Treasury Securities

[OutThere]

I'm starting college in the fall, and I have a good amount of money sitting in my savings account (earning very little interest), to pay for part of my tuition.

I have been doing a little research into U.S. treasury securities (bills and notes), and I think that it might be a good way to make little return on my money with little risk.

What I have read says that t-bills are one of the lowest risk investments you can make...would this be a good idea?

I don't need the money between tuition payments, so I figure I could buy some 3 or 6 month bills and they'd mature soon before my next tuition payment, and give me a little cash on the side.

Has anyone done anything in securities before? Would I be safe doing this? In today's political climate?

 

[baby duck monge]

There really isn't anything wrong with your plan, but I am actually going to suggest something different right about now. Find yourself a high-yield savings account (something like ING Direct, HSBC Direct, or Emmigrant Direct) and put your money there. My reason for this is basically three-fold.

1) If you get something like a T-Bill or a CD you are buying into a fixed interest rate. That's fine is the rates are moving down (you get locked in at the higher rate), but rates are moving up and will probably continue to do so for a while. With one of these accounts, the interest rate they give you usually fluctuates with the market, so you will end up taking advantage of interest rate hikes.

2) You can still get to your money if you find out you need it for something. I think that one is pretty self-explanatory.

3) You can get almost as good an interest rate on those right now as you can on at least CDs. Since you could potentially put more money in (because you can get to it if you need it), and rates will most likely increase, you will probably get slightly more out of the deal.

That being said, if the rates drop you will make less money than you would with a set-rate investment, but I think it's a pretty good bet for at least a while.

People with more investment knowledge than I have can certainly feel free to disagree with me, but that's my advice if you're looking for something simple.

 

[Blackheart]

baby duck monge has summed it up pretty well.

For my additions, I would say:

1) Look out for fees associated with purchasing bonds vs. money market vs. CDs. Even if the stated yield on a security is higher, the fees might bring the overall yield lower than another.

2) Don't invest in Tbills if you might need the money before maturation. If rates increase and you need to sell your bond, you could end up losing money.

3) Here are the current rates (as posted by fidelity)

 

[Sun Baked]

Nothing wrong with them, since they have a variety of holding periods and interest rates.

You can buy them through the bank, or use your bank account to open an account directly through the Treasury at http://www.treasurydirect.gov

If you are planning short term, they may be less troublesome than some of the higher rate CDs.

Anyhow it looks like t-bills are paying more than ING for short term 4.25% savings vs. 4.6%-5% on a 28-day t-bill.

 

[baby duck monge]

Anyhow it looks like t-bills are paying more than ING for short term 4.25% savings vs. 4.6%-5% on a 28-day t-bill.

Well I just put some more money into my account at Emigrant Direct. Their American Dream savings account has an APY OF 5.00% at the moment (and is rumored to be going up to 5.15% tomorrow ::crosses fingers:: ).

Either way, it's awesome that you're already thinking about things like this, and you're better off doing any of these things than you are just leaving all your money where it is.

 

[WildCowboy]

I think a simple money market account would give you a great return right now with tremendous flexibility...checkwriting (usually a $250 or $500 minimum), your money isn't locked up for the duration, you're able to take advantage of rising interest rates, etc.

 

[OutThere]

HSBCdirect online savings is at 5.05 right now...

I'll sit on it and see where it goes...that's a hell of a lot more than I'm making right now.

 

[Deepdale]

What I have read says that t-bills are one of the lowest risk investments you can make...would this be a good idea? Would I be safe doing this? In today's political climate?

There is nothing safer than investing in U.S. Treasuries since they are backed by the full faith and credit of the federal government. Everything else would have to fail before they are not honored. I've had them for many years.

 

[kretzy]

I'll throw in another vote for a high interest savings account like ING. They're essentially low risk and give very good returns. Another great benefit is that they have no minimum amount to earn interest and no fixed term as to the amount of time the money has to stay in the account.

 

[nbs2]

We keep our house fund money in t-bills, we had 6mo, now 3mo. The problem with the 28d is that you cannot buy direct, so you end up paying a surcharge that the ING directs wipe out.

Like others have pointed out - if you think you might need the money before maturity, you shouldn't do it. But, if you are sure you won't, remember to factor your state income tax break on the t-bills. Federal obligations are non-taxable by the states, so for us (for example, where state/local tax is a bit higher than average), the locked in rate of the t-bills is a lot higher than we the ING can reach for a good long while.

Another thing to watch out for with the ING is that you have a limited number of withdrawls per month - 6. If you exceed, they warn and then close the account (we got a warning).