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

[vasvaria]

@parkersburg614 If your brain is running at as low an efficiency as OP's, easy is much better. You can readily see by following the post and comments how dense the guy's brain is. He likely has no concept of discount.

 

[otherpsychotichalf]

@parkersburg614 Technically, the gain comes from a market discount and not from an interest payment. However, US tax law requires the market discount to be treated as interest (imputed interest) for tax purposes. You can play a semantic game and say it’s not interest, but for all intents and purposes, it’s fully equivalent to buying a bond with a face value of $4886 and receiving a $114 coupon on the same day as maturity.

 

[parkersburg614]

@otherpsychotichalf Yes. Agree. But think it is you that is playing the semantic game. It is a zero interest bond and there is zero interest, regardless of how it is treated for tax purposes.

The comment I was responding you said “The fuk are you talking about? You're the one who got the interest. How are you not understanding this?”

I was explaining that they are not understanding this because they did not receive any interest.

 

[otherpsychotichalf]

@parkersburg614 The term "interest" is broadly used to refer to the compensation that you receive for lending money. In the case of a zero coupon bond, the compensation that you receive is the difference between the value at maturity and the value at purchase. I think it's perfectly reasonable to refer to this as "interest" even if it doesn't fall into the narrowest definition. The fact that the IRS calls it "imputed interest" further supports this use of the word.

 

[parkersburg614]

@otherpsychotichalf Ok. I get your point. I think it is not interest, something else different is interest and that the fact that it can accrue to a zero interest bond makes it not interest.

But we can disagree. I think we’ve taken this as far as it can go.

 

[lizlugo51]

@parkersburg614 Lol it is not a "zero interest bond". It is a zero coupon bond. Interest does not have to come in the form of a coupon. In the case of zero coupon bonds, the Interest paid is the same as the yield, or the difference between the face value and the market value.

 

[ran21]

@parkersburg614 It is still taxed as interest.

 

[parkersburg614]

@ran21 Correct. It is not interest but is treated that way for tax purposes.

 

[vasvaria]

@parkersburg614 If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. Or close enough to a duck that the world isn't going to come apart if you call it a duck for clarity.

 

[jay7]

@aloverofrigtheousness No, you gave them $4886 and they gave you back $5000 later

 

[icetiger100]

@aloverofrigtheousness Technically you did. You earned the $114 as the user above mentioned.

 

[chloess92]

@aloverofrigtheousness It sounds like you bought a $5k bond for $4886, otherwise it doesn't make any sense

 

[vasvaria]

@aloverofrigtheousness You "gave" the government $4886. An interest-free loan would get you that same $4886 back. They repaid you $5000. What the hell is so hard to understand?

Some people really, really should not try investing on their own. Maybe you can find some bright sixth grader to help you out?

 

[aloverofrigtheousness]

@vasvaria That response was not necessary. Sorry you’re a miserable person.

 

[vasvaria]

@aloverofrigtheousness My man. You've spent this whole thread arguing that the government was ripping you off. You've spent this entire thread being obtuse to everyone who tried to explain to you what was happening.

You're either a troll (and a stupid one at that to think this was a clever troll), or you're stupid. Either way you could get help from a bright sixth grader.

 

[aloverofrigtheousness]

@vasvaria I am not stupid. I was doing this for the first time and wanted some guidance. And I am not a man.

 

[question1234]

@aloverofrigtheousness Yeah you are if you aren’t understanding this after everyone has explained it multiple times.

 

[reeniee]

@aloverofrigtheousness You need someone to help you with investing.

 

[ad4m]

@aloverofrigtheousness maybe you should buy a Bond ETF or CDs.

Folks never invest in anything you don’t understand

 

[kabeier]

@ad4m No bond ETF. Those things have very different performance characteristics than an actual underlying bond.