Scottrade has a cash balance hurdle of 10K before you can use their
bonds center to purchase. Technically this is correct. However, I think
it should be understood that Scottrade and possible the entire
brokerage industry will always attempt to earn a spread on the
customer. The retail customer is better off purchasing directly from
the U.S. Dept of Treasury (TreasuryDirect).

In fact, if you attempt to purchase 10K of short term "off-the-run"
T-Bills you will PAY THEM instead!

Their website interface defaults to 100K. The fewer bonds you purchase
the lower the yield they offer until finally at 10K your yield is
negative!

Real Life Example - As of 1/19/2007

Step 1) Bonds used in Example: 90-Day T-Bill (off the run) maturing
2-22-2007: CUSIP #912795YU9

Discount Rate at Auction: 4.94%
Investment Rate(Yield) 5.071%

The scottrade website allows you to lookup bonds using the CUSIP# A
search conducted on Jan 19th Revealed the following initial results:

Qty        Min    Issue    Coupon    Maturity      Price      YTM
25001    10      T-BILL   0.000      02-22-2007  99.633     4.337

Qty = Scottrade's current inventory
Min = Minimum Purchase
Issue = Self-Explanatory
Coupon = 0.00 no coupon payment (discount instrument).
Maturity=Date of Maturity
Price=Current Price
YTM=Yield to Maturity (Notice that this is already 74 basis points
lower)

Step 2
When you click the "buy" button to purchase your bonds you are taken to
a screen which still uses the above price but defaults the minimum
purchase to 100 bonds for a total of 99,632.79 (The price difference is
that they only show the customer three decimal places. Financial
institutions frequently work with decimal places ranging from 4 to 6.

If you change the number of bonds from 100 to 10 the price immediately
changes to 100.083(Premium) and the yield turns negative. This simply
means that if you purchase this bond you will pay Scottrade.

This is a very indirect way of discouraging the purchase of bonds for
if you have less than 100K to invest. I really do not have a problem
with that except the limit should be set at 100K rather than 10K.

My test shows that a customer has to purchase at least 12K just to
BREAK EVEN.

Sadly, calls to customer service (Cincinnati) yield nothing dishonest
responses from individuals who are either:

1. Poorly Trained
Or
2. Trained to be dishonest

AND

Not customer focused.

I had the opportunity to speak with representatives in the St. Louis
Office and, although they have not yet called me back as promised, they
were much better trained and sensitive to customer needs than the local
representatives in Cincinnati.

As investors we are all entitled to the risk free rate of return for
our cash balances at the very least. What does the public think about
this?