_{Originally published 07/18/2022}

I am not advocating we initiate a run on the banks, but we are at a point in the interest rate cycle where I think it makes good sense to keep as little in the bank as possible. Banks have not increased deposit rates just yet, meanwhile you can get higher returns elsewhere without jeopardizing your principal. While that may sound too good to be true, I assure you it isn’t.

When I do a quick search and view local bank deposit rates, I often see both checking and savings account offering less than 0.10% annualized. CD rates are not much better, often failing to break 1% even out to a 5 year term. Here is the rate sheet I pulled from Chase Bank’s website on 07/18/2022.

Local community banks are not offering rates much higher than that.

For reference, if you have a brokerage account or an account at treasurydirect.gov here are the annualized current US Treasury rates:

1 month T-Bill = 1.94%
3 Month T-Bill = 2.37%
6 Month T-Bill = 2.93%
12 Month T-Bill = 3.12%
2 Year Treasury Note = 3.16%
3 Year Treasury Note = 3.15%
5 Year Treasury Note = 3.07%
7 Year Treasury Note = 3.06%
10 Year Treasury Note= 2.97%

These can be purchased in just about any account type, plus the interest from the Treasuries is not taxed at the state or local level while CD interest is! Another advantage for US Treasuries.

CDs offer principal protection and FDIC insurance, but US Treasuries also offer principal protection and a government guarantee plus there is no limit as there is with the FDIC. Knowing you can get 3.12% on a 12 month T-Bill, why would anyone buy a 12 month CD? The only reasonable explanation is that they were not aware of the alternative.

Short-term cash needs should be kept in liquid checking and savings, but I would be inclined to venture elsewhere for the intermediate-term funds that you’d still like to keep safe and secure.

It might even be a good time to explore an alternative to your traditional checking and savings account, and that’s where I have recommended https://maxmyinterest.com/ in the past. All funds in Maxmyinterest are liquid and FDIC insured up to the normal limits, but currently they have a max interest rate of 1.85%. There is a cost, which is 0.08% annually but that is a small fraction of the relative rate advantage.

Make your bank pay!