Buying a 4-Week Treasury Bill, Hoping to break 4.30%

I think it was pretty cool we predicted the new I-Bond rate two-weeks ahead of time, and let everyone make some educated decisions on when to buy. I’m now interested in Treasury Bills. Today, the new rate for the 4-week T-Bill is 3.788%. After using our tax-advantaged conversion formula and using a 25% federal tax rate and 9% local tax rate, this works out to the equivalent of a bank rate of 4.30%. Not bad at all.

Too bad I can’t guarantee myself that rate. Apparently, you can’t figure out the exact rates ahead of time, as they are sold in an auction format. And if you buy them through TreasuryDirect.gov, you don’t actually participate in the auction, you just agree to buy them at the decided price. On the plus side, you pay no commissions. The next auction is November 8th. Since tomorrow the Fed is expected to raise rates again, I just put in a order to buy a $1,000 4-week T-Bill to see how it works out.

Comments

  1. savvy saver says:

    hmmm… that sounds kind of fun. I might look into buying a short-term t-bill. I wasn’t aware that you could buy them for as little as $1,000.

  2. savvy saver says:

    Ok, question for you…. I’m on the TreasuryDirect website and playing around with purchasing a $1000 t-bill… do I put $1000 for the purchase price, or the discount amount? I would think it would be $1000 (since that is the minimum), but the example they give says $970, paying $1000 at maturity. That makes me think I need to figure out the actual purchase price.

  3. Hi,
    Nice post. when one bids for a t-bil, do you pay them in advance of the auction or do you pay them after the auction. If you have to pay them before the auction, how do we even know how much to pay since the price is determined at the auction

  4. I’ll need to check again, but since we don’t know the price ahead of time, I think you just put down $1,000 and you get charged the discounted price, like $997 or whatever. At least that’s what I did, I put down $1,000.

  5. I did this last month… I ordered a $1000 bond and a little over $997 was takend from my account. It was pretty easy.

  6. Hi,
    With regards to the bank account used for buying and redeeming the bills, is it possible to use savings/moneymarket accounts such as those from INGDirect, Emigrant-Direct and VirtualBank?
    Thanks!

  7. Don’t see why one can’t use ING or Emigrant for the bank account used for buying and redeeming the bills. One can PULL funds from Emigrant via ING without setting up ING as an external transfer in Emigrant, so why can’t the Treasury PULL funds from Emigrant and ING for buying them without setting up the Treasury as an exteranl link. Bank info setup in Treasury Direct account allows SAVINGS accounts. Just need the routing number and account number of the Savings institution.

  8. Agreed. I haven’t tried personally, but I don’t see why it wouldn’t.

  9. In looking at the Treasury bill site, there are three dates associated with purchasing a t-bill: 1)announcement date, 2) auction date, and 3)settlement date.

    My question is this: On what date does the Treasury actually debit your account? On the auction date or the settlement date? Or some other date? I recently purchased some I-bonds (I know t-bills aren’t the same) on a Sunday via Treasury Direct and low and behold there was a debit pending first thing Monday morning in my checking account.

  10. I e-mailed Treasury Direct this exact question last week. Their response:

    “When you purchase electronically, the funds to purchase the security will automatically be debited your bank account on the issue date.”

    This “Issue Date” shows up on your pending transaction the next day after the auction. But barring weeks with holidays in them, the auction for 3- and 6-month bills will be on Monday and the corresponding Issue Date will be three days later on Thursday. For 4-week bills, the auction is on Tuesday and the Issue Date is also Thursday.

    Here’s T.D.’s “tentative schedule” showing this:
    Schedule Link

    Hope this was helful

  11. My purchase for tomorrow looks like a go. As of today (Wed) there has been no debit from my account. I expect one first thing tomorrow morning for $997.xx. I’ll probably post again when it shows up on TreasuryDirect.

  12. Thanks DCS. It appears that issue date and settlement date are the same.

  13. Your technical analysis is in error. The 4-week Treasury Bills are subject to federal income tax but exempt from state income tax (at least in CA). Therefore, when computing the effective investment rate, you cannot add 25% for the typical tax rate..

  14. The state income tax exemption was taken into account. 25% is *my* personal tax rate.

  15. Jonathan Lam says:

    Treasury bills are sold in units of $1,000. They may reach maturity in 4 weeks, 13 weeks, 26 weeks, or 52 weeks. T-bills are discounted securities. That means that the actual purchase price you pay when you buy a T-Bill is less than the face value of the T-bill. On the maturity date, you receive the full face value of the T-bill. A T-Bill held until maturity can be reinvested in another bill or can be paid to the owner.

  16. I just purchased a $50 EE 4-week bond. What happens next..

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