By Terry Savage on August 25, 2023 | Chicken Money

If I can purchase a $100 t-bond
with 5% interest for 3 months, yielding a total of $5 after 3 months
with 5.1% interest for 6 months, yielding a total of $5.10 after 6 months, why would I want to tie up my money for twice as long for a lousy 0.1%, or $0.10 in interest?
I know this is EZ for you but 3 people I asked can’t answer.

Terry Says

You have this so wrong I don’t know how to begin to unravel it!

For starters, the rate on a 6-month Tbill is now about 5.5%.
If you purchase a $100 Tbill, you will earn that rate for 6 MONTHS. That would amount to HALF of the roughly $5.50 you would earn in one year. So $2.25!
And if you bought. 3-month bill, you’d get only roughly $1.12.

It’s an ANNUAL RATE that you earn for the amount of time you’re invested!

If you could renew your 6-month bill at maturity, AT THE SAME RATE, then you’d earn the full $5.50! But we never know what the rate will be 6 months from now.



a personal
finance question