Earning interest on cash at IB

In my IRA account, I placed idle cash into TIP (iShares TIP ETF). It tends to hover around $100/share, and pays nice monthly dividends. It fluctuates a bit, but not much. Returns have been better than a savings account.

Not offering advice, just telling you what I did.

My investment in TIP was based on the opinion that in a couple of years we will be into some serious inflation...

For additional other cash, I do have a savings account and CD's at Ally bank. This is the successor of GMAC, and I feel good that I can take advantage of some of that TARP money...

HTH
Steve G
 
Be careful when you go for that little extra interests.

Early last year I was not happy with near zero interest on my TD America IRA account. So after looking around I found that TD had a money market *LIKE* fund (Reserve Yield Plus, RYPQX) that holds $1 NAV and pays 2+% earnings. It seemed too good to be true but hey, it's like money market so there's not much risk, right? WRONG! When Lehman went BK, this fund "broke a buck" and there was withdrawal run and they froze the fund before everyone could get out. Apparently they lost at least 3% of the value due to Lehman and perhaps more. So they decided to close the fund, but for the whole Q4 last year, they wouldn't release half of the asset apparently because they couldn't liquidate various commercial papers without losing more value. To this date, they still hold about 10% of my money. Some of it is probably lost for good due to their Lehman holding. There's a yahoo group for shareholders but nobody seem to know when they will complete the redemption. Of course, frozen money during 08Q4 and 09Q1 meant we avoided the market crash so I don't feel too bad but still.
 
Quote from SteveGoTex:

In my IRA account, I placed idle cash into TIP (iShares TIP ETF). It tends to hover around $100/share, and pays nice monthly dividends. It fluctuates a bit, but not much. Returns have been better than a savings account.

Not offering advice, just telling you what I did.

My investment in TIP was based on the opinion that in a couple of years we will be into some serious inflation...

For additional other cash, I do have a savings account and CD's at Ally bank. This is the successor of GMAC, and I feel good that I can take advantage of some of that TARP money...

HTH
Steve G
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Thanks, but then it's no longer idle cash, right?, It's going fully against your margin like any stock or ETF. It's a good idea, but by doing this, you're reducing your investing capital, so you're not really earning extra cash on interest, you're just reducing potential investment income. In the past, with other brokers you could buy t-bills and it would only count something like 2% against your margin, so this was a way to earn extra interest on cash just hanging around to suport your margin. So the question is now what can you do in the current market to earn extra interest on idle cash now that IB is paying little interest and T-bills yields are nill.
 
Since it hasn't been mentioned in this thread, one can do a stock/SSF pair trade to capture a premium. Lot's of information at OneChicago and IB about this. I'm doing this in my IRA with about half my cash for about 4% "risk free" gain.
 
Quote from drbtk:

Since it hasn't been mentioned in this thread, one can do a stock/SSF pair trade to capture a premium. Lot's of information at OneChicago and IB about this. I'm doing this in my IRA with about half my cash for about 4% "risk free" gain.
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Yes, this is called an Exchange for Physical, or EFP, and IB provides a great deal of support for EFPs, including very low commissions, an ETF-like automatic trading facility allowing customers to trade EFPs with each other and with IB, and IB also makes markets in EFPs.

But I would be very surprised to see that you are making 4% "risk free". Can you please share with us how you compute a return of 4%? I suspect you are greatly overestimating your return.
 
Quote from joeactuary:

Thanks, but then it's no longer idle cash, right?, It's going fully against your margin like any stock or ETF. It's a good idea, but by doing this, you're reducing your investing capital, so you're not really earning extra cash on interest
More...

you're correct, there is NO way to have your cake and eat it to. you will reduce your available margin if you employ the techniques mentioned here (ie, invest in an ETF or EFP).

and tbills pay such low rates that the commissions offset the dividends, so don't bother with tbills.
 
As a clarification, in my previous post stating a 4% return on the EFP, that was annualized. The actual yield for a three month period is about 1%. And yes the return has dividend risk, i.e. the trade actually goes negative but is offset by two dividend payments, the first of which was already declared and the second assumed.
 
Edit-- I went back to my actual numbers (which I had previously just estimated). Here they are: Bought 1000 shares KFT @ 26.062, sold 10 Sep09 SSF @ 25.695. Based on 20% margin for the SSF (I think thats right), and two dividend payments of .29 each, I calculate a 2.7% annualized yield (hopefully correct) Sorry for the miss-statement.
 
You need to go further out in the IR risk curve and chase yield in treasury bonds(not tbills). Maturity is key, anything more than 10y is probably too risky
 
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