So for example this week I’m buying $22,000’s worth of T-bills on in Tuesday August 21st 2007 with $22,000 from a different T-bill that isn’t actually maturing until Thursday August 23rd 2007.

And I’m not using a time machine to do it.

The trick is to set the destination account of the maturing bills and the source of the bills being purchased both to “your zero percent interest account”. As long as you do that, their computer understands and rolls it over for you without losing a day of interest.

The reason why you have the zero percent interest account is to avoid wire delays and other bank delays in rolling over your cash. If you try to do a same-week roll-over using your own bank, account …you quickly find out your bank is too slow and things bounce.

After you get a ladder running, you keep rolling over your bills with purchases set for the Tuesday of the same week they mature, and the interest made is left behind in your zero-percent-account each Thursday. So that Thursday you log in, and you “redeem zero percent account” to send the interest made back to yourself. (The money will still be there and transferable if you miss the Thursday deadline, but the transfer to your bank account doesn’t happen until the next *business* day, so if you go in on Friday, Saturday or Sunday, it won’t transfer until Monday, etc.)

Pretty easy once you get into the swing of things, and then you roll up those interest payments into new $1000 purchases from your bank account. To do that, you just schedule the roll over from the zero-percent account in the Treasury Direct system as you have been, but then schedule *a second* purchase for the $1000 with a different source: Your bank account. The money will roll over as usual in Treasury Direct, AND you’ll have the purchase from your bank done as well the same Thursday. Set the destination of the new $1000 to be the zero-percent account, and viola, you’ll be able to roll it over with the rest of your cash without losing a day of interest same as the rest now.

So the way I see this happening per T-Bill is:

1. You make your $2000 purchase at it’s discounted rate (for argument’s sake $1990).

2. For a 30 day note, in thirty days you get $2000, PLUS the interest??? Or is the $2000 the [face value - the discounted rate], so the $10 between $1990 and $2000 would be the interest???

This is what I don’t get — what exactly is paid out. Is it like a savings bond? or like a CD?

So please help me because I’m not seeing how you actually grow the value of your initial investment yet. ;(

db

Welcome to the Carnival of Personal Finance #92. Rather than go with a catchy theme, I decided I’d say a line or two about each of the posts. Let’s get started with the Editor’s Choice posts.
Editor’s Choice

The most personal…

Fred G.

I know the online process may take only several minutes, but you may need to, for example, get some kind of confirmation from TD which is usually sent to you by mail and that takes much longer time.Please let me know if this is the case.

Chuck: Probably I didn’t explain it every well, but what you said isn’t how it works. Let’s say you have $8,000 in your bank account and you want to build a 4-week T-bill ladder by investing $2,000 each week (since 4-week T-bill is auctioned every week, you can indeed make a purchase every week. with other bills, you may not be able to do so). Then in the first week, $2,000 (actually less than $2,000 because of the discount) will be drafted from your bank where you still have the other $6,000. Next week, another $2,000. Your money will all be invested at the beginning of the four week when you have $8,000 in T-bills. At the beginning of the 5th week, your first $2,000 matures and it will be returned to your bank account. If you set up continuous purchases, the $2,000 will go right back to make next purchase. Thus, after four weeks, all your $8,000 will be in T-bill until you stop it or the number of purchases you set is reached.