Buy Treasury Securities at $100 Minimum

Do you invest in Treasury bills, notes, and bonds?

If you do, then there’s a good news. Starting early this week, Treasury Department has lowered the minimum purchase from $1,000 to $100. The change applies to Treasury bills, notes, and bonds with maturity from 4 weeks to 30 years, which means that 4-week T-bill is also included. I used to buy 4-week T-bills as short-term investment, but stopped last summer as the rates tumbled.

Now that Treasury securities are more affordable, will you plan to take advantage of change and buy “the world’s safest, most liquid investments”? I probably won’t. Affordability alone won’t make an investment a good choice. With 5-year notes at 2.595% and 10-year bonds at 3.510% (TreasuryDirect data), I’d rather keep my money in an online savings account that pays 3.28% APY (IGoBanking) and let me get my money at any time without a penalty

The Wall Street Journal yesterday has an article yesterday discussing ways individual investors use Treasury securities to build bond portfolio themselves. Check it out if you are interested in doing so.

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Update: 4-Week T-Bill Equivalent Yield Calculator

One year ago, I had a post discussing the return of 4-week T-bill, whether it's APR or APY, and how to calculate the equivalent yield based on the state income tax. In that post, only the formulas on how exactly the calculations should be done were given. Though it isn't difficult to put the formulas in an spreadsheet and get the returns, I always feel it would be nice to have an online calculator so everybody can use it without requiring any extra resource.

Well, that's finally done.

To calculate your equivalent yield, first find the latest 4-week T-bill APR from Treasury website (Investment rate %) and enter it in the T-Bill Investment Rate (%) field (no %, only the numerical value), then enter your state income tax rate in the State Income Tax Rate (%) box.

That's all the calculator needs.

Though probably nobody really wants to buy 4-week T-bills now given the rates, hope this tool is helpful if you are interested in finding out your taxable equivalent yield

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Check Out These Related Articles:

• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year
• 2006 4-Week T-Bill Rate Update
• Update on T-Bill Taxable Equivalent Yield
• Pull the Plug on T-Bill Purchases
• 4-Week T-Bill Looks Attractive, Again

2007 4-Week T-Bill Rates: The Complete Picture

When 2007 began, the rates of the 4-week T-bill were very attractive, with returns as high as 5.4% APY. Before FNBO Direct launched their 6.0% APY promotional rate early last year, 4-week T-bills were my main short-term investment vehicle for the good returns and automatic investments that were very easy to manage.

However, things started to turn ugly in the summer and the interest rates couldn’t keep pace with major online banks. When the current cycle of rate reductions began, the 4-week T-bill’s rate just kept dropping like a rock, at a much faster speed than online banks lowering their interest rates. When 2007 ended, the investment rate of 4-week T-bills barely stayed above 3.0% APR level.

I dumped our investments in T-bills in early June and am glad I did. Now with the Fed expected to cut its benchmark interest rate again late this month, yields of online savings accounts will move lower. Pretty soon, 5.0+% APY will become history (check out the latest bank offers and you will see only a few banks still have yields above 5.0%). I wonder what the alternatives are in order to get good returns with flexible withdraw policies.

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Check Out These Related Articles:

• 2006 4-Week T-Bill Rates: The Complete Picture
• The Big Fat Check is Here and My Spending Plan is
• 4-Week T-Bill Looks Attractive, Again
• Pull the Plug on T-Bill Purchases
• Time to Reconsider 4-Week T-Bill Purchase?

4-Week T-Bill Rate Tumbled

Where should I put my money?

I was hoping that when the FNBO Direct 6.0% APY promotion ends in 10 days, I could go back to 4-week T-bills for short term investment.

Well, it looks like that’s not going to happen any time soon as the investment rate of 4-week T-bill tumbled to 4.079% APR in last week’s auction. That’s equivalent to 4.15% APY, a yield that even ING Direct can beat easily after the state income tax rate is factored in.

Looking at currently available bank rates, EverBank’s 6.01% introductory APY offers the highest return with an acceptable minimum balance requirement ($1,500). However, the biggest problem is the deal only lasts three months after the account is opened. I don’t know if I want to go through the hassle of getting an account for only three months. Besides, the rate could change soon if the Fed indeed cuts the federal funds rate today. In fact, for most of the online banks, the current interest rates have been in place for more than a year and a Fed cut will trigger online banks to roll back their interest rates as well. If that’s the case, the whole situation will have to be re-evaluated as banks may not reduce their rates at the same scale as the Fed funds rate.

What other options do I have to get the most out of my money while maintaining the flexibilities I have been enjoying so far with online banks and T-bills?

