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

By: Update: 4-Week T-Bill Equivalent Yield Calculator | The Suns Financial Diary | A Personal Finance Blog on Saving and Investing

Sun, 27 Jan 2008 16:29:14 +0000

[...] 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. [...]

By: Sun

Sun — Thu, 24 Jan 2008 03:28:54 +0000

Steve: To consider whether investing in T-bills still makes sense to you, you need to calculate your equivalent yield of the T-bill because the T-bill rate given by the Treasury is APR that doesn’t not include state income tax. To do the calculation, you need to covert APR to APY first then get the yield corresponding to your state income tax rate. Given the current rate of T-bills, I am afraid it won’t make too much sense to invest in T-bills. Locking in a higher rate CD before the rate falls again may be a better option.

By: Steve

Steve — Mon, 14 Jan 2008 21:38:40 +0000

I have a traditional CD which yields 5.1% APR – I think. It is locked for 9 months – lets just say I have 10,000 to invest. Would it make more since to invest in t – bills or just keep it in the traditional CD

thanks

By: alan

alan — Sun, 13 Jan 2008 04:57:32 +0000

am i crazy for looking for a 7-8% return, is there such a thing, that is safe? there is a bank, mlnbank.com, millenium bank i think that is offering 8% long term cds. For real, or pipe dream?

By: 4-Week T-Bill Looks Attractive, Again | The Sun’s Financial Diary | A Personal Finance Blog on Saving and Investing

Fri, 10 Aug 2007 13:48:38 +0000

[...] 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 [...]

By: Sun

Sun — Thu, 19 Jul 2007 01:51:33 +0000

Paul & Sean: It doesn’t matter which investment/saving vehicle you are using, the ultimate goal is to make the most of your money. For savings accounts, my money always go to the one that pays the highest rate. This is also true for T-bills. If the T-bill rate (the effective yield after you factor in your state income tax rate) is identical to that the rate of an online savings account, there’s no reason to favor T-bill over a savings account. I have stopped buying T-bills for more than a month and I have no plan to jump back in if the rate stays at current level.

If I have $10K, I will definitely invest it. Then where to invest the money depends on when you will need the money. If you will use it in, say, 2 to 3 years, buy a long term CD may be the best choice. If the money is for your retirement or that you won’t touch in 10 or 20 years, then investing it in an index fund or ETF in lump sum makes more sense.

By: Sean

Sean — Wed, 18 Jul 2007 04:55:06 +0000

Paul raised a very good question. Would like to hear some feedback on his question.

Sun,
Thank you for keeping such an informative blog. I’ve spent hours on your site learning as much as I can.

Appreciatively,
Sean

By: Paul

Paul — Mon, 02 Apr 2007 03:56:58 +0000

Dear Sun, thank you very much for your fast response. Let me tell you a little history. I saved around $10K+ in my saving and learned that my CU APR is around 1.4%. This is ridiculous to seep money in the bank with this APR. I started doing some research and learned about Money Market, CD, and T-Bills. Money market is OK, APR/APY isn’t to high though. CD are unacceptable for me because:

1. Liquidity is lost for 10-14 months
2. I can get the same outcome from online saving accounts (HSBC or EmigrantDirect, etc…)

Definitely I am putting my money into eBanks. I was looking for another options. As far as I understood T-Bills will give me the same outcome as eSaving (savings online) then why to trouble myself with T-Bills?

Well, let me know your thought, which will be greatly appreciates. What would you do with $10K+? I did some googling online and just got a few silly suggestions like to treat myself with a flat screen TV. Let me tell you a secret, I am not an American and money doesn’t burn my pocket. I am just looking into different options. Let me know! And thanks a lot in advance!

AKA Paul

By: The Sun

The Sun — Mon, 02 Apr 2007 01:47:13 +0000

Paul: I think your calculation is fine. With current rate of 5.24% APR, you will get about $40 at the end of the 28-day period for $10K. However, whether this is a good choice can’t be determined by one single number. Instead, you need a comparison. In absolute value, $40 may be small. But it could well be a better choice if you compare T-bill with other investment choice. What are you going to do with th $10K if you don’t buy T-bill? Put it in the bank? If so, what’s your interest rate? Or you may want to invest it. If this is the case, then you may not have $10K after 28 days.

So can you share with me what’s your choice other than T-bill?

