Is anyone jumping on this? I have no experience with this but I assume it pays 4.48% after 6 months. Does it just auto renew to the next rate 6 months later? Can I sell out at any time after 6 months?
@basedluther Fixed income investments - money market funds, Treasury securities, bonds and bond funds - always have their yields expressed as an annualized return.
When you buy a bond, one or the other:
- You buy the bond at a discount, which represents the yield to maturity. You buy a $1000 bond for $966, and at maturity it pays you $1000.
- You buy the bond for the face amount of $1000, and you receive one or more coupon payments of interest (yield). At maturity you get your $1000 back.
Treasury securities do not roll over. Some brokerages will offer a service that re-invests your principal into a similar security.
@basedluther don't worry man i thought the same this morning until someone explained to me. I was about to go all in on 3.35% 1 month GICs thinking it was 40% annualized
@basedluther It's not a bad option if you currently all-in stocks/mutual funds and are unsure what to do with X dollars. There's also no state or local taxes on them.
@basedluther 4.48% is an annualized rate, over 6 months you'd see a ~2.25% return on investment. Basically the way it works is you buy the bond today for about $97.75 and in May the bond matures and the US government gives you $100. You're free to sell it to someone else before then, and as rates fluctuate and time passes, that price will change.
The bond does not automatically convert to a new one at maturity, but your brokerage should have a way to set up a bond ladder which tells the brokerage to buy you a new bond when the old one matures. Of course there is no promise that the rate of 6 month T-bills will be the same in May as it is today.
@basedluther Every interest rate you see (CD, treasury, savings account, credit card debt, mortgage, etc) is annualized unless it specifically says otherwise.
@basedluther Treasuries are sold at a discount. So you might pay (just making it up) $984.31 to buy a $1,000 bond. Then when the bond matures in 6 months you get $1,000. When the bond matures the money is deposited into your account - there is no concept of selling it after it matures. Once it matures it doesn't exist anymore.
@basedluther No state income tax on the interest for treasuries. You do pay federal tax. So if you were comparing a CD and a treasury of the same length maturity and paying the same interest the treasury would be the better deal. Unless it is in a retirement account (since you don't pay tax) or you live in a state without state income tax (FL, WA, etc)