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T-Bills as Collateral
By Lawrence G. McMillan

This is a topic that has been so long-forgotten that it seemed like it might make a good article now, or at least provide a “refresher” for those who might remember it. Now that interest rates are actually high enough to “matter,” traders who need to put up collateral margin can benefit from the old technique of buying T-Bills with the cash in their account. If the T-Bills mature within 6 months, the trader can use up to 99% of the value of the T-Bills for collateral margin purposes, while earning the T-Bill rate on their cash. The 90-day T-Bill rate right now is about 3.75% (annual), which is more than any brokerage firm is paying you on your cash balances. The best rate at a brokerage firm is probably Interactive Brokers (IB) which is paying 2.58% on the cash balance in excess of $10,000 in your account.

In theory, any margin trade could be collateralized with the T-Bills, but it is most efficient to use it when option...

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