Why buy a Treasury bill vs. bank savings? Many reasons

Q: Why would anyone buy a Treasury bill when they can get more interest in an FDIC-insured savings account?

A: It's not hard to beat the yield on a 10-year Treasury note.

Just about any provider of high-yield online savings accounts can top the paltry 2% or so. E-Trade Bank was recently paying 3.3%, HSBC was offering 3.0% and ING Direct 2.75%. These savings deposits are all insured by the FDIC and can be withdrawn in a week or less.

And you're right, for most people these high-yield savings accounts are better than buying government debt at today's lofty prices, even with the federal debt's exemption from state income tax.

But there are reasons someone might buy Treasuries anyway. First, FDIC protection is inadequate for large investors. While the FDIC has increased its insurance protection temporarily to $250,000 per despoitor from $100,000, the limit is still not adequate for wealthy investors or large institutions. And if nothing is done, FDIC limits are due to return to $100,000 in 2010. You can read more about this here.

Second, just because E-Trade Bank is offering 3.3% now doesn't mean the rate will remain that high.Banks can change their rates at a moment's notice. For instance, this year, ING Direct took its rate down from 3.0% to 2.75%. Some investors may decide it's better to have a 2% guaranteed return from Treasuries for 10 years than to risk the chance of a lower return if banks cut rates.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.