Why is this is better than an ETF treasury fund, CDs, and high-interest savings accounts?
Answer: Treasury Bills "interest" is state & local tax-free on the money earned. So if you're in a high-income tax state and city they're worth it.ETF fund aren't always 100% in treasuries and charge fees.
Question (asked a dozen or more times in the thread) : How does bill interest work?
Answer: Treasury Bills "interest" is the difference between face value and purchase price. You buy a $10k bill at less than $10k, upon maturity, it is worth $10k. The difference between purchase price and maturity value is your "interest."
Tax Equivalent Yield Calculator For Savings Bonds, Treasury Bills, and Tax-Exempt Money Market Funds
https://www.mymoneyblog
How Buy and Sell Treasury Bills
https://thefinancebuff.com/treasury-bills-cd-money-market.html
When are the auctions? When can I place an order?
4, 8, 13, 17, and 26 week bills are auctioned every week.
52 week bills are auctioned every four weeks.
You can see recent results and the planned schedule at: https://www.treasurydir
4 and 8 week bills are usually announced on Tuesday, auctioned on Thursday, and settle on Tuesday.
17 and week bills are usually announced on Tuesday, auctioned on Wednesday, and settle on Tuesday.
13 and 26 week bills are usually announced on Thursday, auctioned on Monday, and settle on Thursday.
52 week bills are usually announced every 4th Thursday, auctioned on Tuesday, and settle on Thursday.
At a brokerage, you can usually can place an order between the announcement and auction.
At TreasuryDirect, you can place an order up to about 8 weeks in advance.
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Treasury BILLS are currently paying over 5% for various maturity lengths under 1 year. These can be bought through most brokerages even without a TreasuryDirect account.
Treasury BONDS are paying 4% or less and have 20 or 30 year terms.
The 4 week bill ordering opens tomorrow 8/8, the deadline to buy it is sometime Thursday 8/10 morning depending on where you are buying it and it settles on 8/15.
On TD Ameritrade, they take your money on the 10th (take it out of the money you can trade with when you hit purchase which can be as early as the 8th) and buy the bill on the 15th during time which you earn no interest. Thus the reason that I stopped buying 4 and 8 week bills at auction. Secondary markets settle the next day so often a better deal. Treasury direct does not take the money from your bank account till the day it settles and Vanguard keeps it in the settlement fund earning interest till the day it settles as well. Not sure about the other brokerage houses. Also, not sure if you rollover the t-bills how the time between redemption and the next auction works as far as any interest you are losing as that is often a week of interest as well.
FYI, if you do the math, 4 weeks for $10,000 usually gets you about $40 in interest for letting them hold your money for 5 weeks.
The Monday auctions for 3 months and six months settle on Thursday so much less time to hold your money for nothing and less redemption downtime.
The money market funds often have repurchase agreements that are taxed at the state and local level but obviously more liquid. Am looking into the ETFs now.
Good luck to everyone!
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The issue with treasury direct is that 1. It's only treasuries so I can't sell and buy an index fund in the same day, for example, and 2. On td you have to hold until maturity.
If I need to sell a t bill tomorrow on fidelity but it doesn't mature until Sept I can do that. On treasury direct I cannot. I must hold until maturity.
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So the ETF earns more than your typical Treasury money market fund but less than buying T-Bills directly. The higher/lower interest rate seems still correlated to ease of liquidity, as Treasury money market funds are most straightforward accounting-wise while T-Bills are the least liquid of the 3 (although still saleable on the secondary market if desired).
The main downside of Money Market funds that are exempt from state taxation is that you have to remember to adjust your state taxes next year since it's not reported on the 1099-DIV. Different states have different rules.
I like their Money Market and Cash Management choices.
You can buy TTTXX, which appears to be a Treasury Only Money Market Fund with a $1000 minimum investment, which should be largely exempt from state taxation and is yielding 5.12% over the past week. You can purchase and withdraw up to 1:45PM ET each business day.
