Which is the better way to get cash?

I have a rather immediate need for a few grand (home repairs). I have two potential sources:

  1. Cash in some of a portfolio of municipal bond funds currently worth about $30,000
  2. Cash in some US treasury bonds that have not yet reahced maturity. Current redemption value is about $8800, the total face amount being $10,000. These are 30-year bonds.

Much as I’d rather not do either, that’s not a likely option unless cash rains down from the sky. Which move is likely to lose me the least, in regard to the future earnings potential of these assets I currently have?

Can’t you just get a loan?

I can’t imagine that I can get money through the loan application process as quickly as I need to pay for this work.

Have you considered taxes in this?

You may want to redeem the investment that will generate the least amount of capital gain, to minimize the amount of taxes you will have to pay. Or you may want to generate the maximum amount of capital gain, now, as capital gains taxes are expected to go back up in 2 years.

If I were you, I’d ask my bank how quickly the loan could be approved. I imagine it shouldn’t take long given that you have collateral in the form of home equity, treasury bonds and municipal bonds. So it might be quick.

OUr home equity loan took less than 24 hours from application to cash in hand.

The interest rate on the loan is surely going to be higher than the interest rate he’s earning on the bonds.

The retail bid/ask spread in muni bonds is notoriously wide. Make sure you don’t get hosed trying to liquidate them.

Once when I needed a couple thou for a very short term (just a few days), I asked for and got instantly a line of credit at a very low interest rate (prime + 1%). When I paid it back, there was actually no interest because the bank manager, realizing that it would take a day or two to get it approved, had actually authorized an immediate, interest free loan. She explained that afterward, when I asked why there was no interest. Unfortunately, she has been moved to another branch. Anyway, a line of credit is the way to go. I still have it, although I have never used it.

Consider the current interest rates for munis, and tbills before you liquidate the old ones.

A short term loan at a higher interest, if paid off quickly might involve less loss of income over the long term.


What are the yields of the various investments, considering the tax benefits of the muni bond funds? You might also look at their price history. I could imagine them tanking if the state (NY?) budget gets worse. The T-bills are safer.
I understand the appeal of having a loan and being forced to pay it back, but it you make yourself buy more of whatever it is you sold on a regular basis after you get the work done, you are probably going to be a lot better off.

If your credit rating is pretty good, you could try to find a credit card that offers purchases or transfers at 0% interest for a year. You can search and apply online and probably have the card in a week or so.

If you can’t wait that long, they might transfer an advance to your bank account on the phone. My fiancee did that just the other day. She had received a 0% offer in the mail, but the checks included had expired a week earlier. We called and asked if we could still get the same offer now. They said yes, and transferred the money. For a transfer (as opposed to purchases) you’ll pay a one-time fee of 3% or 4%.

Or perhaps you could find a contractor who doesn’t need to be paid this instant. In any event, it’s good to have a home equity line of credit for just this purpose.

The important facts you need in order to asses this are:

How much are the papers in option 1) earning per year? That’s how much you “pay” for the loan against yourself.

How much are the papers in option 2) earning per year? Dito.

Is there a punitive fee for either 1) or 2) if you cash out early, because you are bound for a certain number of years? If so, add to fee and calculate interest.

Now compare to a normal loan at your bank, using the not-cashed papers as security. Get the full interest with all fees and compare to the above figures.

A made-up example:
if 1) is earning 6% p.a. with no punitive
2) is earning 7% with 2% punitive

and you can get a loan at the bank for 3% - then obviously it’s much smarter to take the loan!