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Check Out These Related Articles:

• 2007 4-Week T-Bill Rate Update
• OK, I’m Cancelling My T-Bill Purchase
• 2006 4-Week T-Bill Rates
• More T-Bill Purchases
• 2006 4-Week T-Bill Rate Update

4-Week T-Bill Looks Attractive, Again

It has been nearly two month since I stopped purchasing 4-week T-bill, once my favorite short-term investment, when its rate dropped below the rates from my online banks in June.

After touching the 2007 low of 4.422% APR on June 21, the T-bill has made a nice comeback in recent weeks. Yesterday’s auction set the investment rate at 5.083% APR, which is equivalent to 5.204% APY. For New Jersey residents, the equivalent taxable APY is 5.56% (here’s the formula to calculate EAPY and the complete process of investing in T-bill). Though the yield doesn’t match the promotion rate of 6.00% APY from FNBO Direct (Umbrella Bank has a similar offer), it does make 4-week T-bill again an attractive option for me, if it can maintain the current level. That, however, is not a sure thing.

Anyway, I will need to keep an eye on T-bill’s rate change and decide at the end of next month whether to jump back in again. For now, I just enjoy the 6.00% yield when it’s available

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Check Out These Related Articles:

• 2007 4-Week T-Bill Rates: The Complete Picture
• OK, I’m Cancelling My T-Bill Purchase
• More T-Bill Purchases
• 2006 4-Week T-Bill Rates
• 2006 4-Week T-Bill Rate Update

Pull the Plug on T-Bill Purchases

I have been watching the movement of 4-week T-bill rates for a while and considering making adjustment of my investment more than a month ago, but didn’t really do I felt was the right thing to do until last night when I finally canceled all the pending purchases.

The latest auction of T-bill gave investors a 4.637% APR, which is equivalent to 4.738% yield. Given the 6.37% tax rate in NJ, the taxable yield for me is about 5.09% (here’s a formula to calculate your taxable equivalent rate), slightly higher than what I am getting from HSBC, but far less than the promotion rate of FNBO Direct which pay 6.00% APY till the middle of September. Even IGoBanking’s saving account (5.30% APY) makes better choice the T-bills. Thus, it doesn’t make any sense to purchase more 4-week T-bills before any significant recovery of the yield occurs.

Because I have built a T-bill ladder with a weekly investment of $6,000, it will take four weeks for the funds to be completely moved to my HSBC savings account (the account that I designate to receive matured T-bills), which will then be transferred to FNBO Direct.

Since investing in 4-week T-bills is relatively straightforward after the initial account setup process (check out the complete process of how to invest), I can always move back in quickly once the rates become favorable again. But now, I am going to enjoy the 6.00% return from FNBO.

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• More T-Bill Purchases
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• June 2007 Score Card — Part I: Net Worth

2007 4-Week T-Bill Rate Update

The rates of 4-week T-bills tumbled in recent weeks, dropping nearly 50 basis points in a matter of four weeks. The investment rate from last week’s auction is 4.683%, equivalent to a 4.79% APY.

Even when factoring in the NJ state income tax, the equivalent yield is only at 5.11% APY, falling quite far behind the 5.30% APY I get from IGoBanking. Looking at the historical data of 2007, the rates of 4-week T-bill are showing a bell shape curve. For nearly two months from February to early April, 4-week T-bill beat all the major online banks easily with surperior rates close to 5.8% APY. Now the balance has shifted and online savings accounts get the upper hand. Well, I guess that’s one of the problems of investing in T-bills: you never know exactly what you are getting until you actually get it.

I need to keep an eye on the T-bill rate in the coming weeks to see where it is going. If it continues the current trend, I will have to reconsider my investments. There is no reason to keep buying the bill even if the rate stablizes at this level. Right now, I am buying $6,000 of T-bills every week. If I do stop the purchase, what I will be facing is finding an alternvative to invest the cash. A 5.30% return is fine, but I feel I can get a little more. One option is to open an account at FNBO Direct bank and lock in the 6.0% APY till September when the $32K I borrowed from Bank of America expeires. However, getting another account is going in the opposite direction in simplifying our finance :((.

And I just start to feel that it’s really not that easy to get rid of stuff. Accumuting them? I seem to have no problem doing that.

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Check Out These Related Articles:

• 2006 4-Week T-Bill Rate Update
• 2007 4-Week T-Bill Rate Update
• OK, I’m Cancelling My T-Bill Purchase
• Pull the Plug on T-Bill Purchases
• 2006 4-Week T-Bill Rates

How to Invest in 4-Week T-Bills: The Complete Process

The following questions were left at my recent post on 4-week T-bill rate:

When the 4 week period is over what happens to the money invested? Do you reinvest the money along with the interest earned ? Also what kind of tax document do they provide (1099 etc) and does that show the details for all the investment made over the year?