By: Paul

Paul — Sun, 01 Apr 2007 00:38:12 +0000

Thank you very much guys for such a useful detailed review. I built up a little asset on my savings which is $10K+. From what I read I estimated if I invest $10000 in T-Bills I will collect around $30-$40 at the end of the 28 day period. Here comes my question: do you think $10K is enough to benefit significantly from T-Bills ? Or maybe I am not calculating anything correctly ? As for me $40 a months is not worths the trouble. What amount, do you think, one should have to start investing in T-Bills?

Thanks a lot!
Paul

Thanks in advance,
Paul

By: The Sun

The Sun — Fri, 30 Mar 2007 17:32:59 +0000

Erica: Yes, interests earned from T-bill investments are subject to federal taxes, but not local and state taxes. Therefore, when you compare various short-term investment choices, you have to factor in this to get an idea where the interest rate stands.

By: Erica

Erica — Thu, 29 Mar 2007 04:12:09 +0000

I’m just learning about T-Bills and appreciated your website. I do have a clearification question. Is the interest earned from T-Bill investment subject to federal taxes?

By: Year-to-Date 4-Week T-Bill Rates and Current Online Savings Rates - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Sun, 11 Mar 2007 18:56:33 +0000

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

By: Free Money Finance

Free Money Finance — Thu, 01 Mar 2007 18:25:49 +0000

Free Money Finance March Madness, Round 1, Posts 81-96…

We’re continuing with the first round of Free Money Finance March Madness (if you wonder what’s going on in these posts, see my article announcing March Madness and/or click on my March Madness category link and scroll down to read…

By: My Best - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Sun, 25 Feb 2007 19:10:38 +0000

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

By: 2007 4-Week T-Bill Rate Update - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Sun, 04 Feb 2007 15:59:32 +0000

[...] 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 [...]

By: 2006 4-Week T-Bill Rates: The Complete Picture - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Sun, 31 Dec 2006 19:41:59 +0000

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

By: The Sun

The Sun — Fri, 22 Dec 2006 05:30:33 +0000

While it’s true that longer term CDs offer better rates (taking into consideration of federal taxes, 1-year CD rate may actually lower than that of the T-bill), it’s not really fair to compare them with 4-week T-bills as 4-week T-bills only tire your money for 4 weeks instead of 1 year or even longer. The short-term T-bills are supposed to be used as an alternative to the regular savings accounts. To get a higher rate, you have to give up the flexibility.

By: Chris Duncan

Chris Duncan — Thu, 21 Dec 2006 22:37:58 +0000

Good information. For short-term investing seems like a better deal, what about longer term investments? Seems like the yields on CDs for 1Y and longer beat the treasury even when you take into account taxes.
CA TEY on the 2Y is 5.13. Still good CD rates 10 – 20 BPs above that.

By: Lastest 4-Week T-Bill Rate at 5.243%, Highest of the Year - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Mon, 20 Nov 2006 02:13:20 +0000

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

By: Update on T-Bill Taxable Equivalent Yield - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Wed, 08 Nov 2006 17:06:04 +0000

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

By: The Sun

The Sun — Wed, 08 Nov 2006 14:48:55 +0000

Hi goldsheet:

You are absolutely right. The EAPY I gave is only for itemized deductions as I thought most people will indeed itemize.

Thanks for pointing it out and I will update the entry shortly.

By: goldsheet

goldsheet — Tue, 07 Nov 2006 23:31:43 +0000

Your EAPY formula is correct if you itemize, but for non itemizers the federal marginal rate comes into the calculation as follows:

EAPY = APY * (( 1 – FedTaxRate) / ( 1 – FedTaxRate – StateTaxRate))

The result will be an even higher rate than the 5.663% you calculated. This is discussed on the FW thread, and the above formula is in the spreadsheet. I know because I am a victim of the 9.3% CA marginal rate and update the CA equivalent rates in the FatWallet Quick Summary.

By: If You’re Coming from Saving Bond Advisor - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Tue, 07 Nov 2006 21:36:39 +0000

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

By: T-Bill investment rate explained: US Savings Bonds

T-Bill investment rate explained: US Savings Bonds — Tue, 07 Nov 2006 16:51:37 +0000

[...] Yesterday’s post, T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield? is a careful comparison of the rates offered by T-Bills and a high-yield online savings account. Rate this post (1 to 5 stars): (No Ratings Yet) Loading … [...]