If you are a saver and have a little nest egg put away, or a person who believes in having cash in the bank just in case a great deal comes along, then you know how piddly the returns that banks give on your money.  Something like one-tenth of 1%.

Somehow we have been conditioned to believe that money in the bank is safe, and maybe it is, but what if you could do better?  Also, why is it, with the recent increase in mortgage rates, our savings rates have remained the same?

A recent post from E.B. Tucker of the Strategic Investor spoke of how interest rates are on the way up, and how to take advantage of it using government money.

The US Treasury is in debt for $21 trillion and is willing to pay anyone willing to “loan” them money, at interest rates that beat the banks.  For example, $20,000 sitting in a bank savings account at .01% will yield $20 annually.  Lending that $20,000 to the US Government for 4 weeks at their current rate of 1.59% will yield $259 annually (if you keep rolling it over every 4 weeks).  How safe is it?  As safe as you believe our government can pay.

For this reason, E.B. Tucker invests in the shortest term of 4 weeks.  At the end of each term, the principal and interest are deposited back into your bank account, ready to use or deposit again.  3 month yields are 1.80%, and 6 month yields are 2%.  The longer the time frame, the higher the interest BUT interest rates seem to be rising, so shorter terms are a better play on this strategy.

How to do it

The first step is opening an account with the US Treasury.  Here is the link: Treasury Direct website.  Complete the forms which will then link to your bank accounts.  Here is a link to a guided tour of the account.  It is rather easy to do.  Choose  either individual or entity accounts.  A personal trust account defaults to an entity account, rather than to an individual account.

There will be a layer of security checks such as choosing a picture and captioning it as well as being emailed an account number (write it down).  You then log in with the account number that was emailed to you.  A one time passcode will be emailed to you for the first time.  After that, your own password is the valid one.

You are now ready to participate in US Treasury auctions!  After you are logged in, choose “BuyDirect” from the tabs at the top of your account page.  Choose “Bills”.  This will take you to a purchase information page with all the available short term bills in chronological order.  Choose the one with the term (Aunty chose 4 weeks) and the date that you want (Aunty chose this week).

Enter the dollar amount that you wish to invest and designate if you want it to automatically re-invest after the 4 weeks.  For this first time, Aunty has decided not to do this, but will probably have it enrolled in scheduled reinvestment in the future when it feels more comfortable.

After you have chosen your term and week, click submit.  This will take you to a page that asks you to confirm this transaction (as in, are you sure you’re sure?)

Congratulations!

Confirm submit, and it is done!  After each auction, Treasury bills will show up in your account with the corresponding interest rate and maturity date.  Four weeks later, it redeems the bills and your principal plus interest is deposited back into your bank account.  Cool!

You can participate in as many auctions as you want, though you must submit each one separately.  Do NOT back out of a page or you will have to go to the home page and log in again.

To see a Tentative Auction Schedule of U.S. Treasury Securities, go to Announcements, Data and Results – though this is a spreadsheet of tiny letters and numbers that Aunty could barely read.

The process will seem daunting, but it just takes a bit of time to learn.  It also feels good – lending money to our government, and getting paid for doing so.

Update, August 11, 2018

Aunty linked her bank checking account and invested $5,000 in a 4 week treasury bill.  Rather surprisingly, only $4993.08 was swept out of the account.  Just before the 4 weeks was up (time flies so 4 weeks is a great term), Aunty opted for the automatic renewal for one term.  At the beginning of that 2nd term, $7.23 was deposited into the account by US Treasury.  Hmmm.

Then, after the 2nd term expired, and Aunty did not opt in for a renewal, $5,000 was deposited back into the checking account, and all was good!  It was perfect timing because Aunty really needed the funds.  

This is an excellent strategy to park money short term and earn more than the banks’ piddly interest on savings.