WSJ Your Money Briefing - Bond Investors Face Delays Moving Their Money From TreasuryDirect

Episode Date: October 17, 2024

A rush of demand on the Treasury Department's antiquated website for buying government debt means some investors could be waiting up to 12 months to shift their money to a brokerage account. Wall Street Journal personal finance reporter Imani Moise joins host J.R. Whalen to discuss how investors are dealing with the delay.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Robert Half research indicates nine out of ten hiring managers are having difficulty hiring. Robert Half is here to help. Our recruiting professionals utilize our proprietary AI to connect businesses with highly skilled talent. At Robert Half, we know talent. Visit roberthalf.com today. Here's your money briefing for Thursday, October 17th. I'm JR Whalen for the Wall Street Journal. Over the past couple of years, Americans rushed to the Treasury Department's Treasury Direct

website to buy inflation-adjusted savings bonds that were paying nearly 10% interest. Now, as many of them want to move their investments out and into their brokerage account, they're stuck having to wait as long as a year to do it. I spoke with one investor from Maryland who had purchased a 20-year bond and only after he submitted that transfer request did he learn about this one-year delay and he was distraught. He said to me that if he expected his money to be locked up for up to a year, he would have just bought a CD. We'll talk with our personal finance reporter,

Amani Moise, about what you can do about the delays and alternative ways of buying treasuries. That's after the break. Robert Half research indicates nine out of 10 hiring managers are having difficulty hiring. Robert Half is here to help. Our recruiting professionals utilize our proprietary AI to connect businesses with highly skilled talent. At Robert Half, we know talent.

Visit roberthalf.com today. People who want to transfer their bond investments out of the Treasury Department's Treasury Direct platform are facing significant and frustrating delays. Wall Street Journal personal finance reporter Amani Moise joins me. First of all, Amani, catch us up for a moment. What is Treasury Direct? Treasury Direct is basically a direct-to-consumer website offered by the government that allows consumers to buy Treasuries and other kinds of investments directly from the government instead of going through a third party.

A third party would be a brokerage like Fidelity, and back in the day, you can't do this anymore. You could actually go buy a paper savings bond from your bank. The number of accounts on that site grew to more than 4 million last year. Why is that? Well, there was a surge in demand last year when inflation was rising because iBonds, a special kind of savings bond that's pegged to inflation, they were offering rates that were almost 10%. So a lot of people wanting to lock in those yields rushed to Treasury Direct to buy those

bonds because Treasury Direct is the only place where you can get them. You report that Treasury Direct is dealing with a deluge of customer service requests. What's going on? Accounts have grown more than five times what they were pre-pandemic levels. So what the Treasury says is that they're really constrained when it comes to resources, technology, to really service all of those accounts. So that's led to a backlog. And part of that backlog is people who want to sell the holdings they have through Treasury Direct. Take us through the process.

What steps do people have to take when they want to move an investment out? So the first thing that you have to figure out is whether or not your investment can be sold at all. So if it's a savings bond, like an I-bond that I was talking about earlier, those can't be sold at all. So they have to be held in Treasury Direct. Now, if you buy a marketable security, which means it can be sold, that

would be a regular Treasury, a bill note, a bond up to 30 years, then you can sell those on the secondary market. But since you cannot sell on Treasury Direct itself, you'd have to transfer those to a brokerage. So you can't sell your investment through Treasury Direct. You have to move it over to your brokerage to do that? Exactly. You cannot access secondary markets through Treasury Direct at all.

So then once you decide that you want to transfer your investment, you have to wait a 45-day period that Treasury Direct requires you to hold on to that security before you're able to sell it. Then once that time frame has elapsed, you have to print off a form, fill it out, get a medallion stamp, which is a special kind of stamp similar to a notary stamp, but it's specific to the transfer of securities. You can get that from either a broker or your bank, and then you have to mail that form in and wait your turn.

Wow, that sounds really complicated. And in your story, you write that people are facing significant delays, waiting their turn, as you said. How long is the wait, and what's causing the delay? So the most recent estimate that the Treasury has provided is that it could take up to 12 months for external transfers to be processed. When I spoke to a representative there, they said that external transfers are one of the most time-consuming tasks that their team has to manage because it involves getting paperwork from the client and then communicating with external brokers

as opposed to an internal transfer, like let's say gifting a bond to someone else with a treasury direct deposit, those can still happen pretty quickly. But the external process is, there's a delay. 12 months is a long time. How does that compare to times when there aren't a lot of requests to move

investments? So they try to get most requests processed within six weeks. That 12-month processing time was a change made late summer. It used to be three months. And when I spoke to a representative, they said they're not really sure what the new normal is, given this new environment that they're in with millions and millions of accounts. Isn't one of the selling points of treasuries that the transaction can happen fairly quickly? You use the term cash-like in your story. Yes, so there's always a lot of demand for treasuries. And so when you're in the investment

world, they're considered cash-like, meaning that if you want to sell them, you can sell them on a dime. Say you bought the same type of security through a brokerage instead of through Treasury Direct, you'd most likely be able to sell that same day and get that cash into your account. So this delay means that the process isn't as smooth as working with cash because you still have to wait for this transfer to go through and then you can sell. Why would people invest through Treasury Direct in the first place? Couldn't they have just put their money in their brokerage account and avoided some of the waiting time?

There's a misconception out there that there is an advantage to going direct when it comes to buying treasuries. And that makes sense. Usually there's a price advantage to cutting out the middleman. But in this case, most of the mainstream brokers, so like Vanguard, Fidelity, Charles Schwab, they don't charge extra fees to buy new issued treasuries. So you're actually paying the same exact price as you would if you went through a third party, but you're sacrificing some of your liquidity.

In terms of all the waiting time, tell us about the experience of some of the investors you spoke with. So I spoke with one investor from Maryland who had purchased a 20-year bond to try to lock in higher rates before they began to fall like we saw earlier. He was happy to wait that 45-day waiting period, but then he wanted to transfer it to his brokerage just so that he would have the option to cash in early if you wanted to do something like pay for a hotel's tuition or buy a car, something like that. And only after he submitted that transfer request, after waiting those 45 days,

did he learn about this one year delay and he was distraught. He told me that if he expected his money to be locked up for up to a year, he would have just bought a certificate of deposit or a CD, something that would pay a decent return since his money was going to be locked up for so long. He called Treasury directs over and over again to try to figure out if there was a way to expedite the transfer. He also wrote to his congressman, but a Treasury official did confirm that his transfer was successfully processed last week.

What is the Treasury Department saying about these delays and the experience of some of these investors? It acknowledges that it's a frustrating experience. Treasury also says that they're working on ways to modernize their technology, to ease the backlog and to prevent things like this from happening in the future. But they didn't really give me any details on what changes they're making at this point. For people who invested through Treasury Direct, is there anything they can do to get around the delays?

External transfers will have a very long delay. But if you would like to cash in early and you have the ability to do that, there's no wait for cash transfers. So you could actually redeem your bond early, get the cash, and then transfer that cash to your brokerage and then rebuy the bonds if that's what you're interested in. But if you're not in a time crunch,

it's probably better to wait it out. That's WSJ reporter, Amani Moise. And that's it for your money briefing. We'll be back tomorrow with WSJ's Anne-Marie Alcantara to discuss the growing number of people on LinkedIn who openly admit they're desperate to find a job. This episode was produced by Zoe Culkin with Deputy Editor Chris Zinsley. I'm JR Whalen for The Wall Street Journal. Thanks for listening. Balance your trading strategy by adding futures.

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