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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You can find auction results here: https://www.treasurydir
And actually it is not locked up. You can sell it at a secondary market, maybe at a profit, before the maturity date.
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If you sell SGOV before the ex-dividend date, the interest should be reflected in the price of the ETF. You should not lose any gain by selling early. Notice how the ETF price increases pretty steadily each month until it drops when the ex-dividend date passes. However, the difference between the purchase and sale price, if any, would be either a short or long term capital gain, which may be subject to state tax.
VUSXX and SGOV should have much of the interest exempt from state tax. Note that when you do your taxes, you'll need to look up the percentage of the fund that's exempt from state tax and do the calculation yourself. You can do a web search for the name of the issuer, "us government obligations" and the tax year. The distributions from these funds will be reported on a 1099-DIV, I believe it's reported as an ordinary dividend in Box 1a.
For example, if you earn $100 from VUSXX this year, next year you find the document on Vanguard's website with the US Government obligation percentage of the fund. Say it's 80%. Then, you make an adjustment of $80 on your state tax return.
Treasury Bills are much easier to report when held to maturity, since Treasury Direct or your brokerage should report it on the 1099-INT as US Government Interest in Box 3, and tax software should automatically exclude it from state tax.
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).
Great explanation! I've been just holding VUSXX and sell some weekly to DCA into my regular ETFs. I did split some VUSXX out to SGOV today so I have quicker access to buy dips if needed like this week. With VUSXX, the buy/sell orders execute after hours so you have to wait overnight.
If SGOV gains really do work the way you're describing:
1) sell VUSXX 2nd to last day of month
2) buy SGOV last day of month
3) sell SGOV first day of next month and rebuy VUSXX
This way, the loss you take from SGOV can offset other trading gains. But now those gains will come from the SGOV dividend which will be partially state/local tax free.
https://fixedincome.fid
Then again, 5.44% is pretty close. : \
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edit: answered
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