4-Week T-Bill Purchased: Very Easy

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Treasury Direct LogoSo I the $1,000 28-day T-Bill that I scheduled for purchase last week was issued today without a hitch. I knew the rate was 3.885% (exempt from state and local income taxes), as the auction was on Tuesday and announced on their Recent T-Bill Auction Results page. The issue date was today, and right on time today I see a debit of $997.03 from my checking account. It also showed up online in my Treasury Direct account. After 28 days, on 12/8, I will have an even $1,000. Not so exciting when you think of it as less than 3 bucks. 🙂

But if you think of it as an equivalent CD return, that’s the same return as a 4.41% 1-month bank CD, based on a 25% marginal federal tax bracket and 9% marginal state tax. (If you are in higher brackets your return is even better). I’m thinking a T-Bill ladder with 28-day T-Bill rungs…

Here is part of the screenshot from my TreasuryDirect account:

Treasury Direct Screenshot

I’ll need to to a bit more research to see how a T-Bill ladder would work because what if the T-Bill gets cashed in on a Friday, and I can’t buy another T-Bill until the next Thursday? That’d be 6 days of not earning interest. I’m not sure though, so off to their website I go.

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  1. Hmmm interesting. So basically we’re talking $3 in 4 weeks (on avg correct?). I’m still learning about investing, but is the idea to create a ladder so that you’re constantly maturing and investing so that $3 is coming in…once…twice a week? What about investing in a larger T-bill? I snuck in on Oct.31 and bought and I-Bond, just to test the waters, only $50, but I’m just curious. I just finished up college so I’m trying to slowly learn the ropes. I’m not sure how all of this comes in during tax time. I’m actually saving in an emigrant account so that I can start a Roth in May. Any suggestions?

  2. “that’s the same return as a 4.14% 1-month bank CD”
    Isn’t it 4.41%?

  3. Micah – Yes I wrote a post about ladders a week or so ago, let me find it later. If you’re just starting out, I’d keep it simple, your Roth plan sounds right on. Get some of the lower hanging fruit like bank bonuses, invest most in Roth, spend some of it so you reward yourself and keep on doing it. Just read, lots of info out there.

    If you have less than a couple thousand then the interest rate doesn’t matter that much compared to other things.

    Vlad – Good catch! Thanks, Fixed it.

  4. You read my mind! I just setup a 40K draw from my ED savings account for these (28-day T-bill) this week. I’m hoping that next week’s auction is at least this high a rate, and hopefully even better.

  5. Jonathan,
    I thought you could fund your Treasury purchases from a Savings account (i.e. ED or ING) and also the Treasury will put your money upon maturity in the account of your choice. I set up four banks/savings institutions in TD and played with buying a T-Bill and it asked me where I wanted to withdraw the money from and where I wanted to deposit it to upon maturity. So I don’t think you have to go six days without interest if your rolling over the money. Also, if you purchase another bill the week your bill is maturing you should have a credit and a debit on the same day, i.e. Thursday. At least I hope it would work this way. Credits are usually applied before debits on a given day. Since it’s from the Treasury don’t think they would put a hold on the money.

  6. Good points. I am using my Prez Checking account since with savings accounts you have to be careful not to make more than 6 withdrawals a month.

    Yeah, I am interested to see if they credit it back on the same day as maturity. I agree, that would be nice if it does. I was hoping to just keep it all revolving at TreasuryDirect, but it looks like that may not work that well.

  7. Jonathan,
    in your November 1st post about T-bills you said that buying them through TD was essentially a gambling since you wouldn’t know the ROI before you buy them. Do you still think so? From what I can read on TD web site, they auction them on Tuesday and issue two days later on Thursday. Don’t you know the rate on Wednesday to make an educated decision whether to buy and avoid gambling?

