T-Bills Purchase Difference
I put in a purchase request for $1,000 26 week T-bills on 9/26. The issue date was 10/06. The bank deducted $980.54 from my bank account payable to Treasury Direct. It looks like I made a little less than 2%. I thought the investment rate was 3.981%. Could you please explain what I am missing? Thank you.
Terry Says
Two things are at play here. First, you get your interest up front with T-bills. Instead of deducting the full $1,000, they left you with your interest.
Second is pure math —
These are 6-month Treasury bills. So you are getting 6 months interest at a rate of 4% (roughly).
Now do the math. If you got 4% on $1,000 for a full year, you would earn $400.
But since this payment was only for 6 months interest, you earned half of that amount, or $200. That’s why it looks like 2%.
(And since you seemed to have earned only about $20 in interest, I’m assuming you only purchased $100 of T-bills)
