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Investors should seek alternatives to T-bills High interest rates of the 1980s were an abnormality. Your money


In the early 1980s, when interest rates were soaring on everything but savings accounts, Treasury bills were hot.

Retirees, in particular, favored the government IOUs, which offered yields of more than 14 percent with virtually no risk.

Today, however, interest rates are at a 20-year low, and T-bills, the epitome of the "no-risk" investment, are at the bottom of the yield curve. Short-term rates -- those on securities maturing in a year or less -- dipped below 3.8 percent in April. Long-term government securities, such as the 30-year T-bill, are paying less than 9 percent, and some experts are predicting they will fall even lower in the next several years.

That's bad news for some retirees who, like the loyal fans of a down-and-out sports team, still follow weekly T-bill auctions. Investment advisers say such loyalty may be misplaced.

"A lot of people are not remembering their financial history," said Dennis Kebbel, an investment adviser at PaineWebber Inc. in Orlando, Fla. "What they are remembering is an abnormality in the 1980s."

A 1991 study by Rutgers University showed that since 1979, T-bill rates have been above 9 percent only 3 percent of the time and below 7 percent more than 90 percent of the time. In that context, the chances of a return to double-digit yields are slim, Mr. Kebbel said. In fact, PaineWebber analysts are forecasting that the 30-year T-bill will fall to 6 percent by 1996. Short-term rates usually remain below long-term rates.

For investors seeking the safety of T-bills but yearning for a higher yield, there are alternatives.

Bank certificates of deposit are paying as much as 7 percent if an investor is willing to invest for seven years.

More appealing, said Maitland, Fla., financial adviser Frank Dasse, is a mutual fund -- one with no fees on the initial investment or on withdrawals. There are funds available, he said, that invest only in government securities and that beat the T-bill rate by blending in higher-yielding investments, such as government-backed mortgages. Such funds are available through some brokerage money-market accounts.

The main advantage of such funds over a certificate of deposit is that investors can withdraw money at any time with no penalty.

T-bills still make sense for some investors, primarily large pension funds and companies with surplus cash they need to keep on hand, said Mitch Grant, senior vice president in charge of investments for SunBanks Inc. in Orlando.

"Treasury bills are really a better investment for institutional buyers than for individuals," he said.

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