Posted by Chuck on November 11, 2019
High-Yield APY Accounts

Published on November 11th, 2019 | by Chuck

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Jiko Review: Buy Us Treasuries on Demand

The Jiko app was just publicly released (Android | Apple). The Jiko network keeps you invested in US Treasury Bills without sacrificing access to your funds. As soon as you add funds to your Jiko, the network invests the balance in T-Bills. Whenever you need your money, it’s available on demand.

Jiko is SPIC insured, and the purchase itself is US treasury notes which are highly secure. Overall it seems like a neat and easy way to buy treasury notes without tying up the funds.

Also interesting is that somehow Jiko has been paying out an average of 3.40% since August according to an email they sent out. Not clear how they keep up that rate given that treasury rates are significantly lower than that. Were those rates to hold, it would be a really interesting option as an alternative to high-yield savings accounts. Let us know your own thoughts on Jiko in the comments below.

Thanks to reader Ryan Goldstein for tipping us off about this and sending in the details.

 



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Jeremy
Jeremy

Anyone using this that can report on the current rate?

Ryan Goldstein

I’m the one who submitted this tip and info. When I saw the recent 3.4% rate and confirmed SIPC membership, I added $100 to my Jiko balance to try it. I’ll provide an update on this post with more information when I have it. For now, there’s no advertised rate in the app, and my $100 deposit is still pending.

Alexis Goldfarb
Alexis Goldfarb

Yeah but considering the fed has lost most of its value via quantiative easing I’d say the risk of the us treasuries losing value is high so I don’t know what your motivation is other than for people to lose their money.

Ryan Goldstein

US Treasuries are backed by the full faith and credit of the U.S. government, so they’re considered risk-free assets. Of course, it’s a possibility that the U.S. government will default on its obligations, but if that happens, you’ll have bigger things to worry about than what you’ve deposited with Jiko.

Dave Evans
Dave Evans

Risk of US treasuries losing value is high? What does that even mean?

James L
James L

The Fed doesn’t “lose value.” That’s also not how QE works. You might want to take an economics class instead of regurgitating libertarian nonsense.

debit
debit

Nice. You found sofi and this. Great contribution.

Frank

I wonder if the 3.4% rate is because they buy a variety of treasuries and pay a blended rate (and hold over time). Could mean that when rates are falling you want to park your money with them and when rates are rising go directly to US tres.

Ryan Goldstein

According to https://jiko.io/disclosures/ they invest in “the most current issuance of U.S. Treasury bills of 52 weeks duration.”

And, “When a new issuance of U.S. Treasury bills of a 52 weeks duration is issued, your existing positions in U.S. Treasury bills will be sold and the proceeds will be rolled into the newest issuance of U.S. Treasury bills of 52 weeks duration”.

Jeremy
Jeremy

Does this mean they are buying US Treasuries on the secondary market or do they purchase them at auction? With “normal” (ie. positive) treasury rates, how would they not get put in a liquidity squeeze? ie. I can take advantage of 52 week rates by using Jiko without tying up my money for that length. With the current flat rates from 4-52 weeks, this is less of an issue.

Ryan Goldstein

I’d guess they at least sell them on the secondary market, since according to their FAQs (https://jiko.io/faqs/):

“Without any action from you, your funds are auto-invested in T-Bills that can be sold as money is needed.

Need funds? Just initiate the release from the portfolio dashboard, and your Jiko will do the rest.”

Dave Evans
Dave Evans

Sounds like they are buying at auction and selling into secondary market at the time of the next auction. This may also explain the 3.4% return which is higher than the coupon on 52 week T-bills. If they bought T-bills in a prior auction and then interest rates decreased, the trading value of those previously-purchased bills would increase and they could sell in secondary for greater than par. I.e., they’d be earning the interest/coupon plus some return from capital appreciation. Would move in the opposite direction if rates were increasing.

OnceUponAQuine
OnceUponAQuine

Jiko invests in on-the-run 1-year treasury bills, and the rate on them has dropped from 1.88% on August 1st to 1.58% today. With a one-year duration, a 30 basis point drop in rates is a 30 basis point rise in price, and they annualized it over three months so that’s another factor of 4 there. That only gets to a 1.2% annualized gain, so they probably based it off of the rate at the end of July (2.00%), which is a 1.68% capital gain.

So yeah, the performance isn’t going to repeat unless the one-year T-bill rate drops again.

Dan
Dan

This is one implementation of The Narrow Bank. TNB cannot get an account with the Fed, so this is a workaround.

Breit
Breit

This is nothing like TNB. This is just buying tbills every week and then rolling them when the next set comes out. TNB wanted to be paid on excess reserves and receive that rate.

bob
bob

i’ll keep my money in 3% APY accounts.

Jeremy
Jeremy

3.4% APY in US Treasuries is better, and especially better if you are in high tax state with a high tax bracket. Now the TAB 4% APY is better than that though.

