T bills at Vanguard: I purchased $5k and after 7 months got $5k back

[aloverofrigtheousness]

Can someone explain why this happened? The guy at Vanguard explained to me that the way zero coupon bonds works is that my $5000 only purchased $4,886 and that my interest of $114 would be what I earn but at the end of the term, I got exactly $5,000 back.

So I didn’t earn any interest on my principal. He made it sound like I did.

I though I understood how these things worked but apparently not. What is the trick to earning $ on T-bills?

 

[logicdictates_udumb]

@aloverofrigtheousness ...Did you look if they actually debited $5,000 7 months ago, sounds like they only cost you the $4,886.

The lack of coupon just means just that, you didn't get a coupon.

https://www.investopedia.com/terms/z/zero-couponbond.asp

You made the difference between $5,000 and $4,886, which can be represented by a %.

 

[aloverofrigtheousness]

@logicdictates_udumb So how does one make money on these things?

 

[logicdictates_udumb]

@aloverofrigtheousness ...I mean, you got charged $4,886 7 months ago if you check your account, and received $5,000 7 months later.

You got back more money than you paid for the bond.

 

[antponetteoaks]

@logicdictates_udumb This reminds me of what an old boss said to me. "It's like trying to explain a card trick to a chicken.".

 

[aloverofrigtheousness]

@logicdictates_udumb Thank you. So are these considered Tbills or did I invest in the wrong thing?

 

[logicdictates_udumb]

@aloverofrigtheousness Yes. I mean I don't know exactly what you bought but, T bills are zero coupon.

 

[jay7]

@aloverofrigtheousness You bought Treasury Bills at a discount
* Vanguard's page describing Treasuries
* Fidelity's page describing Treasuries (less text-heavy)

 

[aaroncody]

@aloverofrigtheousness One number is larger than the other

 

[jaybird78]

@aaroncody but why male models ?

 

[worthycause4christ]

@aloverofrigtheousness Bro...you just did.

 

[lawrenceraymond]

@aloverofrigtheousness Just buy blv or tlt and relax. I’d tell you to wheel tlt, but that’s a whole different level of complexity.

 

[pasadi]

@aloverofrigtheousness You paid $4,886 and got paid back $5,000.

$114 is the amount of interest earned.

114/4,886=2.33% is what you earned during the period.

2.33%/length of Tbill in weeks * 52 = annual yield.

T bills are zero coupon but you did earn an interest because you bought the bill at a discount of $4,886 vs $5,000 face value. So you made $114 in interest, which is taxable.

 

[aloverofrigtheousness]

@pasadi But technically I didn’t earn anything. I just gave the gov an interest-free loan.

 

[ingeborg]

@aloverofrigtheousness The fuk are you talking about? You're the one who got the interest. How are you not understanding this?

 

[trychange]

@ingeborg Dude at this point OP is clearly trolling everyone. I gave someone money and then he gave me more money later. I lost money!

 

[aloverofrigtheousness]

@ingeborg I thanked everyone for their kind replies except you.

 

[parkersburg614]

@ingeborg OP is right about the interest. It is a zero interest bond. The gain did not come from interest

 

[ingeborg]

@parkersburg614 It's much easier to understand than confusing them even more by saying:

T Bills are sold at a discount or at par (face value). When the bill matures, you are paid its face value.

 

[parkersburg614]

@ingeborg I think we agree then. It is wrong but easier to understand.

Now the next question is do the want a correct and or an easy one.