HY Savings vs Govt Bonds vs Treasuries

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bluexray
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HY Savings vs Govt Bonds vs Treasuries

Post by bluexray »

Can someone please educate me about the advantages/disadvantages of these? And wheat exactly is meant by “treasuries”?

Seems like a lot of people use “treasuries” as safety support but the interest rates I see are extremely low, such as much less than 1%.

I bonds again 1.1%.

Isn’t best to just keep in a HY savings acct right now at 1.25%?

Thanks for the help.
whereskyle
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by whereskyle »

bluexray wrote: Fri May 15, 2020 12:01 pm Can someone please educate me about the advantages/disadvantages of these? And wheat exactly is meant by “treasuries”?

Seems like a lot of people use “treasuries” as safety support but the interest rates I see are extremely low, such as much less than 1%.

I bonds again 1.1%.

Isn’t best to just keep in a HY savings acct right now at 1.25%?

Thanks for the help.
Virtually everyone is looking at interest rates right now and saying, "Why would I buy any of this?" I'm one of them, and my HYS account is my only non-equity holding.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
mega317
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by mega317 »

What do you mean by best? Theoretically a savings account rate could soon drop to, say 0.1% at which time those who bought a three year treasury at 0.2% have done better. Neither have the inflation protection of I bonds, also neither has the purchase limit or 1 year lock out. You didn’t even mention CDs. There are different tax considerations for each. So you’ll have to figure out what you want to decide what’s best.

In reality there aren’t many compelling reasons for small time investors to use treasuries right now.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
patrick
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by patrick »

It would be better to get a HY savings acct at 1.75%, currently offered by First Foundation.
retired@50
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by retired@50 »

bluexray wrote: Fri May 15, 2020 12:01 pm Can someone please educate me about the advantages/disadvantages of these? And wheat exactly is meant by “treasuries”?

Thanks for the help.
See link. Treasuries are bills, notes, or bonds issued by the U.S. Government.

https://www.investopedia.com/articles/i ... rities.asp

Regards,
This is one person's opinion. Nothing more.
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Kevin M
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by Kevin M »

bluexray wrote: Fri May 15, 2020 12:01 pm Can someone please educate me about the advantages/disadvantages of these? And wheat exactly is meant by “treasuries”?
You can read about "treasuries" on the Treasury Securities & Programs webpage of TreasuryDirect.

Unless otherwise qualified, I think people on the forum mentioning "Treasuries" usually are referring to Treasury bills, notes and bonds, as opposed to floating rate notes, TIPS or savings bonds. People usually will refer specifically to TIPS, I Bonds or EE bonds if that's what they're talking about.

A big advantage is that most people consider Treasuries to have no credit risk, but many if not most believe that an FDIC-insured deposit account also has no credit risk.

Treasuries are easy to buy and sell at many large brokers, such as Vanguard, Fidelity and Schwab, and at least at these three brokers, there is no commission or markup to buy, either at auction or on the secondary market, and no commission or markup to sell on the secondary market. You can also conveniently own Treasuries in a low-cost mutual fund or ETF.

As you have noted, the biggest disadvantage now is the extremely low yields. You can see the current yields for various maturities here: https://www.treasury.gov/resource-cente ... data=yield.

Some folks like to hold Treasuries, even at the current low yields, since they often increase in value when stocks decrease in value, especially during a panic or financial crisis. The longer maturities tend to increase in value more during these episodes.
bluexray wrote: Fri May 15, 2020 12:01 pm Isn’t best to just keep in a HY savings acct right now at 1.25%?
Some folks do indeed prefer to use savings accounts and other deposit products, such as CDs, in preference to Treasuries when Treasury yields are well below the competing deposit account product yields.

As others have mentioned, HY savings rates can drop at any time--Ally just dropped theirs from 1.50% to 1.25% APY, and I wouldn't be surprised for this to head to the 1% ballpark in the not-too-distant future. These rates might best be compared to a 1-month Treasury, since that yield is only good for one month, and since that yield is about 0.1%, 1.25% certainly is much better from a yield perspective.

Another short-term alternative to consider is a no-penalty CD, which locks in the current yield for a certain amount of time, like 7 or 11 months, but you can withdraw the cash from them penalty free after the first few days (seven days at Ally). At Ally, the 11-month NP CD yield is 1.30%, so slightly higher than the savings account at 1.25%. For money not needed in the next few days or weeks, I generally would prefer the NP CD.

Note that although HY savings yields probably will continue to fall from current levels, Ally HY savings yield never fell below 0.84% during the years following the 2008 financial crisis when short-term Treasuries and money market funds were earning close to 0%. If this pattern repeats, HY savings accounts could continue to be a good deal compared to short-term Treasuries for the indefinite future.

For longer terms, at least out to five year maturity, and perhaps even out to 10-year maturity, a higher-yield but still very safe alternative to a Treasury might be a CD of similar maturity. As with Treasuries, you can buy CDs from the brokers mentioned (brokered CDs), but currently yields are much higher on the best direct CDs (bought directly from a bank or credit union). For example, I currently see the 5-year CD yield at Vanguard at 1.10%, which although much higher than the 5-year Treasury at about 0.3%, is much lower than the best 5-year direct CDs, which have yields in the 2% ballpark, as you can see here: https://www.depositaccounts.com/cd/5-year-cd-rates.html.

Direct CDs also usually have an early withdrawal option, where you pay a penalty to do a withdrawal before maturity. If the penalty is low enough, say six months of interest, then this can turn out to be good protection from a large increase in rates, which you can't get with a Treasury or any other marketable bond. If rates increase enough, you can pay the relatively small penalty to invest in a new CD at the higher rate.

Kevin
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Topic Author
bluexray
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by bluexray »

Thanks for the replies, especially Kevin for the detailed response.
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anon_investor
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Re: HY Savings vs Govt Bonds vs Treasuries

Post by anon_investor »

bluexray wrote: Fri May 15, 2020 3:48 pm Thanks for the replies, especially Kevin for the detailed response.
Look into the No Penalty CDs. Ally Bank, Marcus, CIT Bank all have them.

I have a few with Ally Bank.
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