Though I have written on how to purchase T-bills through a bank account in the past, I never thought about a post on the complete process of T-bill investment until I read the above comments, which raise some basic yet practical questions about investing in T-bills (in addition to the rates). I feel the best way to answer these questions is to write an entry with detailed process for any one who is interested in investing T-bills but didn’t start yet.

Open a Treasury Direct account

To start investing in T-bills (not just Bills, but Notes, Bonds, TIPS, and savings bonds as well), you need to have a Treasury Direct (TD) account. There are three simple steps to open an account, you need to provide the following items:

• Social security number
• Driver’s license number or state ID and expiration Date
• Bank routing number and account number
• E-mail address

While the website says it will take about 10 minutes to complete the online application, the time after you complete the application till your account becomes available is likely to be longer. I remember when I opened my account four years ago, I had to wait a couple of weeks before I could use it. Things may have changed since then, but considering the waiting time for my EFTPS account (more than two weeks), I won’t be surprised if the process takes much longer time. (Edit: Reader Joe just commented that his account took 7 days to become available. So this probably is the time frame. Thanks Joe!)

Fund your account

Before making a purchase, you need to link a bank account (checking, savings, or money market) to your Treasury Direct account in order to fund your investments. TD offers two ways to fund your T-bill purchase: a bank account or Zero-percent Certificate of Indebtedness (Zero-Percent C of I or C of I). For me, my HSBC savings account is linked to TD account. Actually, you can probably can use any account with an account number and routing number to purchase T-bills, not necessarily a checking or savings account, as they are required to open your TD account.

Schedule your purchases

Now that your TD account is ready and you know which account you want to use to make the payment, you can schedule your investments.

To begin the setup, log in your TD account, then click the “Buy Direct” tab from the top menu bar and select Bills from the next screen. Submit your selection and you will be led to a new screen where you can enter details of how much and how often you want to invest, as well as sources to fund the purchases and receive principals and interests.

First, you choose how to make a purchase:

The product term is 4-week and the minimum purchase amount is $1,000. Here you can add the bank account as your source of funds.

Next, you select your investment frequency:

You can choose either to make a single purchase or repeat investments and investment period and frequency. The starting date can be any date you want and the first purchase will be made on the next Tuesday, the auction day and fund will be withdrawn from your bank account two days later.

The final step is to set up the destination to receive the payment once the bill matures.

While you can use either a bank account or C of I as the destination of payments, sending the money to an interest-bearing account can make the most of your money. Since T-bills are sold at discount, what you pay is less than the face value of the bill that you will receive at the end of the period, with the difference being the interests. This means you will always have money left in your destination (you will have to keep at least $1,000 in your bank account since you won’t know in advance what the rate will be before the auction). If you use C of I as your destination, any money in it will just accumulate without earning your any interests. Of course, you can always transfer the money out of C of I, but sending the money straight to your savings account will make thing much easier. I use HSBC savings account as my destination.

T-Bill ladder

If you want to make continuous purchases, you can easily set up a T-bill ladder (choose Repeat Purchases) with as little as $4,000, $1,000 each week for four weeks. At the end of the first 4-week period, your first purchase of $1,000 T-bill matures and payment will be sent to your designated account. If you establish a T-bill ladder, another purchase of $1,000 will be made on the same day you receive the payment. Since purchase is always made after payment, you don’t need to worry there isn’t enough fund in your bank account. After the first 4 weeks, the investments will keep going until you cancel it or the scheduled number of purchases are made. At tax time, you will receive a 1099-INT form (Edit: actually the form is downloaded from your online account) with all the transactions made in the past year and interests earned.

Drawbacks

While investing in 4-week T-bills will give you a rate of return (this week’s rate is 5.267% APR) that no online savings account can match, you do have a little to give up: the liquidity of your funds and the minimum of $1,000 to start. Once you buy 4-week T-bills, you will have to wait 4 weeks when the bills mature to get your money (plus interests) back. This essentially locks your money for four weeks. Besides, if you want to build a T-bill ladder, you will need a minimum of $4,000.

Finally, a word of caution. If you use a savings account to fund your T-bill purchases, you have to be careful not to exceed the transaction limits (usually 6 withdraws per month) imposed by your bank. Check with your bank before using your savings account to make purchases.

Click here to get the latest T-bill rates and here to calculate your equivalent yield.

