Justin’s note: All month, we’ve been sharing the top insights and money-making opportunities from Strategic Investor editor E.B. Tucker. We want you to be fully prepared for when he makes his big announcement on February 27.
Today, we turn to E.B. again. As you’ll see, E.B.’s discovered a simple way you can make your money go further this year.
Read on to see why E.B. decided to lend the U.S. government money… how he’s now making 24 times more than what his bank was offering him… and how you can do the same…
By E.B. Tucker, editor, Strategic Investor
Interest rates have been in an uptrend since 2014.
The chart below tracks the 12-month LIBOR. That’s the interest rate that sets the cost of borrowing for trillions of dollars’ worth of loans. The rate is five times what it was in 2014.
That means borrowers with LIBOR-linked loans pay more interest on those loans today than they did at any time back to 2014. This trend will continue for a while. Interest rates went down for 35 years… They’ll go up for more than one or two.
But that’s not what interests us… We’re interested in the U.S. Treasury. It has an insatiable appetite for debt. It also pays more to borrow as rates rise.
As I type, the Treasury’s website says it’s on the hook for $22,035,768,149,459.89 – with no sign of slowing down. Thanks to the Fed’s ultra-low interest rate experiment after the housing collapse, it got used to borrowing for nothing. That’s changing.
Here’s what the government pays right now to borrow for various time periods. It’s willing to pay these rates to anyone willing to lend it money.
|The U.S. Government Needs a Loan|
|Current rates on bills, notes, and bonds Feb 14|
I used to keep a somewhat hefty amount of money in my savings account. It wasn’t for the paltry interest income. I had a much more practical reason. Between quarterly tax payments, life insurance premiums, property taxes, and investment commitments, I almost always have a big payment on the horizon. I want to have the money ready to go when I need it.
Early last year, I started lending a good chunk of that money to the U.S. Treasury. It offered me 24 times more than my bank, which pays 10 basis points on regular savings.
Here’s how I do it.
I opened an account with the U.S. Treasury at its Treasury Direct website. It took about five minutes to complete the forms. This account links to my bank account. Trust me, they need the money, so they’re not making it too difficult to set up.
Now, I don’t have much faith in the long-term viability of the U.S. government – or any government, for that matter. So I’m not interested in tying my money up with them for years on end. Four weeks, however, is a time frame I’m comfortable with.
The Treasury’s four-week bill auction happens once a week. I have a $20,000 personal expense coming up towards the end of next month. Instead of leaving that 20 grand in my savings account earning 0.10%, I’ll participate in the next four-week Treasury bill auction.
I logged into my Treasury Direct account and pre-scheduled my bid in the auction. After each auction, I see treasury bills in my account with the corresponding interest rate and maturity date. Four weeks later, it redeems the bills and deposits the principal plus interest back into my bank account. If I don’t need the money until July, I can schedule the four-week bills to roll over for another four weeks.
For every $20,000 I hold this way, I’d generate $482 per year in interest income (again, that would be my annual return… if I were to continue holding my money in this four-week bill every month).
That beats the $20 per year my bank offers. Since I split the money between several weekly auctions, I always have some portion maturing in case something unexpected comes up.
As shown in the graph above the Treasury also has three, six, and 12-month auctions. Right now, those don’t offer significant additional interest. If they did, I would consider three or six months. Beyond that time frame I’m not interested, since rates are on the upswing.
As a reminder, this is not an investment. This is cash management. I have this money sitting in cash because it’s earmarked for upcoming expenses. It’s entirely separate from funds I use to buy stocks, invest in private placements, or for any other investment.
By loaning it to the U.S. government, I’m making 24 times what my bank offered me. Since I don’t see it failing in the short run, this is a completely risk-free return.
Here’s a link to the Treasury Direct website if you’d like to check out this strategy for yourself.
Editor, Strategic Investor
Justin’s note: If you enjoyed today’s piece by E.B., you’ll want to mark your calendars for February 27.
In what will be one of the most important events in Casey Research’s history, E.B. will go on record and reveal a whole new approach to making explosive gains in 2019.
This strategy can hand investors 10x bigger gains than options… yet it still flies under the radar today.
But on February 27 at 8 p.m. ET, both E.B. and Doug will share exactly what this strategy is (and why you absolutely need it in your arsenal in today’s market).
Are you going to try E.B.’s money management strategy after reading today’s essay? Let us know at [email protected].