The Treasury recently announced that as of April 7th minimum investment amount for government bonds will be lowered to $100 (previously $1,000). This includes all Treasury marketable bills, notes, bonds and Treasury Inflation-Protected Securities (TIPS). Thanks for the e-mails.
This means you will be able to build a weekly Treasury Bill ladder for as little as $400. Unfortunately, right now yields are so low that I have no reason to bother. The last T-Bill auction resulted in an investment rate of only 0.527% for the 4-week T-Bill, 1.337% for the 6-month T-Bill, and 2.045% for the 2-year T-Note.
Even TIPS are so much in demand that some of them have been trading with a negative real yield. If you are interested in inflation protection, especially for mid-term periods like 5 years, it may be better to simply buy a Series I Savings Bond, which right now has a real yield (fixed rate) of 1.2% through April 30, 2008. You can buy those already for as little as $25 via TreasuryDirect.gov. (There is a purchase limit of $5,000 online and $5,000 paper, although people have reported being able to buy more online.)
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Hi,new reader and new to finance. Please educate me on how savings bonds would lead to inflation protection. Also does this mean that in some cases a savings bond paying 1.2% could be favorable to a 3.xx% interest MMA? Thank you and sorry about the silly questions.
Anon: Series I Savings bonds take inflation into account (http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm), so you’ll match inflation, worst case (typically you’ll do slightly better than inflation by a percent or two lately). They’re also state and local income tax exempt, so there are some tax advantages to them (depending on where you live, and if you have state/local income tax).
It’s probably not favorable to a 3% MMA, but it does give you a low-risk way to invest with some tax advantages; handy for diversification a bit I guess — personally, I’ve abandoned Government Securities for the time being, since the rates are so low…
Anon – Chris gave a good overview, also see my post about I-bonds today.
Actually, Fed rates are so low that I-Bonds might be worth another look…
I bought my first $5,000, 28-day T-bill on March 11 at a 1.8 percent discount. I’ll be making about $6. Online savings accounts look pretty hot right now.
I would NEVER buy Treasury I-bonds again! Bought two two years ago when they were paying over 6% in April 2004. Inflation was continually going up and I was hoping for good returns. But the Treasury Department suddenly and arbitrarily reset the interest base on these bonds to less than 2% even though inflation continued it’s steady upward trend. It was a terrible disappointment. Couldn’t get a straight answer why the rate suddenly was reset. Had to wait the full year before cashing them in. Took the penalty and ran.
Here’s why they can’t pay the interest. They don’t have the money. A brief but unpleasant explntiojn follows taht the goernmenter expalin to you.
Just an aside question, has anyone tried the high yield checking account from charles Schwab?
I would like to hear some reviews from you guys.
Thanks,