In honor of March Madness, (it is April 1st ;) one of the most classic basketball moves is the pick and roll. Oddly enough there is a connection to finance. You can pick and roll your Treasuries.
Guidelines
What does that mean? You are probably wondering, “What is a Treasury?” Treasuries are debt securities issued by the U.S. Department of the Treasury. They are guaranteed by the full faith and credit of the U.S. government.
For our purposes, we will talk about Treasury Bills, (“T Bills”). They have a maturity of one year or less. Other questions that you may have are, “How does the pick and roll basketball move relate to T Bills?”
T Bill Benefits
When you buy a T Bill you get a return on your money. Right now the 3 month duration T Bill pays 4.29%. Now you may be pondering, “T Bills sound a lot like Certificates of Deposit (“CD’s”).” They do have some similarities.
Now, CD’s are a fine product, but in many ways, T Bills are superior:
- T Bills typically offer a higher rate than CD’s
- Taxes are lower on T Bills
- No need to lock up your money / no penalty for early withdrawal for T Bills
- T Bills are guaranteed by the US Treasury, up to $10 million
Advantages Explained
First off, T Bills generally offer a higher return than CD’s.
In addition, you pay a lower amount of taxes on the money you earn with T Bills. You only pay federal taxes on the income earned. However, with CD’s, you pay federal, state, and local taxes on the income generated. This is a large difference in high tax places like New York City or California.
Furthermore, you don’t have to lock up your money with a T Bill and get penalized for an early withdrawal, like you would with a CD.
Let’s say that you buy or pick a T Bill and the next day, the roof blows off of your house. You need money! You can get the T Bill money back, and a little bit more, because you would have earned interest for owning the T Bill for one day. There are no penalties or lockup periods on your money.
Finally, T Bills are guaranteed by the U.S. Treasury so you don’t have to worry about a bank failure. That is unless the U.S. Treasury fails and then we will all have much bigger problems.
One last thing – the minimum purchase amount for a T Bill is $100 all the way up to $10 million.
Rolling Treasuries
“Rolling T Bills” is the vernacular for buying another T Bill when the one you own matures. For example, you buy a 3 month T Bill today and when July 1 rolls around you will have some more money than the original amount invested. Then you can then buy another T Bill with the maturity that matches your wants, needs, and desires.
If you have questions about the pick and roll, T Bills, or shooting hoops, let me know.