This post is based on my best knowledge of how to investing in T-bills. If you find anything incorrect or missing, please let me know.

If you enjoyed reading this post, subscribe to the RSS feed or get it via email delivery.

Around the blogosphere

• Jonathan at MyMoneyBlog has a visual guide on how to build a Treasury bill ladder.
• WH at My Personal Finance Blog talks about how to bid a T-bill.

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Got some student loans you still need to pay off? Don’t let the money for college from years ago come back to haunt you, set a responsible payment plan and get your loans off your back!

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• Pull the Plug on T-Bill Purchases
• CoPF No. 92
• 4-Week T-Bill Looks Attractive, Again
• The Big Fat Check is Here and My Spending Plan is
• 4-Week T-Bills: Back into Action and How to Make a Purchase

Year-to-Date 4-Week T-Bill Rates and Current Online Savings Rates

Since the start of 2007, the rates of 4-week Treasury bill have been on the rise. Last week’s auction set the latest investment rate at 5.247% APR. If this rate is converted to annual yield, the APY is 5.376%. Since interests earned from T-bill investments are exempted from state income taxes, the equivalent yield (EAPY) for NJ residents (state income tax rate 6.37%) is as high as 5.741% (here’s a formula for your own calculation). Year-to-date, 4-week T-bill’s APR, APY, and NJ EAPY are shown as follows.

So how does this rate compare to rates from other high-yield online savings accounts? The followings is a quick summary of what are being offered from some popular banks right now:

• Amtrust Direct: 5.36%, $1000 minimum
• UFB Direct: 5.31%, $1 minimum
• E-Loan: 5.25%, $5,000 minimum
• Emigrant Direct: 5.05%, $1 minimum
• HSBC: 5.05%, $1 minimum
• GMAC Bank: 5.00%, $500 minimum
• ING DIRECT Electric Orange Checking: 5.30%, $100,000 minimum
• Citibank e-Savings: 4.75%, $1 minimum

Additionally, HSBC now has a promotional rate of 6.0% APY for new money until April 30, 2007 and a little known IGoBanking (now my primary online bank) recently joined the competition with 5.30% APY.

Early last week I increased our investments in 4-week T-bills from $3,000 every week to $6,000 with money borrow from Citi PremierPass card. One of the reasons I like T-bill is its very competitive rate. For as little as $1,000, one can start to invest in T-bill that locks the money (and the rate) for only four weeks. Though the initial account setup process takes some time, once that’s done, making changes on investment plan is very easy. If you are interested in T-bill, I have summarized some steps to help you start the process.

If you enjoyed reading this post, subscribe to the RSS feed or get it via email delivery.

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Check Out These Related Articles:

• 2007 4-Week T-Bill Rates: The Complete Picture
• More T-Bill Purchases
• 2006 4-Week T-Bill Rates
• 4-Week T-Bill Rate Tumbled
• 2006 4-Week T-Bill Rates: The Complete Picture

The Big Fat Check is Here and My Spending Plan is

1. Boost my 4-week T-bill purchases from $12,000 a month to $24,000 a month.

The latest T-bill rate (March 1, 2007) is 5.267% APR, equivalent to a 5.40% APY. Considering that the interests earned from T-bill investment are exempted from state income taxes, the effective annual yield is as high as 5.77%, a rate that no bank can beat as far as I know. Of course, T-bill rates fluctuate from week to week and there’s no guarantee the rates in the coming weeks, months will be at this level. Looking back to the second half of 2006, the average rate indicates 4-week T-bill is still a solid short-term investment choice, if not the best (here are some steps to invest in T-bills if you are interested in). Besides, the money is locked for only four weeks and in the event that the rate all the sudden becomes unfavorable, cancelling any pending purchase only takes a couple of minutes.

The other choice is to simply put the money in high yield online savings account. Currently, the highest paying savings account I have is with IGoBanking at 5.30% APY. The rate is decent, but the problem I have with this account is it has a monthly transfer-out limit of $25,000. Anything above the limit needs another month according to the rule and I already have a big chunk with them. Going with T-bill may let me earn a higher rate and I can get a quarter of my investments back every week if I need the money instead of having to wait a full month.

2. Invest the rest, but where?

I don’t have a clear choice of where to invest the rest since I haven’t really followed stocks for quite a well, but I do like to have a chance to earn above the fixed amount from the banks and bills. What I have in my mind is to get some shares of XFML, the Chinese IPO that’s scheduled to debut next week (there are speculations the IPO may be called off as last week’s Chinese stocks sell-off may reduce investors enthusiasm of the stock). But with stocks, there’s always the possibility of ending up losing money. My last Chinese IPO bet (GRRF) so far has brought me nothing but a loss of nearly 50% value, :((.

