Treasury Bills
Nov. 23rd, 2022 07:52 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
canyonwalkerTreasury Bills. Wow, talk about boring topics. This one's like pressing the snooze button on your alarm, right? I used to think so, too, but recently I discovered they're useful right now. As I've noted in recent blogs about buying CDs and Series I savings bonds it's important in this era of high inflation and rising interest rates to find a better place to park cash than in a traditional savings account.
Here are Five Things about Treasury Bills:
1) Treasury Bills (T-Bills) are short duration issues, with maturities ranging from just 4 weeks to 1 year. There are also Treasury Notes and Treasury Bonds, with durations ranging from 2 years to 30 years. Recently I bought a 13-week bill and a 26-week bill.
2) You can buy treasuries at straight from the source (the federal government) at TreasuryDirect.gov. Yes, that's the same place as savings bonds. Yes, the website's still antiquated. Yes, it tends to crash every 6 months when people mob it to buy I-Bonds the last day or two before a rate change. The site has always worked for me, though.
3) T-Bills are sold at a small discount, say $97.80 versus a face price of $100. The government pays you the face price at maturity. The spread between what you paid and what you get is your return on investment. It's taxed as interest. If you pay $97.80 and get $100 six months later you've earned an annual rate of 4.5%. ( (100-97.80) / 97.80 * 2 = 4.5%.) A table of recent Treasury auction prices & rates is at https://www.treasurydirect.gov/auctions/announcements-data-results/.
4) T-Bills play the same role in my savings as CDs. I hold some of my short-term savings in these bills with maturities staggered ("laddered") at monthly intervals over a 6 month period. As I noted before in my blog about CDs, this is not investing, per se; it is cash management. I am finding places to get better, and safe, returns on the the emergency 6-month savings my partner and I set aside.
5) T-Bills actually pay slightly better than CDs, due to tax treatment. That's why I got interested in T-Bills recently. After I bought a few CDs I continued looking at alternatives. I noticed that T-Bills pay about the same nominal rate, roughly 4.5% annualized on a 6-month issue, but are not subject to state tax. I live in California, a high tax state, so getting that tax exemption makes a difference for me. At my marginal tax rate of 9.3%, a 4.5% return on T-Bills is like getting almost 5% on a CD. Given a choice between two safe investments, one that pays 4.5% and one that pays 5%, wouldn't you take the bigger one.
Here are Five Things about Treasury Bills:
1) Treasury Bills (T-Bills) are short duration issues, with maturities ranging from just 4 weeks to 1 year. There are also Treasury Notes and Treasury Bonds, with durations ranging from 2 years to 30 years. Recently I bought a 13-week bill and a 26-week bill.
2) You can buy treasuries at straight from the source (the federal government) at TreasuryDirect.gov. Yes, that's the same place as savings bonds. Yes, the website's still antiquated. Yes, it tends to crash every 6 months when people mob it to buy I-Bonds the last day or two before a rate change. The site has always worked for me, though.
3) T-Bills are sold at a small discount, say $97.80 versus a face price of $100. The government pays you the face price at maturity. The spread between what you paid and what you get is your return on investment. It's taxed as interest. If you pay $97.80 and get $100 six months later you've earned an annual rate of 4.5%. ( (100-97.80) / 97.80 * 2 = 4.5%.) A table of recent Treasury auction prices & rates is at https://www.treasurydirect.gov/auctions/announcements-data-results/.
4) T-Bills play the same role in my savings as CDs. I hold some of my short-term savings in these bills with maturities staggered ("laddered") at monthly intervals over a 6 month period. As I noted before in my blog about CDs, this is not investing, per se; it is cash management. I am finding places to get better, and safe, returns on the the emergency 6-month savings my partner and I set aside.
5) T-Bills actually pay slightly better than CDs, due to tax treatment. That's why I got interested in T-Bills recently. After I bought a few CDs I continued looking at alternatives. I noticed that T-Bills pay about the same nominal rate, roughly 4.5% annualized on a 6-month issue, but are not subject to state tax. I live in California, a high tax state, so getting that tax exemption makes a difference for me. At my marginal tax rate of 9.3%, a 4.5% return on T-Bills is like getting almost 5% on a CD. Given a choice between two safe investments, one that pays 4.5% and one that pays 5%, wouldn't you take the bigger one.
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Date: 2022-11-23 11:04 pm (UTC)I have a T-bill ladder as well. Mine is at Schwab rather than TD, since I can get the same auction price there (no fees), it has a user interface from this century, and it's easier to keep track of them alongside my other assets; it also means I could, in a pinch, easily sell them before they mature. I can't put in the orders until the official auction announcements, though, so it's a little more work setting things up the first time.
I don't get the state tax benefit (because I don't have a state income tax) but I still find them easier than dealing with brokered CDs. (Speaking of taxes, 52-week T-bills are technically not quite a 1 year duration which keeps them in the same tax regime as the shorter-duration bills but practically it's a year.)
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