A short-term saver? Say thanks to the Federal Reserve.
One benefit of the Fed’s interest-rate hikes aimed at wresting control over inflation is that savers looking for a safe investment for a year or less can now get the best yields in ages from Treasury bills, or T-bills.
Savings rates have jumped from just about zero to more than 4% in the past 12 months on these short-term securities issued by the federal government. On Jan. 24, a one-year T-bill was yielding 4.7%, up from a rate of 0.57% a year ago. A six-month T-bill was at 4.82% on Jan. 23, compared with 0.36% last January, and the three-month T-bill was yielding 4.58%, up from 0.13%.
And as long as the Fed keeps interest rates high — which seems likely after Wednesday’s quarter-point hike — investing short-term money in T-bills has a certain drama-free appeal with modest returns.
While this is not a get rich quick scheme, “T-bills currently offer savers better yield than most online savings accounts and short-term [certificates of deposit],” Ken Tumin, a senior industry analyst at LendingTree and founder of DepositAccounts.com, told Yahoo Finance.
A bronze seal for the Department of the Treasury is shown at the U.S. Treasury building in Washington, U.S., January 20, 2023. REUTERS/Kevin Lamarque
What are T-bills
Treasury bills — like i Bonds and Treasury inflation-protected securities, or TIPS — are issued by and backed by the U.S. government. I bonds, for example, pay interest for up to 30 years. T-bills are the ticket for people looking for short-term savings of up to a year.
Additionally, savers can reap tax savings on T-bills, which are exempt from state and local income tax.
“That can make a 4.6% yield equivalent to a 5% yield for a CD in a state with an income tax,” Tumin said.
How T-bills works
T-bills are sold at a discount to their face value; when the bill matures, your interest is the difference between what you paid and the T-bill’s face value. For example, if you bought a $1,000, one-year T-bill at a rate of 4%, you would shell out $960 upfront and receive $1,000 at the end of the year.
You must buy on auction dates, which occur weekly for all maturities, except the one-year T-bill, which is set for every four weeks. Most individual investors make a noncompetitive bid, which means you land the average yield set at auction. (Emergency funds might be best held in high-yield savings accounts.)
Want to sell before the maturity date? That can be “a bit of a hassle,” Tricia Rosen, a financial planner and founder of Access Financial Planning, told Yahoo Finance.
When you buy through TreasuryDirect — the government’s website — you must hold new Treasury marketable securities for at least 45 calendar days before transferring or selling them (even if it’s a four-week security).Interest is paid when the security reaches maturity.
You won’t pay a penalty or fee if you want to hop out early like you would if you withdrew from a CD early. However, you could possibly lose money, if the sale price of the T-bill is lower than the original purchase price, which you are guaranteed at maturity.
“For individual investors, Treasury bills may be better suited as a way to diversify your portfolio rather than a replacement for your emergency savings,” said Greg McBride, senior vice president and chief financial analyst at Bankrate.com. “If you had an unplanned expense and needed to sell prior to maturity, you wouldn’t be able to sell it on TreasuryDirect but would first have to transfer it to a bank, broker, or dealer.”
Treasury bills offer a safe haven for short-term savings. (Getty Creative)
Where to purchase T-bills
You can buy newly issued Treasuries in terms ranging from four weeks to 52 weeks through your bank or brokerage, which may charge a commission. Or, you can buy them online for a minimum of $100 through the government’s TreasuryDirect program, with no commission.
Large firms, however, such as Charles Schwab, Fidelity, and Vanguard, do not charge a fee when you buy a T-bill.That said, the minimum order for a new-issue Treasury is typically $1,000 in face value when you purchase it via a brokerage. And if you want to purchase T-bills for individual retirement accounts (IRA) accounts, you must go through a broker. For those nearing retirement, these can be a smart place to set aside cash without the worry of what’s going to happen with the stock market.
“T-bills are paying a slightly higher rate than other short-term investments, and the Treasury Direct website is easier to navigate than it was a few months ago before they revamped it,” Rosen said. “So it’s a good idea for someone who is in a high tax state.”
Kerry is a Senior Reporter and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