Evan
Evan

T-bill prices have rallied since August as near term rates have been dropping, so that has probably helped juice their returns. Also, Treasuries are exempt from state and local taxes, so they might be figuring that into their “equivalent annualized yield” similar to how Tesla sometimes quotes the price of their cars by subtracting gas savings from MSRP!

Either way, T-Bills are currently yielding somewhere around 1.5%, so I would assume returns going forward would be more in line with that.

Evan
Evan

Reading their disclosures, it looks like your money is invested in 52 week T-bills that they roll into newer issues each month. Seems like a good, safe place for your money but you do risk lower returns in the short term if rates rise since they are inevitably selling the older issues at lower prices to buy new higher yielding T-bills.

Jeremy
Jeremy

This is what I was thinking.

John
John

Cherry-pick a period, incorporate tax savings for the highest tax bracket for the highest tax state, annualize it, and Poof! Amazing returns!

Chucks
Chucks

I’ll stay in index funds, thanks.

Jeremy
Jeremy

For sure, but for savings/emergency funds this could be good. Since credit cards give you an extra ~30 days to pay, you could take advantage of this and invest in something like this. I’ve been using a combination of high-yield checking accounts and VUSXX.

dizzy
dizzy

Seems like a last place tho- I’d prefer to keep my emergency funds in high-yield (netspend covers >3 months for me) and doing bank bonuses. Now if you could fund these with CC that might be something…

Jeremy
Jeremy

NetSpend is only $1000/account.

Anonymous
Anonymous

The rate of return language is a bit disingenuous. With recent Fed rate cuts, the price of t-bills went up, hence the high rate of return. Similarly, t-bill prices will fall when interest rates go up again.

This shouldn’t matter much if you hold the money in the account for an extended period of time. Yield to maturity is the better gauge of the interest earned from that account (which will be driven by current t-bill rates).

Will
Will

They launched in 2017 so why would they choose the period from August until today to highlight their annualized rate of return?

It looks like there was a sharp drop in treasury rates after the end of July (https://www.macrotrends.net/2492/1-year-treasury-rate-yield-chart) so the price of 1 year treasuries would have risen.

This is not an expected return and it’s a bit deceptive.

Lrdx
Lrdx

Cherry picking at its best, that’s why.

Electroman

Sure. A rate cut causes T bill prices to rise, so of course they pick that interval.

Lrdx
Lrdx

How much of that yield is capital gains? The 52W tbill has 1.551% yield in the last auction, anything using only tbill and has a rate over that is short term or lie.

Also, if they sell all the notes every month (each auction) to rebuy newly issues ones, they *will* loose money when the rates are going up. The 52W rates are steadily trending down in the recent months, so of course they get extra capital gains recently with this strategy. But they will fall way behind when the rates are going up, maybe even to net negative rates.

So, STAY AWAY unless you understand what’s happening. Even so, invest in treasuries directly yourself, or buy money market funds or ultrashort bond funds/ETFs if you want to get extra yields over regular savings accounts (my savings money is in VMFXX)

More Info
More Info

VMFXX yields less than 2% (currently 1.71% net), are you using that for some other benefit as well (like a brokerage benefit) or why not chase the savings rates that generally beat VMFXX by more than half of 1%?

I agree with you generally, this account makes little sense unless one is actively making a “long short-term bond” call and want to take no security risk. However, you can lose money with this play, SIPC insures oneself against fraud, not against the investment losing money.

The mantra I live by is not to sacrifice speed and security for a few tiny % amounts, take your risks in investments and take no risk in savings accounts.

Paul
Paul

How do they make money?

The 10 year is yielding 1.943%, the 30 year is 2.427% and 1 year (which they are allegedly investing in) is 1.58%. They have to be including capital gains in their returns.

Ben
Ben

PSA this has to be invested in mid to long range treasuries for it to have earned 3.4% since August. Treasuries have been rallying this year since rates have been falling. If rates were to rise they will lose value. Not saying this is a bad investment just saying do not invest in this as a savings account alternative.

Ben
Ben

I misread the return. It is a 3.40% annualized return so may not be that long of a fund. Still stand by comment that this isn’t a savings account alternative and I wouldn’t expect that return going forward with current rates already low.

Scott
Scott

Comparable to the JPMorgan Ultra-Short Income ETF (JPST)

More Info
More Info

That ETF takes on risk. It invests half its money internationally and 2/3rds in corporate bonds, 12% in mortgage bonds. While the risks are low, this fund would not have been positive in 2008, had it been managed the same way and been around at that time.

5150d
5150d

Seems like a scam. There are no US Treasuries paying these rates. MADOFF.

Joe
Joe

Is it a hard credit pull to open an account?
Thank you very much!

Ryan Goldstein

No, I didn’t get a hard pull.

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