Oh, by the way, the big fat check I am talking about is the $18,500 0% balance transfer check from Citi PremierPass card.

Free $18,500 loan for a year, what’s not to love?

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2007 4-Week T-Bill Rate Update

As some popular online savings banks recently slashed their rates (GMAC from 5.25% to 5.00%, Citi e-Savings from 5.00% to 4.75%), the rates of 4-week were on the rise, at least in the first month of 2007. 

The rate ended 2006 at 4.742% APR. On January 30th, the rate of 4-week T-bill was 4.972%, which equivalents to a 5.45% EAPY for NJ residents. Comparing to the offers from online banks, the T-bill rate is very competitive with two minor drawbacks:

• A minimum of $1,000 purchase
• A holding period of 4 weeks

If you are interested in investing in T-bills, here are some steps on how to make a purchase. You do, however, have to have a TreasuryDirect account which can take up to two weeks to become available after applying online.

If you enjoyed reading this post, subscribe to the RSS feed. 

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Check Out These Related Articles:

• 2006 4-Week T-Bill Rate Update
• OK, I’m Cancelling My T-Bill Purchase
• 2007 4-Week T-Bill Rate Update
• Pull the Plug on T-Bill Purchases
• 2006 4-Week T-Bill Rates

2006 4-Week T-Bill Rates: The Complete Picture

Here's a complete chart of the 4-week T-bill rates of 2006. Overall, the rates were on the rise throughout the year. It was just above 4.0% when 2006 began, gradually moved up and peaked at 5.263% on November 30th, and ended the year with a 4.742% APR, a 17.6% annual increase in rates.

 

The sharp drop in rate in the week of December 7th coincided with the decline of dollar versus Euro and the rise of the gold price. On December 3rd, one Euro bought 1.3341 dollar, a 20-month high, and gold was traded close to $650 an ounce on December 1st, reflecting investors sentiment on the perspective of future US interest rates. 

With the current rate of 4.742% APR, my taxable equivalent yield (EAPY) is still 5.18%, better than what EmigrantDirect or HSBC offers me. Click here to see how you can calculate your own taxable equivalent yield if you want to invest in 4-week T-bills.

If you enjoy reading this post, subscribe to the RSS feed.

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Check Out These Related Articles:

• 2007 4-Week T-Bill Rates: The Complete Picture
• Time to Reconsider 4-Week T-Bill Purchase?
• The Big Fat Check is Here and My Spending Plan is
• OK, I’m Cancelling My T-Bill Purchase
• 2006 4-Week T-Bill Rates

Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year

The auction of last week's 4-week T-bill set the rate at the highest level of the year. Even without considering the equivalent taxable yield, the rate of 5.243% APR almost matches what GMAC bank has to offer (5.30% APY with $500 initial deposit). 

At 5.243% APR, the annual percentage yield (APY) is 5.37%. Since interestes earned from T-bill are exempted from state taxes, my equivalent taxable APY (EAPY), with 6.37% NJ state tax rate, is 5.74%.

To see what's your EAPY, click here. I also had a post on how to set up repeat purchase at TreasuryDirect and like your TreasuryDirect account with your high-yield savings account, such as HSBCDirect.

If you enjoy reading this post, subscribe the RSS feed.

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• The Big Fat Check is Here and My Spending Plan is

Update on T-Bill Taxable Equivalent Yield

Yesterday, a reader, goldsheet (Thanks!), posted a comment on my T-Bill Taxable Equivalent Yield, saying that the EAPY formula in the post is actually for itemized deduction and he/she also provided a formula for EAPY for standard deduction.

Indeed, the formula I gave is only for the calculation of EAPY if you itemize, which I automatically assumed that everybody will. If you don't, the formula to get your EAPY is

EAPY = APY*(1 - Federal tax rate)/(1 - Federal tax rate - State tax rate)

As for me, with a 25% federal tax rate and 6.37% state tax rate, my EAPY is

EAPY = 0.05302*(1 - 0.25)/(1 - 0.25 - 0.0637) = 5.79%

I don't think I can get a rate from any bank that's close to 5.79%! Plus, since interests earned from banks are taxed at both the federal and state level, the rate you actually get will be lowered and the gap between interests from T-bill and banks will be even wider. 

