Just noticed at public debt site that 6 month note is now yielding 4.271 % and since they have no state tax it can be effectively 4.959 if you are in 28% fed and 10% state tax rate (but if you dont itemize). If you itemize it can be 4.730%
Seems to be a better rate than any 6 month or 1 year CD I can find. What do the folks here think ? linky
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Hey, looks like you beat me to posting about this! Here's what I wrote in my now-locked thread:
I'm no expert on U.S. Treasury Bills, but I think they are a good short-term cash holding investment for people in high state and local tax rate areas like New York City or California.
THere is a little bit of previous discussion in this thread, but it is not specific to Treasury Bills like I'd like this to be.
What are Treasury Bills? Treasury bills, or T-bills, are sold in terms ranging from a few days to 26 weeks. Bills are sold at a discount from their face value. For instance, you might pay $970 for a $1,000 bill. When the bill matures, you would be paid $1,000. The difference between the purchase price and face value is interest.
What are the rates? You can buy bills from TreasuryDirect.gov and Legacy Treasury Direct through non-competitive bidding. You also can purchase bills through banks and brokers through either competitive or non-competitive bidding. You can hold a bill until it matures or sell it before it matures. ($45 fee at Treasury Direct for selling before maturity, no commission for buying)
Recent Treasury Bill Rates Example rates: 3-month 3.98% 6-month 4.271% 1-month 3.696% (new Rate tomorrow 11/1)
Minimum Investment? Minimum is $1,000 Bill, in increments of $1,000
Tax Advantages? Interest from T-Bills is exempt from state and local income taxes. To find the equivalant bank rate, use the following formula:
So you can sell bills before maturity for a higher return than promised if market rates decrease? But not whenever you want, only when auctions are held?
As I understand it bills are only sold as 1, 3, or 6 month bills. So If I sell a 6 month bill after holding it for 1 month, who's buying it? Another individual? In that case wouldn't that individual be buying a 5 month bill?
T bills work like 0 coupon bonds. They sold at a discount rate which upon maturity will pay par value.
So if you sell it early on the secondary market and rates go up the price of the t-bills could sell at a even bigger discount that you bought it.
For example $100K 6 month T-bill might sell for $97780 and when it matures you get $100K but after 1 month rates go up you want to sell it you might only get 97820 because someone buying a new T-bill would get a better rate buying direct from Goverment so you need to make there yeild same as buying one direct. So you have just given up any all interest earned for the first month.
On same token rates go down. That $100K T-bill might sell on open 2nd market for $98510 which is far more than the interest you deserve for 30 days you held the bond. As person will only get current yeild to maturity and would be buying your bond at a premium.
There is also a $45 fee to sell at TreasuryDirect, which goes out and finds a buyer for you, so you should probably be dealing with amounts large enough to overcome transaction costs.
My rate this week on the 26 week was 4.345 % thru Treasury Direct. The biggest downside is that you get the auction rate, which you won't know until after the purchase, which I don't like. As an alternative, TD waterhouse trades treasuries on a net yield basis (no commission, lower yield) The spreads weren't great though, so hold until expiration. Through Waterhouse, the net yield was a pretty small cost compared to something like $5 / bond.
Does anyone here have any opinions on using Treasury Direct to purchase T-Bills? Specifically, I mean how long does it take for them to get the funds to your account? For example, if I have a T-Bill that matures on 12/22, when will the funds show up in my account? I have them automatically taking the funds from Emigrant Direct and depositing it back on maturity. Thanks in advance for sharing your experiences!
Thrilla said:Does anyone here have any opinions on using Treasury Direct to purchase T-Bills? Specifically, I mean how long does it take for them to get the funds to your account? For example, if I have a T-Bill that matures on 12/22, when will the funds show up in my account? I have them automatically taking the funds from Emigrant Direct and depositing it back on maturity. Thanks in advance for sharing your experiences!
Should be on 12/22. If you use C of I for funding/depositing, you can roll them over from this account. Don't see why funding/depositing to a savings account should be any different. I have one being deposited to ED on 12/15 and am rolling over from ED that week as well. will post if anything is different from what I said above. The fed keeps the funding/withdrawal dates in sync. like they did during the week of thansgiving, where the bills matured on friday and were purchased on friday, rather than the usual thursday. 4 week bills issued that week were for one day less so they will come due on a thursday four weeks hence.
Yes, it looks like I do not lose any float time in purchasing T-Bills from Treasury Direct. I just received my deposit today in EmigrantDirect. The downside is that ED places a hold on incoming funds for a while before making them available. At least I am still accruing interest.
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Here's what I wrote in my now-locked thread:
At least I am still accruing interest. 