TFDXX is at 5.20% and has a 5PM deadline.
I like that funds are available immediately to withdraw or transfer to a BoA bank account if done before the deadline on a banking day when the markets are open.
There's also Preferred Deposit with a $100K (initial) minimum that is FDIC-insured with Bank of America at 5.02%. (5PM cutoff) You can drop below the minimum after purchase.
You can search for "cash management merrill" and find the PDF with the current rates, though the cutoff times aren't listed there.
I use Merrill Edge to hold some cash, as well as ETFs in an IRA for their Preferred Rewards program. I plan to call in every 18 months or so to get a retention/deposit bonus.
The only reason I can see to use TD is if you have some massive amount to invest and the small rate boost/tax advantage means serious $$.
If you have a marginal 37% Federal tax rate plus 3.8% NIIT, plus a 10.3% state tax rate (and your state taxes aren't deductible on your Federal return), then a Treasury Bill earning 5.20% would have a taxable equivalent yield of: 6.30%
Formula: 5.20%*(1-0.37-0.038)/(1-0.37-0.038-0.103)
Most people have lower Federal and state tax rates, so the tax advantage would be less.
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Its all about varying your risk with investments; done listen to people that way invest it all in Tesla or in the Stock market etc.....
Stocks, Bonds, TBills, iBonds, CDs etc and even a liquid Cash all depends on what your needs and outlook are......
For the immediate present/future if you plan on parking money for 3-16 months and want it to earn passive income then these Treasury Bills/Note/Bond (its all time dependent) are the way to go over CDs/iBonds and even in some cases over Cash. The advantage of higher rates, no state/local taxation for most and being able to sell on the secondary market help a lot.
I've also parked a little in the Agency Bonds which are Callable next year Feb/August for 6.1%-6.29% so essentially making it at worse a 6month/1Year CD with the same advantages listed above or at best a nice Fixed Income generator for years which I dont think will hold but thats the thought.
I did buy some of these using my parents IRA funds btw.
Shahhere
They do have some advantages when held for longer periods, but it really depends on why you're holding them and if you want to hold an inflation-adjusted investment.
Previously TIPS securities had real yields well below 0%, so the I Bonds at 0% were good by comparison. Since long term real yields have approached 2%, it makes the I Bonds less attractive for long term holdings. TIPS may not be appropriate for most people, and I recommend doing further research before buying. Taxation can get complicated, and unlike I Bonds, they can drop in (nominal) value.
Shahhere
Shahhere
If not far from retirement, do be aware there's a much higher IRA contribution limit ("Catch-up"). The thing about stashing money in an IRA (or 401k) is that you can't access the funds until later, but neither can the IRS. Then, you pay taxes only on the funds you elect to withdraw. ... Lots more details; happy times getting acquainted with our "simplified" tax code.
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Treasury direct does not have a system in place to sell the bills on the secondary market. You would have to transfer them to a brokerage house first and then sell them through the brokerage house.
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If not far from retirement, do be aware there's a much higher IRA contribution limit ("Catch-up"). The thing about stashing money in an IRA (or 401k) is that you can't access the funds until later, but neither can the IRS. Then, you pay taxes only on the funds you elect to withdraw. ... Lots more details; happy times getting acquainted with our "simplified" tax code.
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I am doing my best and the reason is that my parents consolidated their finances 5 years ago and put it in with an active brokerage. Well paid inbound fees and selling fees and what not and on top of that paid annual maintenance fees and the net gains are only 2.3% annualized.
I also took part of their savings and put it in Vanguard Funds and am seeing about 11% returns. Nothing fancy but keeping it simple has helped and the diff is that the above guys not only have management fees but their funds are in high expense funds.
Already planning on doing the 3 fund (BoggleHead) approach and also looking into Trad/Roth conversion and keep within the right income limits as there are a lot of advantages for my parents and even from an inheritance standpoint etc.
Shahhere
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