TreasuryDirect phasing out the C of I account: what it means and what to do
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Many individual investors have long relied on the TreasuryDirect C of I (Certificate of Indebtedness) account as a simple cash “hub” for buying and redeeming Treasury bills. With recent notices that the C of I will no longer be available as a funding source, a lot of people who used it as a clean, separate bucket for their T‑bills are now asking what to do next.
If you’ve been using TreasuryDirect and T‑bills as your emergency fund, and you like the fact that the interest is exempt from state and local income tax, this change can feel disruptive. The basic question becomes: how do you keep your T‑bill strategy intact while preserving separation from your day‑to‑day finances?
Below is a breakdown of what’s changing, why it matters, and how you can rebuild a similar setup with minimal friction.
What the C of I account was used for
The C of I was essentially a non‑interest bearing cash holding area inside TreasuryDirect. Investors commonly used it to:
– Park cash between Treasury auctions or redemptions
– Automatically receive proceeds from maturing T‑bills
– Keep Treasury investing completely separate from regular checking and savings accounts
– Avoid mixing emergency reserves with normal monthly spending
Because everything stayed self‑contained inside TreasuryDirect, it was easy to track: money flowed from your bank into the C of I, from there into T‑bills or other Treasuries, and back again into the C of I when those securities matured.
What changes when C of I goes away
Once the C of I is removed as a funding source, the main practical change is where cash sits between investments:
– Proceeds from maturing T‑bills may need to go directly back to a linked bank account, instead of landing in C of I.
– New purchases will typically be funded straight from that bank account, rather than from a balance held inside TreasuryDirect.
– TreasuryDirect stops being a full “cash and bonds” environment and becomes more of a pass‑through system connected tightly to your bank.
This doesn’t eliminate your ability to use T‑bills for an emergency fund, but it does force you to rethink how you isolate that cash from your normal household money.
Option 1: Open a dedicated checking account as your T‑bill hub
The simplest replacement for the old C of I structure is a separate checking (or basic savings) account used only for Treasury activity.
How it works in practice:
1. Open a new bank account solely for your TreasuryDirect transactions.
2. Link this account to TreasuryDirect as your primary funding and redemption account.
3. Move in the amount you want to dedicate to your T‑bill ladder or emergency fund.
4. Use that account exclusively for:
– Funding new Treasury purchases
– Receiving proceeds from redemptions and maturities
– Storing any temporary cash between auctions
Benefits of this approach:
– Clean separation: Your emergency reserves are still partitioned from daily spending, just at your bank instead of inside TreasuryDirect.
– Easier tracking: Statements for that single account clearly show only Treasury-related flows.
– Behavioral advantage: You’re less tempted to “dip into” your emergency fund for routine expenses if it lives in a different account.
If you enjoyed the orderliness the C of I provided, a dedicated checking account is usually the closest functional substitute.
Option 2: Use a linked high‑yield savings account
Another variation is to use an online high‑yield savings account as your Treasury hub:
– Link the high‑yield savings account to TreasuryDirect.
– Keep your emergency cash in that account when it’s not in T‑bills.
– Schedule Treasury purchases directly from it.
Potential advantages:
– Your idle cash (waiting for the next auction or between maturities) can earn interest, rather than sitting at zero yield like the C of I.
– You still maintain a clear boundary between emergency reserves and everyday money.
You’ll want to pay attention to transfer times. ACH transfers between an online savings account and TreasuryDirect typically take one or more business days, which may slightly reduce flexibility if you are trying to match specific auction dates.
Option 3: Consider using a brokerage account for T‑bills
If the main appeal of TreasuryDirect for you was state tax exemption on T‑bills and safe yield for an emergency fund, another alternative is to buy T‑bills through a brokerage account:
– Open a new brokerage account used only for cash equivalents and Treasuries.
– Buy T‑bills there instead of through TreasuryDirect.
– Use the brokerage cash sweep feature or a money market fund between maturities.
Key points:
– You still get federal‑only taxation on Treasury interest (no state or local tax), just as with TreasuryDirect.
– Many brokerages offer automatic rollover of T‑bills at maturity, which can make managing a ladder easier than doing it manually.
