4-Week T-Bill Rate Tumbled

Where should I put my money?

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I was hoping that when the FNBO Direct 6.0% APY promotion ends in 10 days, I could go back to 4-week T-bills for short term investment.

Well, it looks like that’s not going to happen any time soon as the investment rate of 4-week T-bill tumbled to 4.079% APR in last week’s auction. That’s equivalent to 4.15% APY, a yield that even ING Direct can beat easily after the state income tax rate is factored in.

Looking at currently available bank rates, EverBank’s 6.01% introductory APY offers the highest return with an acceptable minimum balance requirement ($1,500). However, the biggest problem is the deal only lasts three months after the account is opened. I don’t know if I want to go through the hassle of getting an account for only three months. Besides, the rate could change soon if the Fed indeed cuts the federal funds rate today. In fact, for most of the online banks, the current interest rates have been in place for more than a year and a Fed cut will trigger online banks to roll back their interest rates as well. If that’s the case, the whole situation will have to be re-evaluated as banks may not reduce their rates at the same scale as the Fed funds rate.

What other options do I have to get the most out of my money while maintaining the flexibilities I have been enjoying so far with online banks and T-bills?

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4 Responses to “4-Week T-Bill Rate Tumbled”

  1. Ted |  Sep 18, 2007 at 4:42 pm

    I know you like to chase rates to squeeze out every extra basis point, but you may find the simplicity of parking your cash in the vanguard prime or tax-exempt money market (or other historically high-yield-no-games MM) worthwhile. You might get a quarter or half percent better on a teaser rate somewhere else. But you’ll just have to go looking again after the promo period.

    Or you could try to beat the market and set up some CD ladders today before those rates drop too.

  2. Sun |  Sep 20, 2007 at 3:56 pm

    Ted: I have heard about Vanguard MM fund and have looked at it a couple of times before, but I never felt I should get one. The main reason is that it’s a mutual fund, thus it doesn’t have the flexibility as the online banks do. For banks, if their rates becomes unfavorable, I just leave $1 in the account and move the money to other place. With a mutual fund, it’s not that easy to shift money around. Also, I haven’t followed the fund so I am not sure its yield compared with online banks’ yield when the interest rate is low, as we may see soon. I need to keep an eye on it to see it’s an option that I’d like to take.