Long before I became a broke adult writer, I had a limited introduction to basic financial literacy: I learned to balance a checkbook, which no one does anymore; and I learned that the one way out of student loans is to die.
So when I started making a full-time paycheck, I took a half-step in the right direction by subscribing to a few personal finance subreddits. Maybe I’d learn something through osmosis from all these responsible people, I thought.
Today, by gum, I did. What the heck is TreasuryDirect.gov?
Like a lot of millennials, the only thing I know to do with money is stockpile it — a fear-driven habit largely driven by graduating during the recession. As Kaitlin Menza wrote for Mic in 2018, hoarding just feels good:
A Merrill Edge report found that two-thirds of affluent millennials … plan to keep their money in savings accounts rather than invest it. It’s like my grandfather who grew up during the Great Depression and kept boxes of buttons in his basement: We hoard because it reassures us. We trust no one but ourselves.
And we certainly don’t trust the banks and financial firms. A Harvard study found only 14 percent of millennials trust Wall Street to do the right thing “all or most of the time.”
But throwing every cent in a savings account is screwing us over in the long term. We should be putting more money in retirement accounts like IRAs and 401(k)s. Any leftover cash is better off invested in a mutual fund, where it earns dividends. Savings accounts like Chase Bank’s basic Chase Savings generally offer abysmal interest rates — meaning our money barely earns us a few cents every month. We can do much better!
So what should I do with all the cash in my sock drawer?
Treasury Direct Rates Are Better Than Most Savings Accounts
That’s where TreasuryDirect.gov comes in. It’s a portal to buy and sell what are essentially savings bonds — you know, the boring-ass Christmas presents your Nana gave you that might actually be worth something now, explains Danny Kofke, a special education teacher and financial advice author in Georgia.
“Your relative may have bought you a $50 savings bond but paid only $25 for it [at the time],” he tells MEL. “After you hold it for a set amount of time (this time frame differs), you can cash it in for the face value or even more.”
With savings bonds, “you are loaning the government money that they will pay back with interest added to it,” he says. The investments you can buy from TreasuryDirect.gov are basically the same thing.
How Treasury Direct Works
“You can purchase and cash in securities directly from the U.S. Department of the Treasury (in essence, the government),” Kofke explains. “These investments, such as Treasury Bills (T-Bills), Treasury Notes (T-Notes) and bonds, are backed by the government, so there is very minimal risk.”
The difference between T-Notes and T-Bills lies in the time it takes for each to mature. T-Bills are sold at a discount because they “mature in a year or less and don’t make regular interest payments.”
For example, a T-Bill might be sold for $99 with a face value of $100. “The investor would get the $100 at the time of maturity,” he explains, whereas “T-Notes have maturities ranging from two to 10 years and pay interest semi-annually.”
“The longer it takes a treasury security to mature, the higher annual yield it will usually pay,” Kofke continues. “So, generally speaking, if you loan the government money for one year, they will pay you more interest than if you loaned them money for just four weeks.”
Treasury Direct vs. High-Yield Savings
Phil Risher, financial advice columnist and purveyor of YoungAdultSurvivalGuide.com, adds some context. He tells me investing money into TreasuryDirect.gov is basically just putting money into a high-yield savings account — or HYSA, as people in the loop call it.
“With the current situation of most big banks giving less than 1 percent interest on a savings account, there is a lot of buzz on Reddit and within the finance world [asking about] a safe place to park your money and earn the most,” he explains.
Risher says you’re basically lending money to the government for four weeks to 52 weeks and “getting a return on your investment for lending them the money.”
So, Risher says, if you’re weary of the stock market’s fluctuations or believe the foreboding hype of an oncoming recession, “people who want a safer option that is higher than most savings accounts can use T-Bills to achieve that.” Risher concludes that TreasuryDirect.gov makes it pretty simple to do it.
“You can link your bank account so the money automatically pulls to buy the T-Bills. [A big bank like] Chase is backed by the FDIC which insures your money up to $250,000. The reason T-Bills are safe is because the likelihood of the government defaulting on its loan over the next four to 52 weeks is basically none.”
Beyond avoiding the market’s fluctuations, you’ll also avoid the fees and taxes that typically come with investing. “With T-Bills and Bonds, you don’t pay state or local taxes on your earnings,” Kofke explains.
Is Treasury Direct Worth It for Me?
As someone who just paid a depressing amount of taxes, I’m sickened by the thought of giving the government more money. But still, if it’s basically a savings account that accumulates more cash without requiring me to mess with the stock market, why not?
Well, the answer to whether you should invest or not is “not cut-and-dry,” Kofke says.
“Yes, they are very safe investments and you are almost guaranteed to get your initial investment back and then some,” he says, but in exchange for security, you’re not getting much return.
“These investments pay very little interest compared to what some mutual funds and stocks average, and some do not keep up with the rate of inflation,” Kofke adds. In other words, the interest rate is good for a savings account, but still not great — it might even fall behind the value of a dollar and you’ll end up breaking even or losing money.
Treasury Direct: What to Know Before Investing
So, when would it make sense to purchase a security from Treasury Direct? Kofke advises waiting until you have a known expense coming up.
“Maybe [you have] a kid going to college in a few years, or you’ll be purchasing a house and want a down payment,” he tells MEL. “In these cases, it would be risky to invest in stocks because the market could drop and we’d lose some of this capital.
“You could invest in one of the securities offered on Treasury Direct and feel confident you wouldn’t lose this money — and earn a little interest at the same time. In addition, you could invest a portion of your retirement savings.”
Overall, Kofke says, this is all something you should discuss with your financial adviser first “to see what percentage of your savings would make sense for you and your situation.”
And since we’re living in a nightmare, I asked whether President Trump could potentially dip his fingers into our T-Bills. “I guess the government could hypothetically do that, but that would create mass chaos and craziness,” Kofke says.
“Think zombie apocalypse… it’s highly unlikely, but sure, our government could collapse, which would change the value of these investments. Although, if this were to happen, this would be the least of your worries.”