By Trent Derrick, CMT®
Are you tired of the puny interest rate your bank offers? It’s no secret that a savings account isn’t going to do much for you. As of October 2022, the average interest rate on a savings account is only 0.16%. With inflation consistently over 8% this year, every dollar you have in the bank account is losing purchasing power over time. Life is getting more expensive, but your bank accounts are staying virtually the same.
So what should you do?
On the one hand, you might consider creating an investment strategy and investing some of this money in the stock market. While this may be a great approach if you don’t plan on touching the money for five-plus years, it’s a little risky if you’ll need the money sooner. As we’ve experienced in 2022, the stock market is volatile and nothing is certain in the short term.
In that case, you will want a strategy to get better returns than a bank, without the ups and downs of the stock market. The solution?
What Are Treasury Bills?
A Treasury bill is a short-term obligation of the U.S. government for loans of one year or less. When you purchase a Treasury bill, the government typically uses the money for public projects like schools and highways. In return for the loan, the government pays interest rates higher than a bank account, and the interest rate depends on the length of the loan.
It’s also important to note that government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
There are Treasury bills that mature every 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. As you can see, you don’t need to have this money locked up for years on end. Instead, you can use these Treasury bills as a low-risk way to earn additional money on your cash savings.
Additionally, the rates are quite competitive, and much higher than the average savings rate. While rates do change often, as of this writing, the rate for the four-week loan is 2.68%, while the 52-week loan is 4.15%. The rates for the other durations fall between those numbers.
How You Can Take Advantage of Treasury Bills
If you have extra cash simply lying around, either in your business or in your personal savings, I’d highly recommend that you look to see what kind of interest your bank offers. If it’s next to nothing, consider an alternate strategy for your cash.
For instance, when working with clients who own a small business and need to have cash on hand, I simply buy Treasury bills that will mature in four weeks. When the principal and interest is paid out, I use those proceeds to buy new four-week Treasury bills.
Another benefit to this strategy is that as interest rates are continually rising, we are able to purchase new, higher-interest Treasury bills. Since we are only purchasing four-week bills, we are not locking ourselves in to a static interest rate for six or 12 months.
Get Started Today
If you’re a small business owner with too much cash earning too little for you, let’s change that. To earn more yield on your money and start planning your financial future, book a consultation with me here or email me at email@example.com.