If you’re taking out a loan, you probably shout out the name of the Federal Reserve’s chairman, Jerome Powell, whenever you step on a rake. If you’re one of the nation’s long-suffering savers, however, you may be thinking about sending chocolates to all 12 members of the powerful Federal Open Market Committee, which has hiked the target range on short-term interest rates six times this year to between 3.75 percent and 4 percent. As a result, savings rates have gone from nearly zero to more than 4 percent in the past 12 months.
A great way to take advantage of rising rates is to buy short-term securities issued by the federal government called Treasury bills, or T-bills for short. A one-year T-bill yielded 4.59 percent on Nov. 10, higher than a 30-year Treasury bond, which checked in at 4.03 percent. You can buy newly issued Treasuries of various durations through your bank or brokerage, which may charge a commission, or you can buy them commission-free online for as little as $100 through the government’s TreasuryDirect program.
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Opening a TreasuryDirect account isn’t a simple process, and you may be inclined to pay a broker to buy Treasuries for you just for convenience. But in personal finance, free is nearly always better than not free — and, once you get your account set up, buying Treasuries on a regular basis might be a smart choice for money you may need quickly, such as an emergency fund.
Treasuries are IOUs issued by the government and are backed by the government’s full taxing power. They come in three flavors: bills, notes and bonds. A Treasury bill matures in one year or less, while a Treasury note matures in two to 10 years. A Treasury bond matures in 20 years or more.
We’re going to concentrate on T-bills, because those are what most people use for short-term savings. You can get T-bills with terms ranging from four to 52 weeks.
The government sells all its securities by auction, taking the lowest bids first. Most of the bidders are large financial institutions.