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.

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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.

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6 Responses to “Year-to-Date 4-Week T-Bill Rates and Current Online Savings Rates”

  1. Bob |  Mar 13, 2007 at 4:06 pm

    Sun, 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.

  2. The Sun |  Mar 13, 2007 at 10:52 pm

    First you need to link a bank account to your Treasury Direct account to fund the purchase. At the end of the 4-week period, the money will be returned to your linked account. Since you buy T-bill at discount, the interests won’t be invested. For example, if you have $100 in your bank account and for the 4-week period you get a rate of 5% for the T-bill, then Treasury Direct will take $95 out of your account at the beginning of the 4-week period and return you $100 at the end (the numbers are just for illustration purpose) and you will have $105 in your bank account. If you want to continue the purchase and the rate is 4%, the Treasury Direct will take $96 from you and return $100. Thus, the interests you earn will be in your bank account and will never be reinvested. Therefore, though you can use whatever account you want to fund T-bill purchase, it’s a good idea to link a savings account instead of a checking account to Treasury Direct account so the interests left in the bank account will earn interests. In January, you will receive (actually it’s downloaded from your account) a 1099-INT for your investment and the form will show all your investments and interests earned from each purchase.

  3. A Thought |  Mar 14, 2007 at 9:52 pm

    I’m linking a MM fund account, as that’s where I get the best interest. I’m doing a weekly ladder with 28-day T-bills, but I don’t want to go over the monthly six-transaction limit (four withdrawals, four deposits).

    Instead, I going to have the redemptions and purchases use the CofI. Then I can xfer just the returns back into the linked MM account every week.

  4. The Sun |  Mar 15, 2007 at 8:34 am

    A Thought: Yes, we do have to be careful with the transaction limit the savings or MM account has. Last year, when I wanted to purchase more of the T-bills, I didn’t cancel the existing scheduled purchases (4 times a month), but just added 4 more purchases with the new money. Then immediately at the end of the month, HSBC sent me a letter said I was over the 6 transfer-out limit.

    While you can transfer money in C of I out to your MM account, do you see any delays between the time you do the transfer and the time the money shows on your MM account? I know there’s usually 2 – 3 business days for ACH transaction to complete. If that’s the case for your MM account as well, then you lose interests when the money is on the way. Since my HSBC is almost exclusively for T-bill purchases, I use as the destination for the payment.

  5. linda |  Oct 12, 2007 at 3:23 pm

    can you explain what is “C of I” in “While you can transfer money in C of I out to your MM account…”???

  6. Sun |  Oct 13, 2007 at 12:18 am

    C of I stands for Zero-Percent Certificate of Indebtedness. Basically it’s like a money holder Treasury Direct offers. When buying Treasury bills, you can either choose your external bank account as both source and destination of fund, or you can choose to use C of I. if you choose latter, then you have to transfer money from your bank account first to C of I, then the money will be drawn from it to make the purchase. Once
    the bill matures, the money, principal plus interest, will be deposit in to C of I for next purchase. However, money in C of I doesn’t earn any interest. That’s why it’s not a good option to buy T-bills.