Terry’s Columns T-Bills beat CDs

T-Bills beat CDs

By Terry Savage on January 29, 2024

U.S. Treasury Bill interest rates are still mostly higher than the comparable bank CDs. As of
February 21, 2024, the yield on a 13 week (3 month)T-bill is 5.4%, and on a 26 week (6-month) Treasury bill is 5.33%. That’s what you received if you participated in the weekly T-bill auction described below. It’s easy (see links below) and SAFE! And you can start with as little as $100. So please read the column below and get the rate set by the market at the next weekly auction, which occurs on Mondays.

Now, all eyes are on the Fed, which is expected to start cutting rates in the new year. And despite higher rates (now starting to fall) the stock market has soared to new highs in the past two months. But stocks have risks — and what goes up can come down! So don’t be guided by headlines. Instead, take a close look at how much you can afford to lose if the market falls. Sort out your chicken money, and recognize that at current rates it is at least offsetting inflation, without any risk of principal.

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. It takes a while for banks to pass on those higher rates. But as rates come down in the marketplace, CD rates will fall quickly.

Your Chance at Higher Safe Interest Rates

The great news is that you are in a position to easily take advantage of those higher free-market rates, that change weekly based on global investors outlook on future inflation, and the safety of the U.S. dollar.

Getting Started by Opening an Account

You likely opened an account at TreasuryDirect.gov to purchase those attractive Series I Savings Bonds. Well you can use that same account to purchase Treasury bills — U.S. Government short-term IOUs — the safest and best credit in the world.

If this is your first time buying T-bills, it’s easy to get started. Just go to www.TreasuryDirect.gov, and on the home page there is a link to “Open a New Account.” Follow the simple steps, and be sure to click ‘submit’ at the bottom of every page.
You’ll need your name, Social Security number, bank account number and bank routing number. Those are fund at the bottom of your check, or ask your bank. This is the bank account you’ll use to pay for your purchases. And your interest will drop back into this account. When your purchase matures (if you haven’t specified a rollover) the principal will drop back into this account.
If you have a Revocable Living Trust, you can buy Treasury securities in the name of your trust. Use your own Social Security number. And be sure to link it to a bank account in the name of your RLT. (Yes, if you already have an individual TreasuryDirect account, you can open a second in the name of your RLT, using the same SS number.

As you open the account, you’ll choose a password which you should guard carefully, and it should be a new, different password than you use at your bank — just for added security. Once the account is open, you’re ready to buy T-bills.

Buy U.S. Treasury bills Through TreasuryDirect.gov

Once you’ve logged in to your TreasuryDirect account, click on the tab marked “Buy Direct.” Then click on “Treasury Bills”. You’ll be given a choice of maturities, so scroll down to 26 weeks — 6 months.
You’ll be given the choice of the upcoming weekly auction dates. Choose one, then scroll down to insert the dollar amount of your purchase. Your bank info will automatically load. Click “buy” — and you’re all set for the Treasury to debit your checking account on the day of the auction.

You get whatever rate is set at auction, typically within a few basis points of the current rate on 6-month T-bills that you can find on CNBC. The interest is deposited directly back onto that same bank account. And the interest is free from state income taxes!

(You’ll notice that if you purchased say $10,000 in T-bills, only $9,xxx will be deducted from your bank account. The difference is the interest, which is paid upfront.)

When making your purchase, you’ll also be asked if you want to have your Treasury bills “roll over” automatically at maturity, accepting the then-current interest rate. I suggest selecting at least two or three automatic rollovers/renewals. You can always go into your TreasuryDirect account and change that instruction, if you want the money sent back to your bank account when the T-bill matures. But you can’t get the money back before the maturity date.

You can buy Treasury bills ranging in maturity from 3 months to one year, as well as longer term Treasury notes. You will see a list of upcoming auctions for 13-week and 26-week T-bills. Just choose the nearest auction date. Again, you won’t know the rate you get until after the auction, but it’s usually pretty close to the previous week’s rate.