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Check Out These Related Articles:

• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year
• Pull the Plug on T-Bill Purchases
• If You’re Coming from Saving Bond Advisor
• 4-Week T-Bill Looks Attractive, Again
• Update: 4-Week T-Bill Equivalent Yield Calculator

If You’re Coming from Saving Bond Advisor

I'd like to take this opportunity to welcome you to my diary and hope you find the information in my post "T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield?" useful. I will be very happy if the post, written with my best knowledge, can help you understand some basic concepts of T-bills. If you find there's any information in the post that's inaccurate, please leave a comment so I can investigate and correct it.

Click here to see what Tom Adams, author of Savings Bond Advisor, has to say about the above mentioned post. 

Enjoy your stay!

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T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield?

If you go to TreasuryDirect’s website and check the latest T-Bill rates, you will find a table with the following seven columns: Security Term, Issue Date, Maturity Date, Discount Rate %, Investment Rate %, Price Per $100, and CUSIP. As a 4-Week T-bill investor, when I look at the table, the single item that concerns me the most is the Investment Rate because that determines what I will get in return when the bill matures in 28 days. For the bills issued on November 2, 2006, the investment rate is a very solid 5.176%. And that rate alone makes T-bill the best short-term investment choice (with the only drawback of a 28-day holding period).

The best?

But I can get a 5.50% APY from E-Loan with a $5000 deposit and that must be better than the 5.176% rate of the 4-week T-bill!

True that you can get 5.50% APY from E-Loan, but T-bill still offers you more than what you think because the 5.176% investment rate of the most recent T-bill is APR instead of APY. For the sake of fair comparison, you have to convert APR into APY, otherwise you are comparing apples with oranges.

To see why 5.176% is APR instead of APY, you need to know how that rate is calculated. If you go back to the TreasuryDirect table, you can find a column called “Price Per $100.” Since T-bill is sold at discount, the price you pay is less than its face value and if you hold the bill to maturity, you will receive the face value. For T-bills issued on November 2, you pay $99.6045 when you buy the bill and receive $100 on November 30 when the bill matures. And the investment rate is calculated with this price using the following formula:

Investment rate = (100 – Price Per $100)/(Price Per $100) * 365/28

For the price of $99.6045, the investment rate is

Investment rate = (100 - 99.6045)/99.6045 * 365/28 = 5.176%

Since the above formula doesn’t consider any compounding of interests, the investment rate is just a rate (APR), not a yield (APY).

So what’s the corresponding APY of the investment rate of 5.176%? Using the following formula:

APY = (1 + APR/(365/28))^(365/28) - 1

to take into account the effect of interests compounding. For the APR of 5.176%, it works out an APY of

APY = (1 + 0.05176/(365/28))^(365/28) - 1 = 5.302%

That’s still almost 20 basis points shy of the 5.50% APY E-Loan offers. But you have to know that interests earned from T-bills are exempted from state income tax (not federal tax though). Taking this into the calculation, the taxable equivalent APY becomes

EAPY = APY/(1 - State tax rate)

Since I am living in NJ and the state tax rate for me, according to Salary.com, is 6.37%, my equivalent APY is

EAPY = 0.05302/(1 - 0.0637) = 5.663%

beating E-Loan by 16 basis points! And the higher the state income tax rate, the higher EPY.

Of course, as mentioned earlier, buying T-bill will tie your money for 28 days, while with E-Loan you have the full liquidity. But you do have to have $5000 to just open an E-Loan account. With TreasuryDirect, the minimum purchase amount is $1000 and if you buy $1000 each week for four weeks (28 days), you can build a T-bill ladder with repeat purchases.

Check out my previous post to see how to set up repeat purchase at TreasuryDirect. Fatwallet has a nice discussion on Treasury bills and here is an online spreadsheet to calculate your EAPY.

Note: The above EAPY is assuming you itemize when filling your federal tax returns. An update is available here for non-itemized returns.

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Check Out These Related Articles:

• Update on T-Bill Taxable Equivalent Yield
• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year
• If You’re Coming from Saving Bond Advisor
• 4-Week T-Bill Looks Attractive, Again
• Pull the Plug on T-Bill Purchases

4-Week T-Bill Rate Kept Rising

The lastest 4-Week T-bill rate from last Tuesday's auction is 5.176%, already surpassing interest rates offered from some popular banks, such as EmigrantDirect and HSBC, which earn you 5.05% APY.

If you want to get some other alternatives for your cash reserve, you may want to consider E-Loan, which has a very appealing 5.50% APY and the overall process of opening a new account is quite simple, according to the recent experience of John at Financial Ladder. And E-Loan doesn't seem to pull a hard credit inquiry. The only reason I didn't sign up with E-Loan is their mid-range initial deposit requirement of $5000.

