What if I have More than $250,000 in my bank?

We have had a number of clients reach out recently about having more then $250,000 per depositor at their bank. One of the often forgot about ways to protect yourself is to use US Treasuries, since they are also backed by the US government similar to FDIC.

Investors are always on the lookout for ways to diversify their portfolio and minimize risk. One popular option for those seeking a low-risk investment is to park their cash in an FDIC-insured bank account. However, an often-overlooked alternative to FDIC bank accounts is treasuries.

Treasuries, or US government bonds, are debt securities issued by the federal government. They are considered a low-risk investment because the government has never defaulted on its debt. Furthermore, treasuries are backed by the full faith and credit of the US government, making them a secure investment option.

One key advantage of investing in treasuries over FDIC bank accounts is the potential for higher yields. While most bank accounts offer only a meager interest rate, treasuries can offer significantly higher returns. For example, as of March 2023, the 1-year Treasury note yield was around 4.6%, which is much higher than the average interest rate for a savings account.

Another advantage of treasuries is their liquidity. Unlike FDIC bank accounts, which may have withdrawal restrictions or penalties, treasuries can be bought and sold on the open market at any time. This makes them a flexible investment option for investors who may need access to their cash quickly.

In addition to their flexibility and higher yields, treasuries also offer a measure of inflation protection. Inflation can erode the value of cash over time, but treasuries offer a fixed rate of return that is adjusted for inflation. This means that investors can earn a real return on their investment even in a high inflation environment.

Treasuries also offer a range of maturities, allowing investors to customize their investment horizon. Short-term treasuries, such as Treasury bills, mature in less than a year and are often used as a cash management tool. Medium-term treasuries, such as Treasury notes, have maturities of 2-10 years and are often used for income generation. Long-term treasuries, such as Treasury bonds, have maturities of 10-30 years and are often used as a hedge against market volatility.

While treasuries offer a range of benefits over FDIC bank accounts, there are some drawbacks to consider. One downside of treasuries is that they are subject to interest rate risk. If interest rates rise, the value of existing treasuries will fall, as investors will demand higher yields on newly issued bonds. This can result in a loss of principal for investors who sell their treasuries before maturity.

Treasuries are also subject to inflation risk. While they do offer inflation protection, the rate of return may not keep pace with the rate of inflation. This means that investors may still experience a loss of purchasing power over time.

Another potential downside of treasuries is that they are not immune to default risk. While the US government has never defaulted on its debt, it is not impossible. A catastrophic event such as a war or natural disaster could potentially lead to a government default. However, the probability of this happening is low, and the likelihood of the US government defaulting on its debt is considered remote.

In conclusion, treasuries are an alternative to FDIC bank accounts that offer a range of benefits to investors. They offer higher yields, liquidity, inflation protection, and a range of maturities. However, treasuries are not without risk, and investors should carefully consider the potential downsides before investing. Ultimately, the decision to invest in treasuries or FDIC bank accounts will depend on an investor’s risk tolerance, investment goals, and financial situation.