If you have $10,000, here's how to buy Treasury bills

Although interest rates payable on three-or six-month Treasury bills (T-bills) have dropped from over 15 percent last spring to around 10 percent now , many investors continue to seek information on buying them. Basically, there are three ways to buy T-bills:

1. any person with at least $10,000 can buy a three-month or six-month T-bill directly from the Federal Reserve bank or branch (the Fed) that services his or her area. The Fed handles the sale and redemption of T-bills for the US Treasury. Prices for T-bills are determined each Monday for the three- and six-month T-bills, unless Monday is a holiday. Then, the auction is held the previous Friday. One-year T-bills are auctioned every four weeks.

You may buy T-bills by appearing in person at a Federal Reserve bank or branch with a tender (application) and a blank draft or certified check for $10, 000 or more. You must have your tender and check into the Fed before 1:30 Eastern time.On the West Coast, closing time is 10:30 a.m. Each week's price is determined from the bids accepted beginning with the highest bid and following down the array of bids until the preannounced total is reached. Small orders are filled at the average price of auction orders. Although you must include a check for $10,000, the Fed returns the difference between $10,000 and the T-bill price on thursday following a Monday auction. As you know, T-bills are discount instruments; that is, you buy a T-bill for less than the $10,000. Three or six months later, you receive a check for the full $10,000. The difference between the price you paid for the T-bill and the full amount at redemption is your interest.

You may also buy T-bills directly from the Fed by mail. For complete information on buying T-bills through the mail, address a request for tender (application) to the Fed serving your area. Your local bank can provide the address. When you receive the forms, follow instructions exactly. Make sure your tender and draft or certified check reaches the Fed no later than 1:30 Eastern time.

Although there are no fees associated with buying T-bills directly from the Fed, you should recognize the cost of interest lost on funds in the process. For example, if you intend to buy a $10,000 three-month T-bill, you must buy a bank draft or certify a personal check no later than Friday to be sure it arrives at the Fed by Monday morning. Your T-bill does not begin earning interest until the following Thursday. Thus, your $10,000 loses six days' interest. At 10 percent, that amounts to $16.67. Interest lost increases as the rate increases. When the rate was over 15 percent, interest lost roughly equaled the fee a bank might charge for buying a T-bill for a bank customer.

2. You may ask a commercial bank to purchase a T-bill for you. Generally, the fee runs from $15 to $30 for purchases up to $100,000. For buying a T-bill over $20,000-$25,000, the bank's fee would likely be less than the interest lost (see above) because the bank withdraws only the exact amount required to buy the T-bill from your account on Thursday following a Monday auction. Your funds continue earning at the bank until transferred to the Fed.

The American Board of Trade (286 Fifth Avenue, New York, N.Y. 10001) will also buy T-bills at an escalating rate as value increases. For a three-month $ 10,000 T-bill, the fee is $22.50. The ABT also sells units of T-bills in $1,000 and $5,000 denominations.

3. Original issue T-bills are available only from the Fed. But issued, T-bills with less than three or six months to maturity are also available on the secondary market through banks and stockbrokers. You will pay a commission, and the price changes daily according to the environment for interest rates and demand for specific maturities. You may also sell your T-bill on the secondary market and pay a commission. For more information ask your bank or broker.