Tag: money

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Finances

Better than 2.2% High Interest Savings Accounts

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

  1. Make sure it’s Tuesday
  2. Log into your account
  3. Go to the Trade tab
  4. Look for Fixed Income or Bonds and go there
  5. Look for something that says New Issue and go there
  6. If it’s asking for a CUSIP number look for an option to search for the instrument
  7. Look for the 4 week Treasury Bill
    • Missing? Is it Tuesday?
  8. 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
Categories
Finances

On Money Part 2

So…since the first post on money had a part 1 I feel obligated to at least post a part 2 and here it is.

Based on my previous post it may sound like I don’t support credit, but I totally do.  There have been many times that I wish I understood credit a lot better growing up.  You know what they say tho, hindsight is 20/20.  The best tip I can give is to stay informed.  That being said I’ll cover some areas in credit that I wish I understood better growing up.

1. Credit Scores

Here’s the thing.  I didn’t know much about credit scores till way later in life.  And even now they’re somewhat of a magical black box.  There are 3 main companies that give scores that people care about: Equifax, Experian, and TransUnion.  They each have their own proprietary algorithm, but tend to score pretty closely.  There are many factors that affect credit scores like credit history, available credit, and % of credit left over/used.

Tip #1: Try not to close credit lines, especially if they’re your oldest credit card.  I closed my student credit card during my college years not knowing it would have a negative impact.  This hits you in two ways.  One, if it’s one of your older lines you’ll lose some history.  Two, your total available credit will suddely drop.  Just cut them up and keep the lines open.  By doing so you’ll also keep the % credit used lower which also helps.

Tip #2: Avoid bad credit history.  This means pay your bills on time.  Yea not super genius right?  It’s simple, but really important.  Negative info will stay on your credit history for 7 years.  If something like an unpaid credit line is tainting your credit score it’s sometimes worth trying to contact the company directly and paying them the amount owed to try and get it off your history.  Your mileage may vary.  That leads into the final Tip.

Tip #3: Know your credit!  This is probably the most important tip, especially nowadays with all the id fraud.  You can check your credit report for free once a year from each of the big 3 agencies here and no it’s not freecreditreport.com like that catchy commercial says.  The suggested way is to spread them out over the year to keep an eye out for mistakes.  Note that you get your credit history, but not your score.  The scores you’ll still have to pay for.

2. Loans

I used to think they were all bad so I didn’t take advantage of any of the lower interest loans available to me during college.  It was only after I graduated and understood more about how those loans worked did I see a missed opportunity.  Lucikily my brother and sister were able to take advantage my new found knowledge and lock in those low rates.  Loans can also be a chance to create a history of good payments that will help your credit score, but it’s a bit of a double edged sword as you’ll now have some debt being calculated into your score.  With some loans the interest is also tax deductible here in CA (I know that student and mortgage loans are structured that way).  The only takeaway here I guess is to not write them off right away, but consider the rates and opportunity cost.

Categories
Finances

On Money Part 1

I was just sitting here thinking about how many people seem to have credit and money issues.  At the base level it seems pretty simple.  Don’t spend more than you make and save the rest.  Right?  Ok don’t jump down my throat.  I know it’s not always that easy or that simple as life is complicated and I can fully appreciate that.

Specifically, my issue lies with our obsession with buying stuff with money we don’t have (this means CREDIT)…I mean why dig the hole?  Again I understand the idea of leveraging for really big stuff.  But for everything else what makes us do this and how do we fool ourselves into thinking that it’ll be fine?  Why can’t you wait another 2 months when you have the money?  Who actually spends the time to read the terms and conditions that CC’s set forth.  For those that pay on time and in full you could care less right?  But the one time you miss or decide to finance that big purchase you’ll notice pretty fast on that statement.

I’m no financial planner, but I feel that I’m pretty good about living within my means (though it’s barely sometimes).  It made me think…why?  Why are some people smart about their money and why do others live on the wild side?  I think it breaks down into 3 main parts.

1. Education

As strange as it sounds I think there needs to be more emphasis on teaching the basics of how money and credit works.  What’s a credit card vs a debit card?  What does it mean to balance my checking account (I don’t feel the actual task is necessary with the advent of online banking)?  In my experience, we don’t really grow up being taught these life lessons then we get to college not understanding credit cards, how they affect our personal credit, and sign up for student cards for some free schwag.  Sometimes it ends there and other times we add to our already large college debt.  The good news is I believe this is covered much better nowadays.

2. Habit a.k.a Where are my piggy banks?

Growing up I had a piggy bank.  Maybe I dated myself, but I don’t see piggy banks anymore.  I think this may be a downside of this digital age.  I like to think of the piggy bank as the antithesis to the credit card.  CC’s teach spending cause it’s easy.  You swipe and the item is yours.  The loss of money just happened in the future where you can’t see it yet.  With the piggy bank you get to give your mental decision to save a physical attribute.  I believe in muscle memory.  When my brother and I were kids we each had a plastic piggy bank.  He had a blue one and I had a red one they had these green hats…anyways I digress.  I can remember putting money into that piggy bank.  I wasn’t even saving for anything and I’m not sure why I started doing it so I’m going to chalk this up to my parents slamming yet another value into me.  But there was something exciting about feeling it get heavier and even opening it up once in a while to see how much you actually had saved (free math lesson!).  Where did I get my money?  We didn’t get chore money =(  But my grandfather would always give us each a dollar when we went to go see him at the restaurant plus you find random stuff on the floor and change from lunch.  Having that piggy bank there and seeing it means you have to make a decision every time you see it.  Bring the piggy banks back!

3. Culture

Americans are consumers compared to other cultures.  I remember in my High School economics class my teacher mentioned the savings rate of Singapore was something, but what struck me is that America’s saving rate was negative.  There actually seems to be a recent swing with America saving more and other places spending more, but I think the culture still deserves a category on its own.  It’s that powerful.  There’s not much you can do, except be aware of it and make your individual change.  Knowledge is power.