There seems to be some interest, so here’s a very quick example of what happens when you buy a 4-week $1,000 T-Bill.
1) Open an account at TreasuryDirect, link up checking/savings account.
2) Login, and select your amount and maturity date ($1,000)
3) You must schedule the purchase before Noon EST on the auction date (Tuesdays), otherwise you are pushed to next week.
4) Auction occurs on Tuesday, and on Thursday the discounted amount ($99x.xx) is taken out of your account.
5) 28 days later, also on a Thursday, $1000 is put back into your account if you choose so. If there is a holiday both the purchase and maturity dates are moved together. I’ll do a better example later.
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“$1000 is put back into your account if you choose so”
What do you mean by “if you choose so”? If you don’t specify anything on the treasury direct website, does the money stay with treasury? Or does it sent back to the bank account?
You have to specifically choose, in a pulldown menu, whether to put it back into your account, or into a non-interest bearing account at the Treasury, which can then be used to fund other purchases.
Looks like I need to go visit the treasury direct site again. Thanks for the help. You have got a good series going for the treasury bill investing. Please keep it up.
The advantage of putting the proceeds into the C of I [1] is it allows reinvesting funds in a new T-Bill. They have a help page that explains it, but because bills mature and are redeemed before the new bill is purchased, the $1000 goes into the C of I. Then the $99x.xx is pulled from the C of I for the new bill.
When you schedule the purchase for the first time, the source of funds would be your checking/savings. The proceeds would go into the C of I. And the source of funds for the recurring purchases would be from the C of I.
The disadvantage to using your checking account as the destination/source of funds is that it takes a business day or two for the funds to get there, plus if you have a limited number of withdrawls, it may get you into trouble with the bank.
Probably should mention that you are not limited to just $1000, but purchases are in $1000 increments. Based on what I read here, I have 4-week ladder of 28-day T-Bills. Every Thursday a bill matures and a new bill is purchased. It’s not a lot of money, but a nice little hobby. 🙂
[1] Certificate of Indebtedness, the non-interest-bearing account in TreasuryDirect.
Yes, the $1,000 is just an example. Actually, it does not take a “business day or two” if you use a checking account. Even if you want to immediately re-invest, all that happens on that Thursday is that you get a credit of $1000, and a debit of $99x.xx, all on the same day. I don’t know how they do it, but it is very well choreographed.
Like you said, the main advantage of CofI is you don’t get the extra activity in your Savings account. But you do accumulate some money in the CofI that is not earning interest. How much just depends on how much you are investing.
Any ‘excess’ you have in your C of I account can be immediately moved to any of the accounts you have set up with TD. If I remember right, it shows up in the designated account (target account) the next day. It is just another ACH transfer. In this the case the Treasury is the source of funds. You lose a day of interest if you move the money somewhere else the day it is credited to the C of I.
This all sounds really interesting! I can’t wait to try it myself. Thanks for making a step-by-step post on how to do it exactly.
If there is a difference of a few days between the maturing date and the next purchase date, don’t you lose interest on those days ? (while the money sits in the C of I account)
What about using TD as transfer service to move money out of ING and into a diff savings account instead of moving to a checking account?
Buy 1 month tbill, debit ING, credit HSBC upon maturity. How many days of interest would I lose in this process? Anybody try?
If you want to string 28-day T-Bills together, buying another one immediately after one matures, the maturity date and the issue dates are always going to be on the same date that week, be it Thursday or Wednesday or Friday.
LSD – Yes, you can set the maturity account to be diferrent from the funding account. The dates remain the same. Whether you will lose interest depends on if the account starts paying interest immediately on electronically-deposited funds. Most banks do, but ING Direct for example may not for 2 business days.
Hi- interesting angle- great topic- now, bear with me please- but can i set this up to continously reinvest every 28 or so days? (I;d be monitoring rates)i followed the c of I vs checking portion..
thanks, Laura
In case of fraud treasury direct account is not as good as a bank, according to this article link
Be warned
thank you!
I actually had a question regarding the T-bills which is if someone was to invest in a $100,000 T-bill assuming they come that big would that mean after the 28 days a person would recieve 3% of $100,000($100,000[.03]=3000). Using this as an example could a person buy a t bill for $97000 and have it mature at the 28 day mark therefore putting $100,000 into your bank account which includes the interest of $3000? Is there a limit as to how many t bills one could purchase? Is there only a specific amount distributed? Would it be possible to purchase another $97000 T bill month after month and recieving the full amount at the 28 day maturity. Thanks for any help.
I did not see any option to choose whether the $1000 goes back into my bank account automatically… I take it you did not use BuyDirect? But that’s the only place on the site I could find for buying them.
Another question: will this work out to more of an interest rate than, say, keeping $1000 in HSBC Direct for one month?
Gawp, I’m an idiot. Buy Direct is what I should have been using. Purchase Express is what I WAS using. Apologies.
Second question still outstanding 😉
Anyone have any critiques of the following strategy:
Every once in a while Bank of America sends me balance transfer checks that offer 0% for typically 4 months AND have no transfer fees. They are meant for transfers, but can be made out to yourself and deposited into your checking account WITH NO FEES. I just got some and am going to write a check for $6,000 and deposit it and then buy 6 t-bills on treasury direct. At 4% they will give me $240 a month for 4 months before I would need to cancel the reinvestment and pay off the balance. Not a bad way to make nearly $1,000 with someone else’s money. Anybody see anything I may be overlooking? Thanks.
Go over to fatwallet.. a lot of us are doing the balance transfer (BT) thing. I’m well over $75k in 12 months at 0%…
Alex,
Thanks- great site and forums.
Question re: Perry and Anonymous’ interest calculation. Shouldn’t the amount received be divided by 12 months? In perry’s example, is the 4% an annual rate, if it is then it would be $6,000 * 4% = $240/12 = $20 per month, right?
Perry,
I would redo your calculation before going out and start using those checks. That $240 is not what you get every month.
Loopy,
thanks for the clarification. It makes a lot more sense to use the annual rate which yield much more realistic risk/ reward amounts.
perry
I HAVE HAD LOTS OF PROBLEMS OF ALL KINDS WITH TD.
IF YOUR THINKING OF DOING IT, DON’T.
IT IS NOT WORTH THE HASSLE.
I have been using treasury direct for some time, and i just purchased several t-bills using the noncompetitive bidding, have you, or do you know how to competitively bid in the auction process
Hi
I ive in NY, so I figure that T-bills will give me a better total yield than HSBC after taxes.
After reading the blog, I’m still a little confuseed. I want to automatically re-invest every 4 weeks. Now here’s my question: If I set source of funds to HSBC and deposit to HSBC, will this work, or do I have to use CofI to be able to automatically re-invest? If so, do I have to then pull the accumulating interest out of the CofI manually to my HSBC every 4 weeks in order to not lose interest, or can this be done automatically?