How To Turn Any Bank Account Into a “High Yield” Savings Account

Mrs Wizard and I use Capital One 360 for our joint checking and savings accounts. They pay a slightly above average APY (0.2% for checking, 1.0% for savings). That’s better than most of the big banks, but it is not all that great compared to some of the higher yield options out there.

Now that prevailing interest rates have been picking themselves up off the floor, we’ve talked about shopping around for something with a slightly higher APY, but there’s an awful lot of inertia.

We have a lot of different things (automatic payments, etc) tied to those existing accounts, and it’s not like Capital One is horrible. There are no minimum balance rules or account fees, and there’s a pretty extensive network of free ATMs if we ever need one (rare since we hardly use cash anymore). Sure we could possibly get 1.9% someplace else but what’s the catch?

Granted, 90 basis points is nothing to sneeze at, and it is potentially worth a lot of inconvenience. But if there’s a way to boost our APY without changing banks, that’d be pretty damn appealing. Amirite?

Well now that rates are rising, there is a way (sort of) to earn a high APY without ever having to deal with the hassle of switching banks. Of course you have another set of hassles to deal with, but I’ll leave it up to you to decide if they’re worth it compared to the strings that come with most high yield accounts.

Cash and Cash Equivalents

If you look at Apple’s balance sheet, you’ll see that they have $74B in “Total Cash”, but it’s broken out into several different categories, including “Cash and Cash Equivalents” and “Short Term Investments”.

What’s that mean?

Well technically it could mean a lot of different things, but one thing’s for sure: they don’t have $74B in a 0.10% APY savings account at Wells Fargo!

They’re constantly buying short duration US Treasuries (and probably some commercial paper and other short term liquid stuff…but it’s mostly T-bills).

And why wouldn’t they? It’s a little bit of “risk free” interest income earned on cash that was just sitting around anyway.

Compounding Power to the People

You don’t have to be a giant corporation with billions of dollars to be able to buy treasury bills. Anyone with a bank account can participate in the treasury bill auctions. Here’s how it works:

  1. You have to have an account with TreasuryDirect. It’s very easy to set one up.
  2. Once you have a TreasuryDirect account, you can link that account to your bank account. You can link multiple bank accounts to one treasury account.
  3. Participate in treasury auctions. You can buy whatever duration instrument you’d like.
  4. Once the auction settles, they will withdraw the money from your bank account via ACH transfer to buy your bills. You buy the bills at a discount and they mature at par value. So if you buy $1,000 worth of bills, they’ll take slightly less than that out depending on what the resulting rate is for the auction ($998.47 or whatever).
  5. When your security matures, they deposit the full value of the bills (in the case above: $1,000) back into the bank account.

Ladder to APY

I’m buying 4 week bills once per week to create a weekly ladder, so that I always have access to 25% of my money within a week (50% within 2 weeks, etc.)

Of course there are tons of different ladder configurations available. Treasury bills come in 4, 8, 13, 26 and 52 week flavors, and they have auctions every week (except for the 1yr bills). Plus you can schedule bills to get automatically reinvested for up to 2 years.

Longer durations have higher interest rates, but there’s a diminishing return. The current difference between the 4 week and the 8 week rate is only 4 basis points but your money is tied up for twice as long!

The 4 week bills are currently going for between 2.0 – 2.2% annualized, which is better than a lot of the “high yield” savings accounts out there. Plus you can earn that in whatever existing account you want, on whatever total amount you want.

To be fair, you have to go through the process of participating in the auctions each week, but it only takes a couple minutes to sign up for several months’ worth of auctions.

Some folks might find the process of switching to a high yield account ONCE simpler than constantly having to log in to TreasuryDirect to buy treasury bills. But for me, the ability to keep my existing accounts is worth it.

Also, the interest earned from treasury bills is exempt from state and local income tax, so the tax equivalent yield is even higher than the headline rate.


In addition to the “hassle” of having to continually sign up for auctions each week or month, there are a couple other inconveniences that are worth mentioning.

  1. Limit on withdrawals from savings accounts – for some stupid reason, federal regulations prohibit more than 6 withdrawals from a savings account in a calendar month. So if you’re doing a weekly ladder, you will be using up 4 or 5 of your allowed withdrawals on treasury auctions. That still leaves at least one withdrawal (like if you need to get your money out), but it’s something to be aware of. (Or you can just do this in a checking account.)
  2. The auction schedule is a little weird – for the most part they hold auctions every Tuesday and they settle on Thursday. Holidays can screw that up though and sometimes they’ll move the auction to Thursday and it will settle on the following Tuesday. This occasionally leads to weeks with multiple auctions which can screw up your ladder if you’re not careful.
  3. You have to buy bills in $100 increments. If you have $2,784 in your account, you can only get $2,700 worth of treasuries. This seems like a minor issue to me, but it’s one of the quirks I guess.
  4. You don’t have instant access to your money at all times; It gets tied up for at least 4 weeks. I suppose this is obvious, but it is a disadvantage compared to a high yield savings account which you can access at any time (up to six times in a calendar month!)

I’d argue that point #4 isn’t actually that big of a deal so long as you’re doing a weekly ladder with monthly treasury bills.

For example: let’s assume you’re doing this with your emergency fund. What happens if there’s an emergency and you need the money?

Well my plan is to just put that emergency on a credit card. That means I have at least a month (probably more) before the credit card statement is due. I can just cancel any of my upcoming auctions and I’ll have all my money back and available if needed within 4 weeks to pay off the balance.

In addition to our regular emergency cash savings, we’re currently saving up a down payment for another real estate property, which we’d like to buy within the next 3-5 years. That is too short of a window to invest in stocks or long duration bonds (sequence of returns risk could wipe out a big portion our down payment!). But earning 1% or less in a regular old savings account isn’t very appealing either. So we’re doing this.

What do you think? Am I crazy? Are there other disadvantages to a weekly treasury ladder that I forgot to mention? What do you do with cash you expect to need in the short term?

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