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.
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."
Can you lose money buying US Treasuries? ›
Benefits of Investing in Treasury Bills
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.
Do US Treasuries have default risk? ›
Financial analysts and the financial media often refer to U.S. Treasury bonds (T-bonds) as risk-free investments. And it's true. The United States government has never defaulted on a debt or missed a payment on a debt.
Are US Treasuries guaranteed? ›
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.
Are US Treasuries considered debt securities? ›
Treasury bonds and Treasury bills are both debt securities issued by the U.S. government, but they have different maturity dates and payment structures. Treasury bonds have maturities of 20 or 30 years and pay interest every six months.
Are US Treasuries safe right now? ›
U.S. Treasury bonds are low-risk, fixed-income securities known for the safety and liquidity they bring to portfolios.
Are US Treasuries safer than cash? ›
A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government.
What is the safest place for money if the US defaults on debt? ›
U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government guarantees timely payment of interest and principal, backed by its full faith and credit.
Are Treasuries really risk-free? ›
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.
Are CDs safe if US defaults? ›
While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.
All three of these types of accounts are secure. However, due to insurance limits, it will take a little more work to get the same level of security from a CD or a high-yield savings account as you get from a treasury bill. Treasury bills are backed by the full faith and credit of the U.S. government.
Are Treasuries as safe as FDIC? ›
Both CDs and Treasuries are considered extremely safe investments. Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government. In fact, no depositor has lost a penny of FDIC-insured funds since the FDIC was founded in 1933.
What happens if no one buys US treasuries? ›
Entities with extra cash buy treasury bonds. When no one buys them anymore, we will reduce the national debt.
How safe are Treasury bills? ›
They are considered safe investments because they are backed by the full faith and credit of the U.S. government. T-bills are sold at a discount from their face value and mature at face value. The difference between the purchase price and the maturity value is the interest earned by the investor.
What happens when a treasury bill matures on TreasuryDirect? ›
When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures. Note about Cash Management Bills: We also sell Cash Management Bills (CMBs) at various times and for variable terms. Cash Management Bills are only available through a bank, broker, or dealer.
What is the US treasury backed by? ›
The federal government finances its operation in part by selling various types of securities. All these securities are backed by the full faith and credit of the United States government.
What is one downside to investing in Treasuries? ›
These are U.S. government bonds that offer a unique combination of safety and steady income. 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.
Can you lose money selling Treasuries early? ›
You can sell a T-Bill before its maturity date without penalty, although you will be charged a commission.
Is it better to buy Treasuries or CDs? ›
Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.
What happens if no one buys US Treasuries? ›
Entities with extra cash buy treasury bonds. When no one buys them anymore, we will reduce the national debt.
