As per FDIC’s research, the national average interest rate on savings accounts is just 0.08% APY. Needless to say, this does very little to grow your income. But what we if told you about a government scheme that earns you a much higher interest rate?
TreasuryDirect is a Bureau of the Fiscal Service-operated, 24/7 online system which allows U.S. residents to buy, invest, and manage Treasury securities. Once you have a TreasuryDirect account, you can manage securities purchased through TreasuryDirect, thereby eliminating middlemen and broker fees.
To register, investors must have a Social Security number or Employer Identification Number (EIN), a U.S.-based address, a checking or savings account for transferring funds, and an email address. It’s not just individuals who can register for an account. Corporations, businesses, estates, and trusts can also establish TreasuryDirect accounts.
The Bureau of the Fiscal Service (BFS) regularly sells marketable securities in terms ranging from several days to 30 years. What are marketable securities, you ask? Products such as Treasury Bills, Notes, Bonds, FRNs, and TIPS. These securities are dubbed “marketable” because once they’ve been issued, you can buy or sell them at market prices.
TreasuryDirect sells marketable securities at auctions held regularly throughout the year. About a week before each auction, BFS issues a press release announcing the security being sold, the amount they are selling, the auction date, and other related information.
Why is the government offering this? The Bureau of the Fiscal Service’s objective is to finance and account for the government debt. One of the ways the Federal Government raises money to operate is by selling Treasury securities to the public.
For example, buyers of TIPS will earn interest on the inflation-adjusted principal. So in times of high inflation, your interest payments grow. At maturity, TreasuryDirect will redeem TIPS at their inflation-adjusted principal or the original par amount, whichever is more. So, if inflation prevails during the life of your TIPS, the payment you receive at maturity is greater than the original par amount. If deflation persists, the BFS will pay you the original par amount.
Another investment worth considering right now is I Bonds, which can be purchased through October 2022 at the current interest rate of 9.62%. This rate is applied to the six months after the purchase is made. For example, if you buy an I Bond on September 1, 2022, the 9.62% would be applied through February 28, 2023. Interest is compounded semi-annually.
In a single calendar year, a single investor can acquire up to $10,000 in electronic I bonds (minimum investment is $25) via TreasuryDirect.
These I Bonds have some good tax considerations too. I Bond interest amount is exempt from state and local income taxes, and you can elect to defer federal income taxes on your earnings until you cash the bonds in.
Now which sounds better? Earning 0.08% interest on $10,000 or 9.62% on $10,000?
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