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Why Use Zero-Percent Certificates of Indebtedness?

Posted By Jim On 10/25/2005 @ 4:57 pm In Credit | 10 Comments

When I opened a Treasury Direct account, the only email in my Investor’s Inbox told me about Zero-Percent Certificates of Indebtedness (C-of-I’s). A Zero-Percent Certificate of Indebtedness is a Treasury Security that earns absolutely no interest. The point of it is to act as a source of funds to buy other securities with. I don’t see why it even exists when you can fund Treasury purchases from a bank account that’s earning around 4% interest while you decide what to buy! They tout that the benefits include being able to send payroll deductions, regular electronic deposits from your bank, or other financial sources – but that’s what I’d do with a regular bank anyway. It just sounds like the 0% interest single-day maturity certificate is just a fancy name for “non-interest bearing account.” What critical piece of the puzzle am I missing?

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