-year Treasuries were also available, but on October 31 the Treasury department announced it would no longer issue 30-year bonds.) You don't have to worry about Uncle Sam defaulting and you can buy bonds in denominations as small as $1,000. What's more, you can do all this electronically by signing up for TreasuryDirect.
The fee for service? Zero, zilch, nothing, unless your account balance hits $100,000, at which point you pay just $25 a year. If you do decide to buy Treasuries directly from Uncle Sam, I recommend you submit a "noncompetitive tender." By doing this you'll get the "market clearing" yield for the auction -- that is, the highest yield accepted by the Treasury -- and you'll also be sure of having your order filled.
Municipal bonds and corporates
Several discount brokerage firms and other online bond sellers allow you to search their databases for bonds and in many cases even buy online. Typically, you enter into a search engine the criteria you've set for the bonds you want, such as the credit quality, number of years to maturity and current yield. You then get a list of issues that meet your criteria. Many sites also give you the option of customizing your search by weeding out certain types of bonds, say, ones likely to be called, or repaid early, thus leaving you with the burden of having to reinvest your money sooner than you had planned.
After taking a look at several brokerage firms and online bond sellers -- including BondAgent.com, MuniDirect, E*Trade, Fidelity, Schwab, Vanguard, Tradebonds.com, T.D. Waterhouse and CSFB Direct -- I think I can safely say that no one site always has the best deals. So it pays to shop around. To that, go to a few different sites, plug in the bond's Cusip number -- an ID tag carried by each bond issue -- and then look at the different prices you're quoted for the same bond. (Of course, not all sites carry the same bonds, and you may have to open an account to get quotes at some sites.)
Keep in mind that bonds can be tricky little devils. An issue that appears to be a hands-down winner might actually have latent drawbacks. The issuer could be in dire financial straits, or the price quote might apply only if you're buying, say, $25,000 or more of a particular issue. So before you begin your bond voyage, I suggest that you bone up on bond basics at such sites as Investing in Bonds, BondResources and the Bond Center at CNN/Money. 
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