Are Treasury Bonds a Safe Alternative to Bank Savings Accounts?
Written by
Josephine Nesbit
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Federal regulators’ shutdown of Silicon Valley Bank and Signature Bank triggered a flight to bond safety over the weekend. Treasury two-year yields dropped to their lowest level this year, Bloomberg reported, while government bonds surged as investors flocked to safer assets.
Two-year Treasury notes, often the most sensitive to changes in policy, fell 60 points to less than 3.99%, the lowest since October, Bloomberg noted.
The bank failure caused many to question whether Treasury Bonds are a safer alternative to banks.
Bonds are considered a low-risk investment because the federal government fully backs them, not banks. They tend to be long-term investments and are considered a great way to diversify your investment portfolio. Interest rates for bonds tend to be higher than traditional savings accounts, but lower than many other investments. However, investing in bonds comes at a cost — you cannot sell them before the investment period is up without penalty. They are also considered taxable income on the federal level.
There are two types of bonds — Series I and Series EE. The former was more recently in the news as a way to combat inflation, as GOBankingRates reported, and are more commonly purchased. The Series EE bonds purportedly double your investment in 20 years.
To start investing in bonds, you need $25. Annual investments of $10,000 in Series I bonds can be purchased electronically. Paper bonds can also be purchased up to $5,000 in paper Series I bonds and $10,000 in Series EE bonds.
While SVB and Signature Bank depositors have up to $250,000 in protection per account, thanks to coverage through the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Treasury Department are taking action to shore up banks and ensure customers can withdraw their money.
President Joe Biden said on March 13 that people should “rest assured” thanks to quick action taken by his administration, NBC News reported. Bloomberg added that the Fed also plans to allow firms to turn assets that have lost value to prevent losses that overturned SVB.
