Jonathan is really into T-bills. I’m fascinated by the process and his calculations, but I’m still having a hard time understanding what he’s doing. Namely, right now, I see that I have an expiring CD at Millennium Bank. I could roll it into another 180-day CD at a new APY of 5.6%, APR is 5.46%.
I just ran some numbers on the latest 28-Day T-bill auction at a discount rate of 5.075%. When I use Jonathan’s nifty calcuations to figure out the APR and APY, I get 5.075% and ~5.20% respectively.
Without taking into consideration tax rates, I see clearly that I am better off rolling my money into another 180-Day CD. Yes, I’m losing liquidity for about 6 months, but my account is already set up and it’s something easy I understand.
Virginia has a tax rate of 5.75% after the first 17K is taxed at 2%, 3%, and 5% rates. For the sake of simplicity, let’s just leave it at 5.75% instead of the true rate. I’ll need a check on the math here, but I believe that the 5.20% rate, when including the tax rate exemption produces a rate that is closer to 5.5%. (APY x 1.0575) Or is it that I discount the bank’s CD rate of 5.6% by the 5.75% tax rate for a post-tax yield of 5.3%? In that case, the T-bill is the clear winner, but I need a check on the math.
I put up my own little spreadsheet for this so now I think I’ll be able to make rapid calculations regularly, which hopefully will help my understanding of T-bills versus regular savings products I already use.
Jonathan doesn’t use high yield online savings accounts because he prefers the return on T-bills better. I see his point when it comes to short-term liquidity. I am locking up cash into laddered CDs to discipline myself, but perhaps I should explore the T-bill thing further for my savings. That way I have money freeing up every week instead of every 30 days on the CD’s.
Something to ponder while I build back up my Save-O-Meter from the bike purchase. (Would you guys like me to move the graph? I haven’t decided if I should do that or not. I was going to move it to $6K since that’s where I’d like to be by the end of 2007.)
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