Stick to worrying about what you can control.
The U.S. has debt. A lot of debt. About $31 trillion dollars worth, which is $94,000 per U.S. taxpayer. Some members of Congress have threatened to prevent the government from lifting the debt ceiling, leaving the nation to default on its dollars.
Right now, the U.S. federal budget deficit sits at 1.4 trillion. American voters have concerns, and rightly so. A big question mark is what happens to personal savings and investments if the country defaults on debt.
Suze Orman, financial guru, recently addressed whether you will lose your Treasuries if the U.S. defaults on its debt on her Women and Money podcast.
This is what Suze Orman thinks of a U.S. default
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
In other words, Orman thinks the consequences are too severe for U.S. congresspeople to follow through on threats to let the U.S. default on its debt. Everyone from foreign governments (which hold trillions in U.S. Treasuries) to insurers would be affected.
Suze Orman spoke to Sheila Blair, former chair of the Federal Deposit Insurance Corporation (FDIC), who shares Orman's opinion. They believe that despite the drama in Congress right now, the chance of the U.S. government defaulting on its debt is tiny.
While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.
No money is 100% safe from a default
Orman acknowledges that no money is 100% safe from a U.S. default: "A large portion of the 24 trillion dollars is held by foreign countries… the consequences would be cataclysmic." The consequences of a default would ripple beyond North America.
At the very least, everyone in Congress is strongly motivated to raise the debt ceiling or otherwise avoid default. No one wants to be responsible for throwing a country into crisis.
Don't let anyone tell you that an investment is 100% safe -- no investment is. Systems change. But history suggests U.S. Treasuries are one of the safest places to invest your money.
Prevent and prepare for bad weather
Sticking to your financial plan is the best way to prepare for a default. Long-term savers should consider voting for rational candidates and diversifying their investments.
Vote for rational candidates
Voting is top of the list of things U.S. citizens can do to prevent a U.S. default. Vote for rational candidates who understand the terrible consequences a U.S. default would have. It's a little late for that this year, but it's something to remember during the upcoming election cycle.
Diversify your investments
In the meantime, stay diversified. Diversified investments steady your portfolio. Diversification creates a foundation that better weathers unexpected financial disasters, including a potentially earth-shaking U.S. default.
It's a good idea to save an emergency fund. Consider stashing six months of earnings in a high-yield savings account to prepare for the unexpected. You can lean on your emergency savings to avoid drawing on long-term savings during a market crash or if you lose your job.
Another way to diversify is to invest in property. Even if the market value of a property drops, a home can be lived in or rented out. Unused property can be listed on Airbnb or similar short-term rental websites to earn rental income.
Keep up with sound financial habits
Worries abound, but one of the best things you can do is maintain good financial habits. Do you have a long-term plan? Don't let the threat of a U.S. default dissuade you. There's no use in worrying about what you can't control. Continue saving money in the manner that works best for you.
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FAQs
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
Is there default risk with Treasury bonds? ›
Treasury bonds are widely considered a risk-free investment because the U.S. government has never defaulted on its debt. However, investors should understand that even U.S. government bonds have interest rate risk. That is, if market interest rates rise, the prices of these bonds will fall, as they did throughout 2022.
Can you lose money with US Treasuries? ›
The No. 1 advantage that T-bills offer relative to other investments is the fact that there's virtually zero risk that you'll lose your initial investment. The government backs these securities so there's much less need to worry that you could lose money in the deal compared to other investments.
Are US Treasuries protected? ›
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time.
What kind of bond does Suze Orman recommend? ›
I bonds are backed by the government and protect you from inflation because when inflation increases, the combined rate increases. While I bonds are still a great investment, Orman says CDs and Treasury Bills may be better for the long run.
What happens to my U.S. Treasury bills if the government defaults? ›
It can only pay bills as it receives tax revenues. If the revenue isn't enough, the Treasury Secretary must choose between paying federal employee salaries, Social Security benefits or the interest on the national debt.
What is the safest place for money if the US defaults on debt? ›
If you have money in U.S. government money market funds, U.S. Treasury money market funds, or treasury bills maturing in June or July SELL those securities and hold cash deposits or perhaps even prime money market funds until the debt ceiling crisis is over.
What is one disadvantage of investing in US Treasuries? ›
But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.
Is it better to buy Treasuries or CDs? ›
While Treasurys boast higher rates than CDs, you can still score a generous annual percentage yield (APY) on a CD by shopping around. Typically, online banks offer higher interest rates than brick-and-mortar ones. Some of the best CDs have APYs that top 5%.
What is the disadvantage of investing in treasury bills? ›
The following are the disadvantages of T-bills: The returns on T-bills are generally lower than other investments, such as stocks or bonds. This means that investors looking for high returns may not find T-bills attractive.
If held to maturity, T-bills are considered virtually risk-free.
What is the difference between a Treasury bill and a Treasury bond? ›
Key takeaways. Treasury bills have short-term maturities and pay interest at maturity. Treasury notes have mid-range maturities and pay interest every 6 months. Treasury bonds have long maturities and pay interest every 6 months.
Are Treasuries safer than cash? ›
Investors can choose which type of bonds to invest in based on their goals and risk tolerance. In times of economic instability, bonds and other debt instruments issued by the U.S. Treasury are considered extremely safe because the risk of the U.S. government defaulting on its financial obligations is minimal.
Does Warren Buffett recommend bonds? ›
Warren Buffett is no fan of the bond market. At a time when every professional fixed-income investor and strategist seems to be recommending the purchase of bonds, Warren Buffett isn't buying that view.
How much should you save Suze Orman? ›
If one income, target six to 12 times the monthly spending for cash reserve, which would be $30,000 to $60,000. If two incomes, target four to six times monthly spending, so $20,000 to $30,000 for this example,” says Paddock. However much you're trying to sock away, Orman recommends automating your savings.
Where you should put your cash right now no matter how much you make? ›
A money market account can be a safe place to park extra cash and earn a higher yield than from a traditional savings account. Money market accounts are like savings accounts, but they often pay more interest and may offer a limited number of checks and debit card transactions per month.
Why do Treasury bonds have no default risk? ›
Treasury bonds, notes, and bills have no default risk since the U.S. government guarantees them. Investors will receive the bond's face value if they hold it to maturity. However, if sold before maturity, your gain or loss depends on the difference between the initial price and what you sold the Treasury for.
Do Treasury bills have default risk? ›
Treasury Bills, or T-bills, represent short-term debt obligations by the Treasury. Because the U.S. government backs them, they are considered extremely low-risk, although they also have relatively low returns.
What is default on Treasury bonds? ›
Yet upon exhaustion of its borrowing authority, the risks that Treasury could default on bond payments and likely would default on payments for other obligations coming due – such as Social Security payments – escalate rapidly and become an inevitability over a longer period of time.
Are Treasury bills free of default risk? ›
The risk-free rate is the rate of return of an investment with no risk of loss. Most often, either the current Treasury bill, or T-bill, rate or long-term government bond yield are used as the risk-free rate. T-bills are considered nearly free of default risk because they are fully backed by the U.S. government.
