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T-Bills beat CDs

By Terry Savage on September 21, 2022

Update: 9/27 The Monday 26 week Treasury bill auction came in at an average rate of 3.98%, as estimated here. That’s the yield you received if you ordered 26 week Treasury bills when this column was posted.

The Fed continues to push interest rates higher – 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?

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 finally, you can earn more on your “chicken money” — nearly 4% — with perfect safety!

Your Chance at Higher Safe Interest Rates

And the great news is that you are now in a position to easily take advantage of those higher free-market rates. 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.

Click on this link to read my article on how to open a Treasury Direct account if you haven’t done so already. It’s the same account you used to buy Savings Bonds.)

As of this writing, 6 month Treasury Bills are yielding nearly 4%! The rate changes weekly at the huge auction (read below). Here are the details.

Buy U.S. Treasury bills Through TreasuryDirect.gov

Yes, this is the SAME account you opened to purchase savings bonds. 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. Chose 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 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. You can always go into your TreasuryDirect account and change that direction, 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. One tip: 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.)

Getting Started

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. 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!

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