This is a follow-up post to a recent post I wrote on investing directly in U.S. Treasury bills. I pointed out that you can earn a great deal more in interest buying Treasury bills than you can earn through a regular checking or savings account with your bank.
Since writing that last post, I went ahead and set up an account through the TreasuryDirect website. It wasn’t the easiest website to navigate, but it wasn’t the worst either. Overall, for a government website, it went pretty well. The only part that was a little confusing was setting up the account ID and password. It was incredibly simple putting in a link to my bank account.
After setting it up, I put in an order to buy a 4-week Treasury bill. The transaction went through today, and it looks like the interest rate is currently just over 1.8%.
The yield curve has been flattening a bit lately (a recession indicator). The long-term rates have gone up, but the short-term rates have been going up at a faster pace over the last few months. Therefore, I didn’t want to lock in anything too long because short-term rates may keep creeping higher.
When you put in a purchase order, you can enter in the dollar amount for investment, coupled with the length of time for the investment. For example, you can put in an order to buy a 4-week Treasury for $10,000. It will tell you the next date of auction for when it will be bought. You can also look at the previous auctions and the going interest rates, although that is no guarantee of the interest rate you will ultimately get.
One thing I noted is that it took slightly less out of my bank account than what I had ordered. Using the above example of placing an order for $10,000, you may only see a reduction out of your bank account for $9,985. I believe the reason for this is that the amount you order is actually the amount at maturity. You will earn $15 over that 4-week period and have $10,000 placed back in your checking account, unless you specified that you want it reinvested.
I know that interest rates are still extremely low by historical standards. Still you can go through the TreasuryDirect website and at least get something as compared to the near zero with your bank. If you have any substantial amount of “cash” sitting on the sidelines, you might as well get a little bit of return without a lot of effort.
If you are concerned about liquidity, you can just keep purchasing the 4-week bills and rolling them over until you need the money for something. It is a very short timeframe to lock up your money. You could always split up your order in half and stagger the purchases every two weeks. That way, you always have access to at least half of your money within a two-week timeframe.
If anyone else has had any experience with the TreasuryDirect website, feel free to share your experience in the comments below.
I know it is odd for a libertarian website to be promoting the buying of government debt, but you have to do what is right for you.
I have used TD for several years. There is a lot of hatred for it on investment sites like Bogleheads or gyroscopic investing. I have never had any issues with it but I will say that whereas a private company’s website would have probably gone thru a lot of upgrades and enhancements in the last 10 years, the TD site looks pretty much identical to how it looked a decade ago.
Another issue people have is the liability. At your bank or brokerage account you are covered if there are fraudulent transactions on your account. However, the security policies on the TD site plainly state that they are not responsible for any breach of security or fraudulent transactions that occur on your account. That is enough to keep a lot of people away. It might concern me more if I had a majority of my wealth there but I don’t.
You are correct about the interest deposit. If you buy a $100 Tbill, then they will deduct $99.78 (or whatever) from your account on the purchase date and then when it matures they will deposit $100 back to the account. Now if you have it set to auto-roll into a new Tbill upon maturity, then on the maturity date they will take the new $99.78 out of the $100 proceeds from the maturing bill and then deposit the extra $.22 into your account. As I said, it has always run pretty smoothly for me.
I would have them take and deposit money direct from your bank accounts and not use their C of I funding account. Mainly because of the holds they put on it. You can have $5,000 of cash in the C of I account that has been there for months. Then if you just deposit $1 of new money they will then place the entire $5,001 of your cash on hold for 10 business days. That seems excessive to me.
I appreciate your detailed comments. I hope everyone who reads this post also reads your comment. It is a good addition to everything I said.