How Do T-bills Make Money For Me?

I’ve been trying to earn as much money as possible with parked money. Even money standing still should be working for me. So I found myself playing with T-Bill Ladders, and unlike regular securities, T-bills are different. They are actually zero-coupon bonds, causing me to ask how do T-bills make money for me.

So far what I learned how T-Bills make money for me, based on results I see.

Background Of My Yield Farming Experiences.

Now, we all start getting savings bonds in the 70s and 80s. I remember advertisements targeting older adults about how U.S. Savings Bonds made great gifts for kids.

I bought U.S. savings bonds, Series EE, in the 80s and 90s as an automatic deduction from my active military pay. So, I had a basic understanding of those bonds.

You bought them at half their face value, and the bonds grew with a compounding rate, with a guaranteed face value(twice the purchase price) at the end of 20 years, regardless of their accumulated value.

I always needed to understand how U.S. Savings Bonds behave like zero coupon bonds, what zero coupon bonds were, and how they worked in my investment plan.

I will quickly mention other yield farming methods I used:

All somehow create income through actual interest payments.

Now, How Are T-Bills Different?

T-bills have a maturity date of less than or equal to one year(How Do T-bills, T-notes, and T-bonds Differ In Maturity Dates?)

Since their maturity dates are so short, the U.S. Treasury makes no interest payments. There is no compounding interest growth, even for the 12-month T-Bills.

So, how do T-Bills make money for me?

How Do T-bills Make Money For Me? This Is How.

I have just started playing with T-Bill Ladders(4-week and 8-week T-Bills), and here are my observations with the shorter of the two.

My experience learning how do T-bills make money for me. One of my T-Bill ladders. — One of my T-Bill Ladders I built.

Events For The First Rung Of My 4-week T-Bill Ladder.

Using Treasury Direct for my T-Bills:

First, $99.59 was deducted from my banking account.

Then, a $100 T-Bill was issued.

Four weeks later:

My first T-bill (F.Y.I., first-ever!) matured, and another $100 was issued.

Afterward, $0.41 was deposited into my backing account.

This operation repeated with each of my T-bills as they matured. With auto reinvesting, another T-bill is created as one matures, where the Ladder idea comes from with T-bills.

My T-Bill Return On Investment Conclusion.

As the T-bill matures, I get face value. With this event, I got $100 in return for the initial purchase of $99.59.

That $100 was used to buy another 4-week T-bill, at $99.59 again, and the remaining amount was returned to me, the $0.41.

So this is how T-bills are making money for me: by rolling the face value of the T-bill forward into the next T-bill’s auction price(or discount value) and returning the difference.

Wow, 41 cents. Am I Rich Now?

If you got this far and wondered how much I was making on T-bills, you could have been more impressed with the 41 cents.

So, let’s find out my rate of return, or ‘interest’ on this zero coupon bond.

My T-bill Calculation Formula(Rough), Annually.

(((return/cost)/weeks)*52)*100) = Percent return or Percent of Interest, per year.

Let’s work this out:

(((0.41/99.59)/4weeks) * 52 weeks) *100) = 5.35% per year!

That is great 5.35% of the money was parking, not great money, but way better than the 0.01% my regular bank savings account gives me; why don’t I keep much cash with them?

Also higher than my newest bank account with SoFi is giving for my HYSA 4.6%(08Jan2023: https://www.sofi.com/banking/savings-account/)

I am earning more than a half percent higher than one of my HYSA’s. Still, this return is exempt from local and state income taxes(See Your Tax Advisor for information).

FYI: I created a How To Calculate A T-Bill Yield tool to save myself from doing more math.

T-Bills Make Money Me Money – Final Thoughts

Now, am I going to get rich from this type of returns from T-bills, well given time, and inflation stays very low if I live long enough? 😀

But the truth is, the stock market is too hot for its good. I wanted to park some of the December dividends I collected from my SCHD holdings and any additional money I can add while waiting for a real pullback in the market. My Schwab SCHD To 4 Week T-Bill Ladder And Chill.

Also, I keep a portion of my 6 Month Emergency Fund in T-bills(an 8-week T-bill ladder), which helps preserve its buying power since I intend to use this money only if I need a job and have one.

The point is that T-Bills is a tool in your tool kit for creating Passive Income and a setup T-Bill Ladder can become a weekly Passive Income Generator(PIG).

If you made it this far, feel free to leave a comment. Thank you for your time. I’m always open to comments and ideas on reaching an F.I.R.E. status and going on permanent vacation together!

Tom, Growing His Passive Income Generators.