In addition, GMAC Bank may also be a choice as they bumped their rate to 5.25% APY with $500 initial deposit.

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• 4-Week T-Bill Looks Attractive, Again

4-Week T-Bills: Back into Action and How to Make a Purchase

This week's auction result put the interest rate of 4-week T-Bills at 5.146%, better than what EmigrantDirect and HSBC offer (5%). For second straight week, the rates are above 5%, making T-Bills more attractive now than a month ago. And I decided to jump back in again. Well, considering that I have only canceled the purchase for a month, I probably shouldn't have stopped it in the first place.

Anyway, since I already have a TreasuryDirect account, restarting the weekly purchase process takes only a couple of minutes:

1. Login into your TreasuryDirect account and click on Buy Direct
2. Select Bills and continue to the next page;
3. Select 4-week from the Product Term drop down menu;
4. Enter the amount you want to purchase;
5. Select a source of funds. If you don't have one, you can add a bank account (checking or savings). For me, I use HSBC;
6. Select repeat purchases with the number of purchases and weekly purchase frequency;
7. Enter the earliest Tuesday available to be the starting date and set Source of funds for future purchase to be the same as in Step 5;
8. Finally, select a destination for the following payments. Don't select Zero-percent C of I as you won't earn any interests with Zero-percent C of I. For me, I use HSBC.

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• 2007 4-Week T-Bill Rate Update
• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year
• The Big Fat Check is Here and My Spending Plan is
• Time to Reconsider 4-Week T-Bill Purchase?
• T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield?

Time to Reconsider 4-Week T-Bill Purchase?

Exactly one month ago, I canceled our $3000 weekly 4-Week T-Bill purchase after the interest rate dropped to 4.757%, far less than the 5.15% APY we earned from EmigrantDirect at that time.

In the past month, we have seen changes on both the banking and T-Bill fronts and the new developments made me wonder if it's time to bring back the T-Bills into our savings. First, EmigrantDirecte cut its interest rate to 5.05% at the end of September. And almost at the same time, the interest of the T-Bill reached a low of 4.624% on September 28th. Since then, the rate has rebounded nicely, and the latest auction on October 12th set the APR at 5.038%, virtually identical to what EmigrantDirect offers.

However, as interests earned from T-Bills are exempted from state income taxes, the T-Bills work out slightly better than savings at EmigrantDirect. Of course, since the T-Bill interest only passed the 5% mark once in the latest auction, whether or not it will stay there is not clear. In addition, recent government reports painted a moderate inflation picture and that will not help pushing up the rates.

I will keep an eye on the rate changes and decide when to jump in again.

Click here to see the historical rates of 4-week T-Bills and other Treasury products. 

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Check Out These Related Articles:

• 2007 4-Week T-Bill Rate Update
• OK, I’m Cancelling My T-Bill Purchase
• More T-Bill Purchases
• 2007 4-Week T-Bill Rate Update
• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year

2006 4-Week T-Bill Rate Update

After reaching a low of 4.624% on September 28th, the rate of the 4-week T-Bill has rebounded a little bit, with the most recent auction on October 10th resulted in a 4.87% APY. While the rate is still lower than what some popular online savings accounts (such as EmigrantDirect and HSBCDirect) currently offer, buying 4-week T-Bill makes sense if you live in a state that has high income taxes as interests earned from T-Bills are exempted from state income tax.

To see what your equivalent APY is, use this calculator at MyMoneyBlog.

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Check Out These Related Articles:

• OK, I’m Cancelling My T-Bill Purchase
• 2007 4-Week T-Bill Rate Update
• 2006 4-Week T-Bill Rates
• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year
• Time to Reconsider 4-Week T-Bill Purchase?

OK, I’m Cancelling My T-Bill Purchase

Yesterday's auction set the lastest yeild of 4-week T-Bill at 4.721%, dipped 3 basis points from last week's rate. After examining recent yield moves, I feel that we would be better of if we shift the cash currently invested in 4-week T-Bills to our savings account at EmigrantDirect, which pays 5.15% APY.

I will keep an eye on the rate changes to find my next entry point. How long I may have to wait? If inflation keeps moderating, it will take a while before the rate becomes competitive again. 

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Check Out These Related Articles:

• Time to Reconsider 4-Week T-Bill Purchase?
• 4-Week T-Bills: Back into Action and How to Make a Purchase
• The Big Fat Check is Here and My Spending Plan is
• 2007 4-Week T-Bill Rate Update
• Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year

2006 4-Week T-Bill Rates

After peaking at 5.227% APY on August 8th, the yield of 4-week T-Bill has been on the decline. The auction of last Tuesday set the latest rate at 4.757%.