– You must confirm that your brokerage sweep or money market option is appropriate for an emergency fund (stable, low‑risk, and liquid).
The trade‑off is an extra layer of complexity compared with the old C of I model. On the other hand, brokerages offer more tools, clearer interest on idle cash, and sometimes better user interfaces than TreasuryDirect.
Managing an emergency fund with T‑bills after the change
If T‑bills are your emergency fund, the main principles remain the same even without C of I:
1. Liquidity first: Choose short‑term maturities (4-13 weeks) so you’re rarely far from cash.
2. Stagger maturities: Create a simple ladder (for example, a 4‑week bill maturing every month) to improve accessibility.
3. Keep some cash uninvested: Maintain a small buffer in your bank or savings account for immediate emergencies, with the rest in T‑bills.
4. Use a dedicated account: Whether it’s checking, savings, or brokerage, keep the emergency fund visually and operationally separate from lifestyle spending.
This structure replaces the role the C of I used to play as your internal “bucket” without changing the core strategy.
Tax treatment remains largely the same
The removal of the C of I doesn’t affect the tax advantages of T‑bills:
– Interest on U.S. Treasury securities is still subject to federal income tax.
– That interest remains exempt from state and local income tax.
So if your motivation for using TreasuryDirect and T‑bills was to avoid state tax on your emergency fund yield, that benefit remains intact, whether you buy through TreasuryDirect or a brokerage, and regardless of where the cash sits in between.
Practical tips when you transition away from C of I
As you adapt to the new setup, a few operational details are worth watching:
– Update bank information early: If TreasuryDirect requires a new linked account, set it up before your next batch of maturities to avoid delays.
– Check instructions for maturing securities: Make sure any auto‑reinvestment or redemption instructions are consistent with your new plan.
– Monitor for timing gaps: Note how long it takes for funds to move between your bank and TreasuryDirect so you can schedule future purchases without leaving cash idle longer than necessary.
– Keep good records: With the C of I gone, tracking may rely more on bank and brokerage statements. Download or save periodic reports so you can confirm your cash flows and interest for tax time.
Psychological benefits of a “separate bucket”
One understated advantage of the C of I model was psychological: by keeping your emergency reserves in a distinct space, you reduce the mental temptation to treat them as surplus cash. That benefit is easy to underestimate-and easy to lose if you simply let all Treasury transactions flow through the same account that pays your rent, groceries, and streaming services.
Creating a replacement “bucket” via a dedicated bank or brokerage account preserves that psychological firewall. In personal finance, behavior often matters as much as math: if a separate account helps you leave your emergency fund untouched, it’s doing its job.
When T‑bills may not be ideal for the entire emergency fund
While T‑bills are an excellent tool for many people, relying on them for 100% of your emergency fund is not always necessary or optimal:
– If your income is unstable or your expenses are unpredictable, having more in instantly accessible cash (in a savings account) can be worth a slightly lower yield.
– If you’re prone to forgetting maturity dates or mismanaging automatic reinvestments, you might prefer a simpler solution like a high‑yield savings account alone.
– If you’re planning a large, known expense in the near future (for example, a medical procedure or move), keeping that specific amount in cash might reduce timing risk.
A blended approach-some cash, some T‑bills-often strikes the right balance between safety, liquidity, and return.
Putting it all together
The end of the C of I as a funding source inside TreasuryDirect is inconvenient, but it doesn’t break the underlying strategy of using T‑bills for an emergency fund or for tax‑efficient short‑term savings. The core adjustment is simple: you now need an external “hub” account to play the role that C of I used to play.
For many investors, the most straightforward path is:
– Open a separate checking or high‑yield savings account solely for T‑bill activity.
– Link that account to TreasuryDirect.
– Keep your emergency fund structure (ladder, maturities, and amount) the same as before.
If you’re willing to consider a slightly different workflow, a dedicated brokerage account that holds only Treasuries and cash equivalents can also be an elegant, flexible replacement.
Whichever route you choose, the key is to preserve what originally attracted you to T‑bills: safety, liquidity, clear separation from everyday spending, and the benefit of interest that escapes state income tax.