One tip: If you have a lot of money to invest in T-bills, buy every two or three weeks, staggering the maturities. Then if rates are rising at the time of your rollover, you’ll take advantage of higher rates as each matures. (And the converse if rates are falling in 6 months when your T-bills mature.)

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.

This is the same security that protects trillions in Treasuries traded on a daily basis, so don’t worry about doing this online. Even a non-tech savvy consumer can do this easily, I promise.

Although the Treasury will not open accounts directly for your IRA or IRA rollover account since they do not act as “custodian”, there IS a way to purchase T-bills (or I-bonds) for your IRA if your custodian has a brokerage division.
You can buy new-issue Treasuries through the top three brokerage firms Fidelity, Vanguard, and Charles Schwab with no fee whatsoever. In addition, you can buy them in your Traditional or Roth IRA at the broker, whereas TreasuryDirect doesn’t offer IRAs.

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

ADDING A BENEFICIARY
Many people have later decided to “add” a beneficiary or co-owner to the account. Well, it’s a big complicated, but first you have to “create” that person in your own TreasuryDirect.gov account. Read these instructions, step-by-complicated-step, direct from my contact person at Treasury!

Before editing the registration of your securities held in your TreasuryDirect account, you need to check your registration list to determine if the desired registration is available. Adding a new registration is simple, but there are a few rules:

1. Registrations can only be added to individual TreasuryDirect® accounts.
2. You can add new registrations in your name alone, your name with a secondary owner, or your name with a beneficiary.
3. For gift savings bonds, you can use the same forms, but you can only be named on them as a beneficiary. (You can’t buy marketable securities as gifts.)
4. Each registrant’s social security number must be shown.

To add a registration to your Registration List:

1. Access your TreasuryDirect account.
2. Click the ManageDirect® tab at the top of the page.
3. Under the heading Manage My Account, click Update my Registration List.
4. Click Add Registration to display the next page.
5. Choose the type of registration you want: Sole Owner, Primary Owner, or Beneficiary.
6. Enter the name(s) and social security number(s) in the spaces provided. (If you are buying the security for yourself, you must be the “First-Named Registrant.” If you are buying the savings bond as a gift for someone else, you have two choices: leave your name off or list yourself as beneficiary.)
7. If you want this registration to appear at the top of your Registration List when using BuyDirect®, check the box for Make this my preferred registration.
8. If savings bonds with this registration are gifts, check the box beside This is a gift.
9. Click Submit to complete the process.

The registration you just created will appear in the Registration List where you can choose it when making purchases with BuyDirect or editing the registration of existing securities held in your account..

To add a secondary owner or beneficiary to your securities:

1. Click the ManageDirect tab at the top of the page.
2. Under the heading Manage My Securities click “Edit” a registration.
3. On the Edit Security Registration page, choose the security type you want to edit and click “Submit”.
4. On the Summary page, choose the security or securities you wish to edit and click “Select” (you may edit up to 50 securities to the same registration).
5. On the Detail page, select the registration containing the secondary owner or beneficiary you desire from the drop-down box. Note: Entity accounts may only have one registration. All securities in an entity account carry a registration identical to the entity account name.
6. Once you’ve selected the desired registration, click “Submit” to complete the change in registration for the security.

Buying T-bills for your Revocable Living Trust
If you have a revocable living trust, open the TreasuryDirect account in the name of your RLT. Link it to a bank account in the name of your RLT. Yes, you’ll use your own Social Security number on this account, which may also be in use for an account at TD that you opened before you created your trust. That’s allowable, so don’t hesitate.

You CAN NOT change the name of your account to a trust, or rename the securities in your existing personal TD account. Instead, you’ll have to wait until those securities mature, and the money drops back into your bank account. Then move the money to your RLT bank account, and buy new securities in the Trust account at Treasury Direct.

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