“Bankers get rich by borrowing depositors’ money held in checking accounts at zero interest.”
– Jack Miller
I was talking with a colleague about where to put excess cash and I was reminded of something that I realize many people are not aware of:
Your bank is ripping you off big time.
And I’m not just talking about Wells Fargo opening accounts in your name without your permission and then deducting fees for them from your savings account.
Or Bank of America foreclosing on the homes of active duty servicemen overseas in violation of U.S. law.
I mean your local bank with the nice tellers and the bowls of candy.
My sweet local bank pays 0.2% on money in my account.
“Well, what’s so bad about that?” you ask. “Interest rates are low.”
Yes, they’re low, but they’re not that low.
If you happen to be in a position where you have a cash position big enough to think about, you should be thinking about this:
While your friendly local bank is paying you 0.2% or less, US Treasury bills – the safest place for money on earth – pay 2.06 % (at the moment) if you’re willing to tie your money up for six months. You can get even more if you’re willing to go out a year.
Banks are making ten times more on your money than you are – and they’re doing it risk-free
Let’s do a little math using this real life example.
$10,000 at 0.2% pays a whopping $20 a year interest.
$10,000 at 2.06% pays $206 a year interest – $186.00 more
If $186.00 is not enough money for you to get excited about, let me ask you this:
Is there a reason you want to gift your bank by letting it earn 2.06% on money it only pays you 0.2% for?
Add a zero or two to the balance and this starts adding up to real money.
Multiply it by millions of bank accounts and this voluntary wealth transfer amounts to billions and billions of dollars.
Why you never hear about this
Why isn’t this daily giveaway to banks headline news?
Let me ask you: Who is going to tell you?
The CNBS financial news commentators who are paid by sponsors to railroad you into roller coaster ETFs?
Your financial scammer…I mean planner?
Financial newsletter writers who make their livings scaring you that financial Armageddon is right around the corner and you should be in a bunker with bitcoin and marijuana stocks?
None of these people make money when you simply move your money out of the bank or the Wall Street casino/rumor mill and put it in short term Treasuries.
In fact, they lose money.
A lot of people are thrilled by stocks that pay dividends not much higher than 2% – and are willing to live with the potential of a 10% to 20% haircut on share value just to get it.
Does that make any sense at all?
It’s a deal only a financial planner who works on commission could love.
Treasuries don’t ask you to takes risks. You get back what you put in plus the interest promised. Done and done.
But it’s all “fiat currency”
There are always people who respond to plain vanilla boring financial reality with statements like this: “But the US dollar is just ‘fiat currency.’ It’s not as good as gold or bitcoin and it’s going to crash soon anyway.”
The US dollar may in fact be worthless someday. Given enough time, all government-issued currencies eventually do go to zero.
But five things to keep in mind:
- You will get ample advance warning before the US dollar tumbles fatally
- Unless you’re paying your mortgage and groceries in rubles or Euros, the decline of the US dollar won’t matter all that much to you at first
- In the meantime, it will take direct meteor strike on Washington DC to cause the US government to default on its Treasury obligations – even then, it will probably have a contingency
- Bank accounts are FDIC-insured, but if an insurance fund gets overrun with a slew of bank failures, you’ll get paid on your losses the way everyone else in history has been paid when the underlying insurance fund is tapped out – poorly, if at all. (Read the fine print of your FDIC insurance policy.)
- Making more dollars now will generate cash you can use to buy more gold, more bitcoin, or more of whatever you think is going to hold value during bad times.
- Note: In a real disaster hoard laundry soap. After people get a reliable roof over their heads and are eating regularly, the very next thing they want are clean clothes. Laundry soap is cheap, stores easily, and everybody needs it. Hard liquor and ammunition are good items too. They don’t go bad and will be a heck of a lot easier to trade than one ounce gold coins.
The ABCs of Treasuries
Step one is have money.
If the driveway of your trophy house is full of luxury cars and toys like boats and RVs – all bought through the “magic” of credit – you might need to rethink your plan a bit.
Step Two see what Treasuries are paying.
You won’t get this info from CNBS, but you can get it here. These rates change all the time and the number I cited in this article is only good in May of 2018.
Click here for: Current US Treasury rates
Step Three is buy direct from Uncle Sam.
I trust Uncle Sam as far as I can throw him, but for the time being this is one area where he deals straight. He has to because if he ever screws this up – the way he has screwed up virtually everything else – it’s “game over” for him and his minions and he knows it.
I’m not going to say the site is self-explanatory, but it’s pretty close and you can figure it out.
They’ll also do neat things for you like deposit your interest straight into your bank account and automatically roll over your Treasury bills when one comes due.
Or you can pay your financial planner a fee to put you in a deal that pays you 0.5% more and might lose 10% of its value in an eye blink.
The “planning” part of financial planning is largely knowing when you will need money and how much.
The US Treasury offers different terms.
Treasury Bills are sold with terms of 28 days, 91 days, 182 days, or 364 days – or a month, three months, six months or a year.
Treasury Notes are sold with terms of 2 to 10 years.
Treasury Bonds are sold with terms of 20 to 30 years.
Personally, I’m not interested in anything more than a year.
If you think you know where interest rates will be in 10 to 30 years, you’re a better man or woman than I.
But make up your own mind. I’m not advising you.
I’m only pointing out the hidden obvious you won’t hear from your banker, your financial planner, your financial newsletter or your favorite cable financial TV news show:
US Treasuries are a very good deal right now.
Gold is “end of the financial system” insurance.
While it’s been a long time since anyone has needed gold in the U.S., right now, as you read this, there are people all over the world who wish they had stacked it up instead of their local currency in bank deposits or bank notes.
For the record, I don’t believe in American “exceptionalism.”
Anything that has happened any time else in history and anywhere else in the world can and probably will happen here too. The only question is when.
Would I borrow money to buy gold? NEVER.
Would I put all my savings in gold? Probably not. I sure don’t do that now.
Would I have some as a hedge against the whole corrupt house of cards coming down? Yes I would and I do.
So what’s the role of Treasuries?
Ideally, you’ve got the cash flow you need to keep things running.
Ideally, you’re properly insured.
Ideally, you’ve got a cushion of several months cash against the unexpected.
Ideally, you’ve paid off all your debts. You know, the ones that charge 18% and more in interest. (Want to get a risk-free 18% return on your money overnight – something no other investment can offer? Pay off your credit cards!)
Ideally, extra cash is starting to stack up.
A good chunk of that money should be in boring US Treasuries waiting for good deals to crop up.
If you have all these things in place – cash flow, insurance, cash cushion, no crazy debts, pile of Treasuries – now you’re ready for toys or to have fun in the Wall Street casino or whatever crazy things you want to do.
I wish I could say I’m unique in this view and am the only person to ever have thought of this brilliant plan.
This guy is doing it too – right now.
He may preach that the US stock market is the best place for you to put your money “a bet on America”, but he’s putting his extra cash in Treasuries right now.
Headline: (February 2018) At year-end last year, Berkshire Hathaway had $116 billion in cash and short-term Treasury bills compared to $86.4 billion at the end of 2016.
– Ken McCarthy
P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business – and life – with my clients.
If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.