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.

Calculating Returns.

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:

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.
Myself with an interesting Bull Sculpture.
Notice: No Lambo’s. :/
Hi I’m Tom, A Blogger And A PIG Farmer.

PIG Farmer as in I grow Passive Income Generators(PIG’s).

I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks.

Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me.

My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. 

Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs.  

I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments.

Fun Fact: In my spare time, I am a Band-Dad!

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