Few people wanted to learn more about T-Bills so here's a thread on it.
First of all, this is meant as general information, I am not an investment advisor and this is not investment advice.
T-bills are short term (1 yr or less) US treasury obligations as opposed to longer instruments known as notes or bonds. They are sold at a discount to face value and pay 100 cents on the dollar at maturity. The greater the discount/the lower the price, the higher effective yield you realize.
You can buy them in open market and most large brokers (Fidelity, etc) offer this option but the easiest and most cost effective way of doing this for a casual individual investor is directly from US Treasury at https://www.treasurydirect.gov/.
There you can also find recent auction results to see whether this makes sense for you. Here's a snapshot as of this morning, 8/18.
A simplification, but it's easy to think of the "High Rate" as the discount and the "Investment Rate" as APY to compare with other bonds or CD/savings.
Now that rates are finally meaningfully above 0, it's important to note the benefit of the state/local income tax exemption. For most here in GA paying a marginal 5.75%, that's another 0.3%-0.35%.
The website is somewhat antiquated but is not too bad once you spend some time there. You make an account, connect your bank and sign up for upcoming securities to be auctioned. As you do that, there's an option to select automatic reinvestment, or you can do that anytime up until several days prior to security maturity. 1-6 month T-bill auctions are weekly.
Normally the yield curve is upward sloping but due to expectations of the Fed lowering rates and slowing economy at some point in the future, you may get the slightest increase between 1 and 6 months and then rates start declining.
One strategy to replicate a HY savings or a MM account is to invest 1/x of the funds you want to invest into a weekly auction of an x- week T- bill. So if you're putting $10k into a 4 week T-bill, you'll sign up for 4 weekly auction of $2,500 each and check the automatic reinvestment box. Within a month you have $10k earning 5.4% (5.7% if compared to a fully taxable savings account) where at any given time, a quarter of your money is available within a week, just log in to stop reinvestment and collect cash upon maturity.
I have some 4 wk, 26 wk and a few in between. 26 wk tend to pay more, but also don't "reset" as quick. Not ideal while rates are still going up but will be perfect when they stop. 4 wk will have the most volatility. Rates dropped early spring when everyone was pulling money from banks and putting them into Treasuries. Then they spiked up in May during the debt ceiling showdown.
Finally, if you connect this to your savings account, make sure your bank is no longer imposing a max of 6 withdrawals per month, especially if you sign up for weekly purchases of multiple securities. The Reg D is gone but some banks kept the rules in place.
Ask any questions here or PM me but please save the discussion on the impending implosion of the dollar and not keeping up with inflation for another thread.
First of all, this is meant as general information, I am not an investment advisor and this is not investment advice.
T-bills are short term (1 yr or less) US treasury obligations as opposed to longer instruments known as notes or bonds. They are sold at a discount to face value and pay 100 cents on the dollar at maturity. The greater the discount/the lower the price, the higher effective yield you realize.
You can buy them in open market and most large brokers (Fidelity, etc) offer this option but the easiest and most cost effective way of doing this for a casual individual investor is directly from US Treasury at https://www.treasurydirect.gov/.
There you can also find recent auction results to see whether this makes sense for you. Here's a snapshot as of this morning, 8/18.
A simplification, but it's easy to think of the "High Rate" as the discount and the "Investment Rate" as APY to compare with other bonds or CD/savings.
Now that rates are finally meaningfully above 0, it's important to note the benefit of the state/local income tax exemption. For most here in GA paying a marginal 5.75%, that's another 0.3%-0.35%.
The website is somewhat antiquated but is not too bad once you spend some time there. You make an account, connect your bank and sign up for upcoming securities to be auctioned. As you do that, there's an option to select automatic reinvestment, or you can do that anytime up until several days prior to security maturity. 1-6 month T-bill auctions are weekly.
Normally the yield curve is upward sloping but due to expectations of the Fed lowering rates and slowing economy at some point in the future, you may get the slightest increase between 1 and 6 months and then rates start declining.
One strategy to replicate a HY savings or a MM account is to invest 1/x of the funds you want to invest into a weekly auction of an x- week T- bill. So if you're putting $10k into a 4 week T-bill, you'll sign up for 4 weekly auction of $2,500 each and check the automatic reinvestment box. Within a month you have $10k earning 5.4% (5.7% if compared to a fully taxable savings account) where at any given time, a quarter of your money is available within a week, just log in to stop reinvestment and collect cash upon maturity.
I have some 4 wk, 26 wk and a few in between. 26 wk tend to pay more, but also don't "reset" as quick. Not ideal while rates are still going up but will be perfect when they stop. 4 wk will have the most volatility. Rates dropped early spring when everyone was pulling money from banks and putting them into Treasuries. Then they spiked up in May during the debt ceiling showdown.
Finally, if you connect this to your savings account, make sure your bank is no longer imposing a max of 6 withdrawals per month, especially if you sign up for weekly purchases of multiple securities. The Reg D is gone but some banks kept the rules in place.
Ask any questions here or PM me but please save the discussion on the impending implosion of the dollar and not keeping up with inflation for another thread.
