Should You Put Your Savings Into Short-Term Treasuries? Suze Orman Has the Answer

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KEY POINTS

  • When talking about short-term Treasuries, most people are referring to Treasury bills, or T-Bills.
  • T-Bills can be useful for emergency savings since they don't tie up your money very long.
  • Many online bank accounts have increased their interest rates over the last few months, so you may get just as much return from a high-yield savings account as you would from Treasuries.

Even if it's allowed, is it worth it?

The idea of having a proper emergency fund is well-worn financial advice. But what is less discussed is what you should actually do with that savings. Do you stick it in a checking account? Stash it in a savings account? Invest it in a brokerage account?

Personal finance guru Suze Orman says the latter option, at least, is a big no-no. You want your emergency fund to be easily accessible so you can cover, you know, emergencies.

But if your big-bank savings account is only giving you 0.1% interest, it can seem almost wasteful to keep your money in the bank. So, some Orman fans have asked about whether short-term Treasuries make sense for your emergency fund.

To this, Orman says: Go for it. The key here, however, is that Orman is specifically okay-ing short-term Treasuries. You want to avoid tying up your emergency fund in anything that means you can't access it for years at a time.

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The types of Treasuries

The term "Treasuries" is generally used to describe various types of debt obligation securities issued by the U.S. Treasury. In other words, when you buy a Treasury security, you're giving the government a loan. The government then pays you interest on that loan.

Treasuries are typically considered to be a very low-risk investment because the U.S. government has never -- and, optimistically, will never -- defaulted on its debt obligations.

There are three types of Treasuries, organized by how long they take to mature: bills, notes, and bonds. Treasury bills (also called T-Bills) can have the shortest terms, with options for maturities of four weeks, eight weeks, 13 weeks, 26 weeks, and one year.

When people talk about short-term Treasuries, they're usually talking about T-Bills.

You can purchase T-Bills through regular auctions held by the U.S. Treasury. This is done through the TreasuryDirect website. You'll need to register and create an account, which is free to do. You'll need to invest a minimum of $100.

Pros and cons of T-Bills

The unique thing about T-Bills is that they don't pay interest in the same sense that, say, T-Bonds do. You don't receive regular interest payments. Instead, you can purchase T-Bills for less than their face value. Then, when the T-Bill matures, you get paid the face value. Your "interest" is then the difference between how much you paid and the face value of the T-Bill.

Discount rates can vary, but they are rarely more than a few percentage points. So, this makes T-Bills less profitable than other types of Treasuries, since longer-term Treasuries tend to pay higher interest rates.

However, the shorter terms offered by T-Bills mean you're only tying up your money for a few weeks or months, rather than years. That makes them much better suited for emergency funds than longer-term Treasuries are.

T-Bills vs. savings accounts

While Suze Orman has no problem with folks investing their emergency funds in short-term Treasuries, you may not need to.

Banks across the board have been rapidly increasing interest rates over the last few months. Today, some of the best online banks offer savings accounts with rates of 3% or more. Since this is comparable to the typical T-Bill return, you could save yourself the hassle and simply park your money in a high-yield savings account instead.

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