How to Maximize Savings Interest with Minimal Risk

The only time I ever eat two pieces of cake at one sitting is every year on my birthday. Oh, I know… eating two pieces of cake isn’t good for my waistline. But the birthday excuse hasn’t failed me yet.

Speaking of excuses, one of the most common explanations that many people use when trying to justify why they fail to keep a significant sum of cash in their household rainy-day, mad money and/or emergency savings accounts is because the banks pay paltry interest.

Enter the United States Treasury Bill

Here’s what I do to maximize savings interest on my cash. I keep my cash savings in United States Treasury bills, which typically offer significantly better rates than bank accounts. They also pay better than credit union savings accounts.

Unlike US Treasury notes and bonds, US T-bills  are short-term zero-coupon instruments. In other words: Their duration is one-year or less, and they provide no intermittent interest payouts. You loan Uncle Sam the money for the entire duration and collect all of the interest when the T-bill matures.

In order to ensure I always have access to at least a portion of my cash every month, I “ladder” those T-bills. Please don’t let the term scare you; laddering is a very simple process where you buy multiple T-bills (or any other financial instrument) with staggered maturity dates. By doing so, you ensure you’ll always have a steady stream of income!

Here’s a simple example of how to build a T-bill ladder: Suppose you have $20,000. By purchasing four T-bills for $5000 each with separate durations of 4-weeks, 8-weeks, 13-weeks and 17-weeks – and then replacing each expiring bill with a new 17-week bill from that point forward – you’ll ensure that every four to five weeks you’ll have access to $5000 for whatever you need.

Buying T-bills and establishing a T-bill ladder is a very easy process. Simply establish an account with the US government at their TreasuryDirect website. That’s it!

The Big Advantage of US T-Bills

Now I know what you’re thinking: Okay, Len. But why should I go to all that trouble when I can simply get a money market fund or CD from my bank?

Here’s why: T-bills not only offer rates that are competitive with bank money market funds and certificates of deposits – they’re arguably safer, too. After all, the risk of the US government defaulting is far lower than a commercial bank going bankrupt. T-bills also have no gate provisions – so you don’t have to worry about losing access to your funds in a financial crisis. Best of all, every last penny of interest earned on your T-bills is exempt from state taxes. In short, that makes them the best way to maximize savings interest on your cash – and with minimal risk!

Hey… come to think of it, using US Treasury bills as your primary cash savings vehicle is about as close as you’ll ever get to having your cake and eating it too.

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