The Case for U.S. Treasuries in Laddering Your Liquidity
By Richard Westhelle, CFP
You may have heard the phrase “cash is king.” In times of volatility, this may feel particularly true, whether you are maintaining an emergency fund, or keeping some cash on the sideline to fund a short-term personal goal or pursue an investment opportunity as it emerges. However, with June 2022’s recent year over year CPI inflation reading of 9.1%, it leaves one looking for higher yielding instruments.
According to bankrate.com’s weekly survey, as of 7/13/2022, the national average annual percentage yield (APY) interest rate for a savings account is 0.10%. This is calculated by obtaining information from 10 of the largest U.S. banks and thrifts in 10 large U.S. markets. It begs the question, “Do you find yourself experiencing these low rates yourself for your cash?” If the answer is yes, where can we look for higher yielding alternatives?
Online High Yield Savings Accounts are one option. They are also FDIC insured deposits, similar to your local brick-and-mortar bank, but without a physical branch, affording them the opportunity to pass on the savings of lower overhead to their customers. Browsing through options on bankrate.com, the range of yields available are between 1.00% to 1.65% APY, depending on the institution’s deposit minimums, limitations and features. If you are seeking a higher interest rate while maintaining your daily liquidity, this could be a great option.
But what if you are seeking something with a higher yield, of comparable risk profile, and don’t need access to daily liquidity? With rising interest rates, you may not want to lock up your savings for longer periods of time, however, you may want to consider short-term U.S. Treasuries.
The chart above illustrates the daily yield amounts expressed in annual percentage yield (APY) for various maturities of U.S Treasuries. As of 7/19/2022,
Maturities ranging from 1 month to 6 months are yielding between 1.93% – 3.06%. This is a +0.28% to +1.41% higher rate over even your highest yielding online savings account and +1.83% to +2.96% above the national savings account average.
While these returns do not presently outpace inflation, it presents a unique opportunity to improve your cash returns without taking on substantial change in risk profile (daily liquidity, FDIC insurance coverage vs securities, backed by the U.S. government). Depending on your time horizon and objectives, it may make sense to consider allocating a portion of your cash holdings to short-term US treasuries.
Editor’s Note: Advisors Capital Management’s Fixed Income portfolios with a U.S. Treasury restriction* current has an estimated gross yield of 3.00%. Each client has their own portfolio comprised of laddered U.S. Treasuries with 6 to 33-month maturities. Current average maturity is less than 2 years. Minimum account size is $300,000.
Sources:
- com – https://www.bankrate.com/banking/savings/average-savings-interest-rates/
- S Treasury – https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202207
*Private Fixed Income clients can restrict their portfolios to investment grade or U.S. Government Bonds.
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