T-Bill actual rate?

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Oak&Elm
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T-Bill actual rate?

Post by Oak&Elm »

Looking at the recent autions page on Treasury Direct there are 2 columns showing the actual interest rate. One is High Rate the other is Investment Rate. Does anyone know what the difference is? Just trying to determine what my yield is to compare with CD rates.
meebs
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Re: T-Bill actual rate?

Post by meebs »

I was actually doing the same, and rather than googling and figuring out the difference, what I did instead was look at my high yield savings account generating 1.4% which is better than any shorter term CD/T-bill rate available, on totally non-locked in funds and being $1MM FDIC insured.

I use the Wealthfront cash account if you're interested, and I suspect they will raise the rate again soon as they tend to be pretty quick about it as the fed bumps things up - they utilize several banking institutions to raise you to the $1MM insured limit they boast about - I also use them for a 529 account for my daughter, they make things pretty easy.

I can't figure out a reason to buy a T bill over a good high yield savings account. Historically its been a bit annoying moving money around between bank accounts to stay within the FDIC insured limits and also get the best rates from which ever bank happens to be offering the best at the time, but I'd love to have someone teach me otherwise.
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Tubes
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Re: T-Bill actual rate?

Post by Tubes »

High rate will give you the discount when you buy it. Take that discount and base the percentage on the price paid and that gives you the investment rate. Basically, for comparing, use the investment rate.

As for the other post about savings accounts being better, well that's almost always the case. However, in this time period we are upside down. 3 month T-bills just auctioned for 1.7%. And IF you are in a high tax state, that matters a lot because plain old savings are not exempt from state taxes, whereas T-bills are.
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AerialWombat
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Re: T-Bill actual rate?

Post by AerialWombat »

meebs wrote: Wed Jun 22, 2022 9:54 am I was actually doing the same, and rather than googling and figuring out the difference, what I did instead was look at my high yield savings account generating 1.4% which is better than any shorter term CD/T-bill rate available, on totally non-locked in funds and being $1MM FDIC insured.
26-week T-bills are now over 2.4%. 13-week is about 1.7%. I just bought a 52-week at a smidge over 3%. T-bills are staying ahead of HYSA rates for the time being, so a T-bill ladder is a mighty fine alternative if you’re a yield chaser.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
meebs
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Re: T-Bill actual rate?

Post by meebs »

AerialWombat wrote: Wed Jun 22, 2022 10:07 am
meebs wrote: Wed Jun 22, 2022 9:54 am I was actually doing the same, and rather than googling and figuring out the difference, what I did instead was look at my high yield savings account generating 1.4% which is better than any shorter term CD/T-bill rate available, on totally non-locked in funds and being $1MM FDIC insured.
26-week T-bills are now over 2.4%. 13-week is about 1.7%. I just bought a 52-week at a smidge over 3%. T-bills are staying ahead of HYSA rates for the time being, so a T-bill ladder is a mighty fine alternative if you’re a yield chaser.
I didn't include some important points - my thoughts were that the fed rates are rising quite quickly at the moment and I didn't want to lock in longer than the 13 week term, and HYS accounts are giving very similar 13 week rates, which in my experience have followed pretty closely over the years - so they would step up to the 13 week rates as time goes on, without being locked in.

I was reading some other posts about the auctions on TIPS - do you have any experience with the T-Bill auctions? With rates expected to continue to rise, would you consider getting in on the next auction? This would actually be my first treasurydirect purchase, but if I could do 1.7% or better at the next auction for 13 weeks, that sounds interesting to me.
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AerialWombat
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Re: T-Bill actual rate?

Post by AerialWombat »

meebs wrote: Wed Jun 22, 2022 10:15 am
AerialWombat wrote: Wed Jun 22, 2022 10:07 am
meebs wrote: Wed Jun 22, 2022 9:54 am I was actually doing the same, and rather than googling and figuring out the difference, what I did instead was look at my high yield savings account generating 1.4% which is better than any shorter term CD/T-bill rate available, on totally non-locked in funds and being $1MM FDIC insured.
26-week T-bills are now over 2.4%. 13-week is about 1.7%. I just bought a 52-week at a smidge over 3%. T-bills are staying ahead of HYSA rates for the time being, so a T-bill ladder is a mighty fine alternative if you’re a yield chaser.
I didn't include some important points - my thoughts were that the fed rates are rising quite quickly at the moment and I didn't want to lock in longer than the 13 week term, and HYS accounts are giving very similar 13 week rates, which in my experience have followed pretty closely over the years - so they would step up to the 13 week rates as time goes on, without being locked in.

I was reading some other posts about the auctions on TIPS - do you have any experience with the T-Bill auctions? With rates expected to continue to rise, would you consider getting in on the next auction? This would actually be my first treasurydirect purchase, but if I could do 1.7% or better at the next auction for 13 weeks, that sounds interesting to me.
I started doing T-bill auctions two months ago. It’s easy as pie, at least on Fidelity and E-Trade. I refuse to try opening a Treasury Direct account again.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
meebs
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Re: T-Bill actual rate?

Post by meebs »

I started doing T-bill auctions two months ago. It’s easy as pie, at least on Fidelity and E-Trade. I refuse to try opening a Treasury Direct account again.
Opening the account wasn't all too terrible, however needing to use a VIRTUAL KEYBOARD WHERE YOU HAVE TO CLICK WITH A MOUSE YOUR PASSWORD, is absolutely insane and I had to write it in all caps to get out my frustrations about it.

