Buy T-bills instead of having cash in brokerage account

[LongHaul]

I would highly recommend buying Tbills for a short term cash equivalent instead of the low interest rate your broker is paying you.  IB is currently ~41 bps for example. 

 

3 Month Tbills yield ~1% currently.

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

 

IB currently has ~$44 billion in customer cash currently that they are earning a spread on which is pretty amazing from a customer lost opportunity. 

 

[BG2008]

Thank you for bringing this topic up.  We tend to hold more cash than most.  Any suggestion as to the maturity ladder?  Tax consequences?  Mechanically, what happens when the securities mature?  Does cash just show up in your account?  Any issues with fund accounting and accrued interest etc?  How do the securities get priced at month/year end. 

[pau_]

Good point. I'm buying 3- & 6- month maturity CDs on Schwab for my cash position because they're available in better (smaller) increments for me. 1.35% recently.

[DW]

Thanks. I'm going to create a three-month ladder of three-month T-bills.

[Guest]

It requires a bit more jumping but this is even better:

 

https://www.ally.com/bank/no-penalty-cd/

 

1.5% no penalty cd.

[hyten1]

or you can open up online saving account (for PA), many provide 1 to 1.30% on saving rate. open up a few if you need it so you don't go over the 250k fdic insured limit

[Jurgis]

I hold ISTB. There are pros and cons.

[james22]

Vanguard Short-Term Treasury Fund Admiral Shares (VFIRX), SEC yield 1.16/1.26% ($50k minimum)

 

Vanguard Federal Money Market Fund (VMFXX; Vanguard settlement fund), SEC yield .90%

[Sleepwell]

An interesting fact in the super-exciting world of T-bills:

 

The 3 mo T-bill now yields more than the 6 month, I think to the tune of 10 basis points last time I checked. This is a pretty big anomaly as the yield curve is usually upward sloping.

 

Apparently this week there were some pretty large accounts selling 3mo T-bills amid low volumes which probably exaggerated the move. There is some investor concern around the debt ceiling which is set to have a deadline somewhere around mid October - three months away. If the U.S. Government were to enter into a technical (yet temporary) default, these securities would not get their principal+interest back in time.

 

Of course this is a very unlikely scenario given the widespread consequences it would have for the US and globally, but looking at the last debt ceiling episodes, congress has a terrible track record and they usually resolve this at the eleventh hour. This is the main reason S&P downgraded the US credit rating a couple of years ago.

 

Anyway, if you think it's a 0% chance of this happening you can also go long the 3 month and short the 6 month (curve steepener), lever it up and make some money. :P

[LongHaul]

I generally go out about 1 year for easy of admin.  With IB the commission is about 2 bps or less if I need to sell.  The cash just gets deposited in the account upon maturity.