I have increased my weekly purchase of 4-week T-Bill to $3000 last month, mainly for its higher rate. Though the earnings from T-Bills are exempted from state taxes, I may have to rethink about my position. Compared to EmigrantDirect, which pays 5.15% APY with a minimum deposit of $1, the yield of 4-week T-Bill is not as appealing as it was only a couple of months ago. The drop in yield is mainly due to the perception of a mild inflation. After 17 consecutive interest rate hike, the inflation is seen under control, which is confirmed by this morning's PPI report from the Labor Department. According to the report, producer prices rose 0.1% last month, and the core rate, which excludes food and energy costs, actually dropped 0.4%. Meanwhile, new home construction dropped 6% in August from July, fifth decline in the past six months. As the economy cooling and inflation easing, the Fed is expected to hold interest rate steady when they meet this week. All of these are not likely to help the yeild of T-Bills in the near term.

Since buying T-Bills through TreasuryDirect is very simple, I can always switch back should the yield go up again. For now, EmigrantDirect may be a better place to park our cash.

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• OK, I’m Cancelling My T-Bill Purchase
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• 2006 4-Week T-Bill Rates: The Complete Picture
• More T-Bill Purchases
• 2007 4-Week T-Bill Rate Update

Stop. You Exceeded The Limits!

No, this is not for speeding, but for online transfers at my HSBC account.

I got a letter from HSBC tonight dated last Thursday, August 24th. The letter says my savings account at HSBC has a limit of six “preauthorized, automatic, computer or telephone transfer” in any month, calendar or statement cycle month and I have exceeded the limits.

Exceeded the limits? How?

I have been using HSBC for more than a year and this is the first time I got such a letter. I don’t think I did anything differently recently, except the extra T-Bills purchase I added this month. When I increased my weekly purchase of the 4-week T-Bills to $3000, I didn’t amend those previously scheduled purchase as TreasuryDirect doesn’t allow changes to be made on existing orders. So I simply created a separate order of $1000 per week. This, however, makes a total of eight transfers from my HSBC account to TreasuryDirect instead of four. To make sure this is indeed what happened, I logged into my HSBC account and counted the transfers made in August. Exactly seven and the last one was on August 24th, the date that TreasuryDirect withdrew funds for that week’s purchases. So that’s why.

Actually, I was thinking of deleting my existing orders when I added the new purchase. However, when I followed the Delete a scheduled purchase link under the Manage Direct menu, I was afraid that I have to delete some 30 existing orders one by one as it appeared I can only select one order at a time. That’s a lot of work to do! But today I have no choice but deleting all the transactions I have scheduled, even it means I have to do it one by one.

Well, things aren’t as bad as I thought. When I tried to delete one transaction, there was an option of either delete this specific one, or delete all the remaining repeat orders. I chose the latter and all my orders were gone!

Probably I should have tried last time, instead of being intimidated by potentially a large number of clicks required.

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2006 4-Week T-Bill Rates

Last week’s 4-Week T-Bill auction set the latest rate at 5.166%, a slight dip from previous two auctions, but still higher than the rate at EmigrantDirect which pays 5.15% for savings account. So far, we have enjoyed an upward swing of the 4-Week T-Bill rates, up from 4.00% at the beginning of the year to the most recent 5.166%. However, with the Fed interest rate holds steady, I guess the rates of the 4-Week T-Bill may soon be stable.

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More T-Bill Purchases

Now I buy $3000 of 4-week Treasury bills every week.

I have been purchasing $2000 of 4-week T-bills weekly since since April after reading a discussion on Morningstar.com about the rate of 4-week T-bill and the rate of online savings account. At that time the two were every close, but since T-bill is exempted from state income taxes, the actual rate of T-bill came out slightly higher.

I set up an automatic purchase every Tuesday when the bill is auctioned and the transactions (withdraw and deposit) are made through my HSBC savings account. Since I started purchasing the bill, I only checked the rates on the TreasuryDirect web site a couple of times, and didn’t make any change to my plan. Though banks now are in a heated competition for customers’ deposit by raising their savings rates, T-bill never fell behind.

The highest rate for my online savings accounts is from EmigrantDirect, which now pays 5.15% APY after the latest wave of raising interest rates at banks. Tonight when I went to the TreasuryDirect site for the latest rate, I was surprised to find that the rate of 4-week T-bill auctioned on August 10th was 5.227%, higher than what I earn from EmigrantDirect. After the Fed decision on interest rate early this week, it seems that it will be a while before banks start to offer higher interest rates to their customers again. Maybe now it’s time to get a little more of the bills.

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