I recently discovered this alternative to the high interest online savings accounts that I believe will return higher gains. The gist is that you take your current lump sum and split them up into 4 piles and purchase 4 week Treasury Bills (TBills) once a week and then just continue to reinvest once they mature.
The 4 week is currently returning ~2.4% which is higher than the 2.35% that I’m seeing for savings accounts and doesn’t require a 1 year locked like a CD that gives ~2.7% at the moment. Let me also mention that gains on TBills are not subject to state and local taxes (just Federal). I don’t know if this is something that’s common or if it’s because of the slightly inverted yield curve. Either way it seems pretty cool.
Disclaimer: I am not a financial anything, I’m just a rando on the internet.
I just set up my two weeks of this plan and it’s not difficult if you have a bit of knowledge. First off while TBills have a secondary market it trades like stock and I believe are already partway through their cycle. I don’t know enough about it so to keep things simple I just purchased “New Issue” TBills. This is basically buying brand new TBills with the full maturity date. The rates seem to be pretty stable buying these so you more or less know what yield to expect. They are only sold in $1000 increments at most brokerages and are released on Tuesday.
New Issue 4 week TBills are released on Tuesday and are purchased in $1000 increments (from most brokerages)
Now you just do the above for 4 weeks in a row and after the initial 4 weeks you’ll have small gains landing in your brokerage account. I believe some brokerages allow you to automatically reinvest (like a DRIP), but so far I’ve only found info about this at Fidelity (called auto roll) so far.
I’m using Schwab (referral link) because they allow commission free trades for TBills, allow purchases of New Issues, and I already have a bank account with them for international ATM usage (they have a really great foreign exchange rate and don’t charge ATM fees abroad so I can pull whatever foreign currency I need at arrival rather than carry it all with me). I’ve heard that Fidelity and Vanguard also allow for commission free TBill access. I tried Merrill and they don’t have online access to New Issues.
Rough steps to purchase at brokerages
- Make sure it’s Tuesday
- Log into your account
- Go to the Trade tab
- Look for Fixed Income or Bonds and go there
- Look for something that says New Issue and go there
- If it’s asking for a CUSIP number look for an option to search for the instrument
- Look for the 4 week Treasury Bill
- Missing? Is it Tuesday?
- Buy (make sure it’s the 4 week one…or just don’t buy the wrong one)
Update: After confirming Schwab does not have the auto roll feature I also wanted to try TreasuryDirect which is the US Govt’s site for purchasing Treasury things. The sign-up was pretty easy, but prepare a bank account to be linked. The login is a bit more cumbersome because of some security things they do. But you can purchase TBills in $100 dollar increments (up to 5M) and they let you reinvest for up to 2 years (they ask you for the number of times you want to reinvest so you might have to do the math). You can also schedule purchases for future auctions (they seem to have about 2 months worth). It looks like the site will just pull from your bank for the purchase and deposit the gains into your linked bank. Internet sources state that you’ll have to remember to download the 1099 yourself.
- Pros for TreasuryDirect
- $100 dollar increments
- Scheduled future purchases
- Set reinvestment up to 2 years (editable too)
- Cons for TreasuryDirect
- No secondary market like in a brokerage aka you have to wait for it to mature to get the money. You’ll have to transfer your bill to your brokerage account to sell it before it matures.
- Login seems to be more of a pain