I'm assuming those brokerages take a cut somewhere? Don't suppose you have any idea how much you "loose" by using a brokerage rather than going direct?
evelynmanley
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Re: T-Bill actual rate?

Post by evelynmanley »

meebs wrote: Wed Jun 22, 2022 10:25 am
I started doing T-bill auctions two months ago. It’s easy as pie, at least on Fidelity and E-Trade. I refuse to try opening a Treasury Direct account again.
Opening the account wasn't all too terrible, however needing to use a VIRTUAL KEYBOARD WHERE YOU HAVE TO CLICK WITH A MOUSE YOUR PASSWORD, is absolutely insane and I had to write it in all caps to get out my frustrations about it.

I'm assuming those brokerages take a cut somewhere? Don't suppose you have any idea how much you "loose" by using a brokerage rather than going direct?
How To Use a Password Manager with TreasuryDirect for I Bonds
January 30, 2022

https://thefinancebuff.com/password-man ... irect.html
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Oak&Elm
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Re: T-Bill actual rate?

Post by Oak&Elm »

I can't figure out a reason to buy a T bill over a good high yield savings account
Here's one, my Minnesota state tax rate is 6.8% so whatever return you're getting with a CD multiply that by .932 to get your reduced return.
Last edited by Oak&Elm on Wed Jun 22, 2022 10:36 am, edited 1 time in total.
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AerialWombat
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Re: T-Bill actual rate?

Post by AerialWombat »

meebs wrote: Wed Jun 22, 2022 10:25 am I'm assuming those brokerages take a cut somewhere? Don't suppose you have any idea how much you "loose" by using a brokerage rather than going direct?
Nope. Zero fees.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Tubes
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Re: T-Bill actual rate?

Post by Tubes »

AerialWombat wrote: Wed Jun 22, 2022 10:33 am
meebs wrote: Wed Jun 22, 2022 10:25 am I'm assuming those brokerages take a cut somewhere? Don't suppose you have any idea how much you "loose" by using a brokerage rather than going direct?
Nope. Zero fees.
Here's the way I see it. When your treasury matures, it goes into your brokerage settlement fund. The money is still in their sphere, and perhaps you'll buy one of their money making products with it. So, it is to their advantage to offer them.
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Re: T-Bill actual rate?

Post by #Cruncher »

Oak&Elm wrote: Wed Jun 22, 2022 9:09 amOne is High Rate the other is Investment Rate. Does anyone know what the difference is? Just trying to determine what my yield is to compare with CD rates.
"High Rate" is the highest discount rate bid that the Treasury has to accept in order to sell the desired amount at the auction. All the competitive bidders who bid that rate or lower plus all non-competitive bidders will receive the face amount of their bid at that rate.

The discount rate is converted to "Price" based on the number of days to maturity and an assumed 360 day year. For example, a bill with a 1% discount rate maturing in 360 days would sell for 99. The "Investment Rate" is sometimes called the "bond equivalent yield" because it converts the price into the equivalent yield of a coupon bearing Treasury Note or Bond.

Here is how these are calculated using the formulas from page 1 of Price, Yield and Rate Calculations for a Treasury Bill. It uses the recent 13-week bill auctioned 6/21/22 for illustration.

Code: Select all

    Price = 100 * (1 - discount rate * days / 360)
99.577861 = 100 * (1 -        0.0167 *   91 / 360)

Investment Rate = (100 / Price     - 1) * days in yr / days
         1.700% = (100 / 99.577861 - 1) *        365 / 91
Neither of these is quite comparable to the yield of a CD which is quoted as an "Annual Percentage Yield" or APY. But we can easily compute the APY equivalent based on the bill's price and term. For the 13-week example:
1.711% = (100 / 99.577861) ^ (365 / 91) - 1
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Tubes
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Re: T-Bill actual rate?

Post by Tubes »

#Cruncher wrote: Wed Jun 22, 2022 12:15 pm
Oak&Elm wrote: Wed Jun 22, 2022 9:09 amOne is High Rate the other is Investment Rate. Does anyone know what the difference is? Just trying to determine what my yield is to compare with CD rates.
"High Rate" is the highest discount rate bid that the Treasury has to accept in order to sell the desired amount at the auction. All the competitive bidders who bid that rate or lower plus all non-competitive bidders will receive the face amount of their bid at that rate.

The discount rate is converted to "Price" based on the number of days to maturity and an assumed 360 day year. For example, a bill with a 1% discount rate maturing in 360 days would sell for 99. The "Investment Rate" is sometimes called the "bond equivalent yield" because it converts the price into the equivalent yield of a coupon bearing Treasury Note or Bond.

Here is how these are calculated using the formulas from page 1 of Price, Yield and Rate Calculations for a Treasury Bill. It uses the recent 13-week bill auctioned 6/21/22 for illustration.

Code: Select all

    Price = 100 * (1 - discount rate * days / 360)
99.577861 = 100 * (1 -        0.0167 *   91 / 360)

Investment Rate = (100 / Price     - 1) * days in yr / days
         1.700% = (100 / 99.577861 - 1) *        365 / 91
Neither of these is quite comparable to the yield of a CD which is quoted as an "Annual Percentage Yield" or APY. But we can easily compute the APY equivalent based on the bill's price and term. For the 13-week example:
1.711% = (100 / 99.577861) ^ (365 / 91) - 1
Thanks for the precise answer, Number-Cruncher. We can always count on you. :happy
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