DQOTD: T-Bills vs Cash Savings?

[Midpack]

With interest on cash accounts around 2% and interest on T-Bills around 4%, I can't think of any good reason to hold much cash at the moment.

• T-Bills are almost as risk free as cash savings. So almost a wash in terms of safety.
• T-Bills sacrifice a little liquidity - if you want to realize the face value interest.
• T-Bills aren't subject to state or local income taxes, cash savings interest is. Both are subject to Fed taxes, might as well earn more interest with T-Bills.
• T-Bills can be bought with no transactions costs many places.

What am I missing (am I the last to catch on)?

 

[JoeWras]

You are missing nothing. You are not last to catch on. Most of the population still has their cash languishing in accounts under 1%. We haven't seen conditions like this in over a generation, so it is out of mind. Welcome to the party. It still isn't too late.

It won't last forever either.

 

[finnski1]

With interest on cash accounts around 2% and interest on T-Bills around 4%, I can't think of any good reason to hold much cash at the moment.

• T-Bills are almost as risk free as cash savings. So almost a wash in terms of safety.
• T-Bills sacrifice a little liquidity - if you want to realize the face value interest.
• T-Bills aren't subject to state or local income taxes, cash savings interest is. Both are subject to Fed taxes, might as well earn more interest with T-Bills.
• T-Bills can be bought with no transactions costs many places.

What am I missing (am I the last to catch on)?

Sounds good to me and you can always stick with the very short term ones if you need cash soon.

 

[audreyh1]

We went through some of this in 2016-2018 when Fed was raising rates albeit at a much slower pace than now. CDs eventually caught up and surpassed treasuries, including no-penalty CDs.

FWIW I consider very short-term treasuries same as cash - safe and highly liquid. Short CDs too.

 

[MarieIG]

Although I wanted to keep a large cash cushion, I went into a frenzy of buying short term T bills for those reasons. (I am in NY and state tax is a factor for me.)

 

[Willers]

You are far from the last to catch on. I’ve been doing the same with 6-months of cash set up in a ladder with 1-month intervals. It’s a little more work when funds are left over, but it is worth it.

 

[disneysteve]

You are far from the last to catch on. I’ve been doing the same with 6-months of cash set up in a ladder with 1-month intervals. It’s a little more work when funds are left over, but it is worth it.

I also have a T-bill or CD maturing monthly for the next 12 months. As one matures, I roll it into a new one, taking advantage of the rising rates along the way and boosting the return for our cash reserve.

 

[Ian S]

Marcus savings account rate was just raised to 2.5% but I certainly wouldn't denigrate buying T-bills.

 

[Midpack]

Marcus savings account rate was just raised to 2.5% but I certainly wouldn't denigrate buying T-bills.

Ally seems to trail some, but they're up to 2.35% at present. But I'm moving a large chunk of cash into T-Bills at over 4%.

 

[jim584672]

They are very liquid too. I sold $50K for the Ally bonus deal, it cleared the next day.

 

[disneysteve]

Ally seems to trail some, but they're up to 2.35% at present. But I'm moving a large chunk of cash into T-Bills at over 4%.

It's really a no-brainer right now when you can get 3.7% on 1-month bills and over 4% for 3 months or longer. Leave an emergency fund in cash and put the rest in short term T bills or brokered CDs. Enjoy it while it lasts.

 

[HarryHawk]

T-bills are actually safer than cash in the bank. If the Federal Government ever defaults on t-bills, paper money will have no value.

 

[cnocmmz]

You are missing nothing. You are not last to catch on. Most of the population still has their cash languishing in accounts under 1%. We haven't seen conditions like this in over a generation, so it is out of mind. Welcome to the party. It still isn't too late.

It won't last forever either.

Dito!

 

[Midpack]

It's really a no-brainer right now when you can get 3.7% on 1-month bills and over 4% for 3 months or longer. Leave an emergency fund in cash and put the rest in short term T bills or brokered CDs. Enjoy it while it lasts.

What a difference a year makes. While it won’t last forever, I don’t see us going back to Oct 2021 and the years before anytime soon. I dumped all our bond funds in July and now I’m converting a lot of cash too.

 

[mrfeh]

The only disadvantage of treasuries I can think of is that if you unexpectedly need the funds before maturity, you may need to sell at a loss.