  8. Yes, but you can’t just decide to buy on Wed, you must decide to buy before the auction takes place on Tuesday.

    Not really a gamble per se as you can somewhat predict the rate, but you don’t know it exactly. Kind of like buying a share of stock at market price, you don’t know exactly the price you’ll be paying for it. (Not a perfect analogy, T-Bills are probably less volatile than stocks)

  9. I don’t understand why I can’t decide on Wed when the rate is known. What happens if I place an order on Wed with TD? Will they schedule it for next week instead of next day? I couldn’t find on TD site anything that would explicitly suggest that. Everything they explicitly say is auction – Tuesday, issue – Thursday, but not that you can’t place an order in between and buy this issue. Do you know this by own experience or read something on TD web site?

  10. Yep I tried. Try to place an order on Wed, you’ll get the next week issue date, not Thursday. You’ll note Nov 1st (when I scheduled mine) was a Tuesday even, and I got the 11/10 issue date.

  11. Ok, it’s clear now. Thanks. Because I tried to place an order this Wed, Nov 9th and they wouldn’t restict me from doing this and would let me select Nov, 9th from the calendar. I didn’t go further and actually schedule, b/c I didn’t really want to buy anything and was afraid that I would if continue.
    So, if this is how it works, then how can you predict the auction outcome? What do you base your predictions on?

  12. You don’t have to commit until you know the price. 1. Schedule the transaction.

    2. The auction will be on Monday for 3- or 6- month T-bills and Tuesday for 1-month T-Bills.

    3. On Wednesday, look at your pending transactions. It lists the “Price Per $100”, as shown on your screenshot. At the bottom of the page, you have two button options. Off the top of my head, I can’t remember the exact wording, but I believe they are “Return” (meaning go back to the previous page) and “Delete” (which I assume means cancel the transaction, though I haven’t done it myself).

    4. Thursday, T-Bills will be officially issued, so the “Delete” button will no longer be an option.

    Also, T.D. does allow for reinvesting T-Bills. What you do is this:

    1. Set the destination as your “Certificate of Indebt.” instead of your bank account. If you already set it to your bank account, use the “Change Destination” button.

    2. Set up a “Repeating Transaction” to repeat every month and use the C of I as both the source and the destination. Use the maturity date of the T-Bill you already own as the first transaction date.

    3. It will set up transactions for the Tuesday’s before each maturity date. I know it’s confusing, but remember you’re scheduling the Auction Date, which is always the Tuesday before the Issue Date on Thursday. Since your previous bill matures on Thursday, this works fine.

    good luck,

  13. Very sneaky Dan – I like it! I am going to try it next week methinks. I will schedule two and try to cancel one of them. If it goes through anyways, no big deal.

    After I get 4 laddered, I’m going to try your re-investment workaround.

    Thanks for the info!

  14. Thanks for all the information. Is it possible to generally determine what the rate will be? If so, how?

    I am currently borrowing money from a few credit card companies at 0% and have it gaining interest at EmigrantDirect. If it is possible to get an even better rate than ED, I would like to know how.


  15. Hi all,

    Interesting discussion and very helpful, thanks. I just set up my ladder and we’ll see how it goes. Has anyone given any consideration to the upcoming 30 year bond auction in Feb? How might this play given the Fed transistion in Jan?

  16. I’m late to this post, but why don’t you try Fidelity? Fidelity also provides fee-free access to treasury auction, so you can save a couple of days in either direction of the ETF. Plus, Fidelity will sweep your funds to money market accounts at close to 4%. Sounds like good enough for me.

  17. I can find the 3-month and 6-month T-Bills, but I can’t find the 4-week ones at Fidelity. Also, I’m not really interested in participating the in auction, I’d rather just put in a non-competitive bid after figuring out how the auction actually works.

  18. Dan/Jonathan,

    Did you guys try this successfully?? And conitnue to do it??

  19. Spam,

    I started a four-week ladder that is rolling over since Nov 17th, the rates have creeped up a bit so its worthwhile for the auto-repurchase / safety and easy access to the principal. With the tax break its a decent return.

  20. Does Treasury Direct allow you to pay for T-Bills via credit card?

  21. @Travis – No. I wish!

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