6 month treasury bill - 4.48%

[basedluther]

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?

 

[jonbradford]

@basedluther (I’ll also mention that the published interest rates are annual. So if the rate is listed as 4.48%, you’d get 2.24% after six months.)

 

[basedluther]

@jonbradford Crap...I didn't realize that.

 

[brethrenfund1]

@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.

 

[denisse]

@brethrenfund1 If you go through treasury direct they allow you the option to re-invest.

 

[sweetelisum]

@basedluther Yeah well, the rate is still very good by T-bill standards.

 

[joy13]

@sweetelisum Some perspective on that: https://www.macrotrends.net/2492/1-year-treasury-rate-yield-chart (change chart to "All Years")

 

[domdom32]

@basedluther This is how any interest rate works, though, they are always annualized. It’s still a great buy for zero risk savings growth.

 

[resjudicata]

@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

 

[pkk83]

@resjudicata If anything ever promises you 40% annualized don't fall for it

 

[zylan]

@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.

 

[tildav]

@jonbradford Actually the I bond rate was 9.6% APR, so you get 4.8% ($480 compounded) for six months on $10K…

 

[blueberry25]

@basedluther Rates are always always annualized. 4.48% would be annual so it would be 2.24% after 6 months.

There is basically no exception to this...if you see a rate, its annualized.

 

[allan1967]

@blueberry25 Isn’t it 2.22% however? Or SQRT(1 + 0.0448) -1? Because the annualized interest rate is calculated as a compound rate?

 

[emenika]

@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]

@emenika Thanks, I didn't realize it was annualized. Much less attractive.

 

[ggp80]

@basedluther Every interest rate you see (CD, treasury, savings account, credit card debt, mortgage, etc) is annualized unless it specifically says otherwise.

 

[ggp80]

@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]

@ggp80 Interesting... So I pay less up front. I assume tax is standard?

 

[ggp80]

@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)