Switching to 6-Month Treasury Bills

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My current 4-week T-Bill ladder has been working smoothly, with the money going in and out of the C of I so that I don’t have to do anything but watch the interest add up. But, this week’s T-Bill auction results gave a disappointing 3.63% rate, which is the post-tax equivalent of 4.13% APR for me. I can already get that at Presidential Premier Savings.

So I think I’m going to switch to 6-month T-Bills. I chose 4-week T-Bills for their relative liquidity, as I wanted to use it as an emergency fund. But since I usually have enough cash in various accounts while earning bank bonuses, I want to grab higher yields. My savings horizons are longer than 6-months too. The recent 6-month T-Bill rates are about 4.33%, or 4.92% APR bank equivalent for me. That’s much higher than any 6-month bank CD. I think I may be getting too obsessed with optimizing my cash returns, but it only takes a few clicks =)

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  1. Do you mind showing us what the ladder looks like? Can you show how much you will be get from interest in 6month or 1 year?

  2. Too obsessed with optimizing cash return??? Nah! I figure at this point, it isn’t so much about significantly increasing your financial situation as it is about a hobby. Like your post a few days ago about cheap hobbies? Financial blogging is a very cheap hobby! And it can even gain you money! 30% improving your financial situation, 70% hobby!

  3. I know what you mean about being obsessed. I just tried the four week t-bill for the first time this week. I felt kinda burned when I saw the results.

    Do you think it had something to do with the Fed meeting on Tuesday where they raised the interest rate to 4.75%? Stocks went way down that morning. Probably not, right? I was a little conspiracy minded after the results came out.

  4. When you next T-Bill purchase pulls out of the C of I, is it also investing the interest returned from your previous purchase? Or is it only investing just $1000 again?


  5. Steve, You don’t invest $1000 when you buy a $1000 tbill, you just get charged less (ie. $997.xx) and then get repaid a full $1000. Therefore if you were to buy another $1000 tbill after your first one matures, I don’t think you will be able to reinvest your entire $1000.

  6. Word of warning regarding Treasury Direct. I have some 4 week T-bills due to mature on 12/22. I went into my TD account today (12/16) to change the destination from C of I to a savings account due to the low rates last week on 4 week bills. I found out that I could not at this time alter the destination for the funds. The bills said something like ‘reaching maturity’. So, now I have to either move the funds out of C of I when they mature or reinvest the funds in another 4 week bill funding from C of I and maturing to other than C of I. I have no idea when TD clamps down on when you can no longer change the destination since I do not monitor this account daily.

  7. Maybe this is a year end effect. The rate should in theory be close to the Fed rate of 4.25%, guess we’ll see in the new year.

  8. If you look at who is the main buyer of T-Bills it is non US residents or Goverments as they are not subject to Federal income tax on them.

    Also T-Bills are considered the safest investment in the world. So if you have large sums of money and dont want to risk loosing them T-Bills is way to go. Also remember US interest rates are much higher than Japan, China or Europe so while T-Bills look atractive to non US residents they dont look so good to compared to High yeild savings accounts and Muni for US residents.

    Only T-Bills worth buying are 182 day as there yeild is normaly higher than an online savings account.

    1 more thing to note the yeild curve in the US is flat right now. Normally there is 250-300 bais point spread between 182 day T-bills and 10 T-Bills. And the spread between Fed Funds rate and 28 day T-Bills is normally about 50 bais points except we have an inverted yeild curve mainly cause by Non US residents and Goverments seeking to get higher yeilds over what they can get in there own countrys so in effect they are bidding up price of T-Bill thus pushing the rates down.

  9. MrFrimFrank says

    I’m a little confused on the rate of return. If I buy a T-bill at 4% what price will I pay. I thought that 4% of 1000 is 40, but what is the deal with the price per $100? Would I be buying the T-bill at a discount rate of 960, or 996?
    FYI- i read on investinbonds.com that investing in 6 month bonds was not a good idea when intrest rates are on the rise.Something about the dollar being worth less due to inflation.

  10. MrFrimFrank,

    The 4% figure is annualized. So, if you reinvested the same $1000 every 28 days for an entire year AND the Treasury’s rates somehow managed to stay at 4% all year long (not likely, but for sake of example…), then at the end of it all yes you would have your $40 total interest. This works out to somewhere close to $3 earned each month.

    The difference between the rolling T-bills example at 4% and a hypothetical savings account that stayed at 4% the entire year would be that you wouldn’t have to pay state tax on the T-bills. Great for Californians (9%), a pointless four-week lock-up of your cash for Floridians (0%).

    Yeah, shorter terms are better when you think rates are gonna rise. But (1) in the grand scheme of things 6 mo’s is pretty short term and (2) who knows for sure what rates and/or inflation will do? The flat/slightly inverted yield curve tells us that a good number of big-time investors are willing to lock up money for 10 years for nearly the same rate 6-month t-bills went for recently – apparently they don’t think rates are heading too far north…

  11. Anonymous says

    12-DAY treasure bill? If you go to the treasury rate page http://wwws.publicdebt.treas.gov/AI/OFBills, the first line you see is a 12-DAY treasure bill? Never heard of it and never seen any bloggers mentioning it? Do you have any idea what it is?

  12. The Treasury does these odd-length T-Bills occasionally whenever they need the funds, they are usually announced ahead of time, but are not regularly scheduled.

  13. $40 return over a year on $1000? If your investing such small amounts you’de really be better off just working a few extra hours at work instead of wasting your time figuring out if you will make $36 or $40 over the course of a year. If you made an extra $1 a week post tax at work you’re gananteed $50 return with no planing what so ever.

  14. Where is the best place to buy 6-month t-bills?
    Thanks in advance for answer.

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