Terry’s Columns How to Buy Treasury Bills (and earn more!)

How to Buy Treasury Bills (and earn more!)

By Terry Savage on April 25, 2018

Short term interest rates are rising – and that has the stock market in a tizzy. After all, who needs to take the risk in stocks if you can earn interest safely in an FDIC-insured  bank account or in Treasury bills, which are IOUs directly from the government?  But savvy investors need to make sure they are getting the best rates on the safest investments.

In recent years, savers have been penalized for keeping money in safe, short-term investments. Interest rates have been lower than “normal” –pushed down by Federal Reserve policies, and by banks thinking they didn’t need to pay higher rates to attract depositors seeking safety.

Interest Rate Rip-off

It’s time to start comparing interest rates. Here’s how much more you could be earning:

I checked with two major Chicago banks (who shall remain nameless because they should be embarrassed) and found them offering these rates:

Bank A offered 0.20 percent on a money market deposit account and 0.10 percent on a 6 month CD – with a $100,000 balance!

Bank B offered 0.10 percent on its money market deposit account and 0.05 percent on a 6-month CD, with a $5,000 balance!

Meanwhile the United States Treasury is paying 2.03 percent on 6-month Treasury bills, which are IOUs directly from the Federal government.

It’s time to take action to find a higher-yielding, safe investment for your “chicken money!” And there is an easier alternative than wiring your money to an online bank that offers higher FDIC insured rates.

What is “Chicken Money”?

I’ve always advised that you should keep some “chicken money” on the sidelines – money safely stashed in low-yielding but safe places like short-term CDs, money market accounts, or Treasury securities. That’s the money that lets you sleep at night, riding out the ups and downs of the stock market in hopes of long term gains, which the market has always provided.

The amount or percentage of your assets that should be stashed safely away depends on a lot of variables – your age, your stage of life, your personal risk tolerance, and your time horizon for using the money.

In the past 3 years, the interest rates paid on 6 month Treasury bills have risen from less than one-tenth of one percent to the current 2.03 percent.  In fact, yields on 6-month Treasury bills have more than doubled from just one year ago.  But banks haven’t been eager to pass on those higher rates to depositors, as noted above.

Buy U.S. Treasury bills online!

Instead, you might want to buy 6-month Treasury bills directly from the Federal government at the weekly auction of Treasury IOUs. You’ll get the average rate set by the auction, which last week was slightly over 2 percent.  The money is withdrawn directly from your checking account to pay for your purchase, and the interest you earn is deposited back into your checking account.  You can arrange to have your Treasury bills “roll over” automatically at maturity, accepting the then-current interest rate.

And best of all, you don’t have to have a lot of money to get started. The minimum investment in Treasury bills is only $100.  And it’s easy to buy them.  Just go to www.TreasuryDirect.gov and take the “guided tour” of how to open an account.  You’ll need your Social Security number, along with your bank routing number and account number, which you’ll find on your checks. You’ll set up a password-protected account in minutes, including security questions.  Even a non-tech savvy consumer can do this easily, I promise.

Once your account is open, you can buy any amount (in round $100 amounts) with a click of your mouse. And you can check in to see the totals in your account at any time.  You can buy Treasury bills ranging in maturity from 3 months to one year, as well as longer term Treasury notes, and even buy U.S. Savings bonds.  When buying T-bills, don’t plan to access the cash before it is re-deposited into your account at maturity. Stagger those maturities to take advantage of rising rates, and create more liquidity by having some T-bills mature each month.

And one more benefit: There is no state (or local) income tax on U.S. Treasury securities!

Your bank will be sorry to see that low-interest money go! But you’ll enjoy seeing the higher interest hit your checking or savings account. That’s the Savage Truth!




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