Terry Savage: T-Bill rates beat CDs
The Federal Reserve 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 short-term 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 Fed 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 suddenly you can earn more on your “chicken money” — nearly 4% — with perfect safety!
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, the safest and best credit in the world.
(For more on how to open a TreasuryDirect.gov account, read my article at TerrySavage.com.)
As of this writing, six-month Treasury Bills are yielding nearly 4%! The rate changes weekly at the huge auction (read below). Here are the details.
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 — six 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 six-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 tax!
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 three 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 six 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 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.
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!
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)
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