Bobby Lee: If you have checked out your savings account lately, you might be in for a rude awakening, a very low rate of interest. I will tell you how you can earn even more interest on your hard-earned savings coming up right now on 2 Minute Finance.
What if I told you that you can earn one-and-a-half to two times more interest than what the bank pays you. If I say, hey, it was a scam. What if I tell you that it's backed by the full faith of the Federal government? Then you would probably say, hey, how do I join in?
Simply put it's called a Treasury Bill or a T-Bill. Every year, the U.S. Treasury sells billions and trillions of dollars on the public debt to pay back creditors of A.O. In other words, they borrow money from the public now to pay back money they owe to others.
Think of it as you're giving a short-term IOU to the Federal government. You pick the amount you want to lend them and lending time until they pay you back and they will deliver on that promised IOU. You can invest in Increments of $100 and purchase T-Bills that last 4, 13, 26 or 52 weeks. So what makes this better than a CD or any other type of investment?
First, the federal government has never default on its loans. Never ever, ever has the Federals not paid back an IOU. That's why we say these investments are backed by the full faith of the government of the United States.
Second and most importantly, Treasury Bills are exempted from state and local taxes. You only have to pay federal tax on the capital gains. As an example, let's take a look at the auction data from August 7, 2008.
We'll take 1.746% and plug it into this special tax equivalent yield calculator on MyMoneyBlog.com. This will give us your actual yield that you are earning after all things are considered. In a hypothetical situation where the federal tax rate of 25% and the California state tax rate of 9.3%, you're actually earning 1.993% interest. Compared that to the 0.2% interest rate that a savings account at Federal bank was paying on the same date, you are earning almost ten times more interest by investing in a T-Bill regularly versus what the bank would give you in interest.
As you can see, you can earn a much higher rate of interest just by telling your bank to shove it and lending your money to Federal government. For more information and links on how to buy a T-Bill, getting current auction rate data or calculating your effective interest rate, visit our website at 2MinuteFinance.com. At the U.S. Mint in San Francisco, Bobby Lee for 2 Minute Finance.
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