The Wall Street Journal reports today on page C4 that "Big 6-Month CDs Yield 4.12%". This is the average rate on jumbo CDs with deposits of $95,000 or more. Six-month Treasury bills yield 4.97%.
I can understand leaving a few thousand dollars in low-interest accounts for convenience or laziness, but who makes an active to decision to invest $100K at about 1% below market interest rates and thus throw away $1000 a year?
I know someone who has decided to maintain a $30K cash reserve in an account that pays 3% instead of one that pays 5% because the 3% account is at the same bank as his checking account and can be linked to transfer funds automatically in case of overdraft. So he's paying 2% of $30K, or $600/year, for the privilege.
x?UOoÔ@ Åïùïíe?n??JùsAq(ggâmF?µ«'Qøô8¡?ö2#[öïù½ï?o´àí~?«ëwW ã 9'?ê°à,ÛM»U!?{Ò ¢ ?ìsQãëæ6ÝmåD?Òq©FÒ!3MI?@8ð ëu¬k»?©T$AÖùMãÂÕn/ÒÝ??£XÅA ¢Ê?X"ÃËL¿?p;´£aîG¸ÂÅ)Z?¦'°?cªIÅû.:¹^]î÷_AjÕ!?¯áuvRØð÷&²? «?ÅhöäVÚÞm.Låý6Ù iiÉÎë?Ä ²ÇðÁmQUlwx ? S Ëâq?só¿!Y@ÝÄÅÜ??û³çu???? Õý ?$ãüÖ3è9|ú\Có ~[V? ðÌú?Ù?À*þrÞé?íÐ4¿ä?g
Where did you get that figure? And can you answer a few more questions about T-bills?
According to the TreasuryDirect "Recent Bill Auction Results" web page at
And doesn't that annualize to 4.99%; that is: ( (100 / 97.570806 - 1) / 182 ) * 365?
Perhaps you simply doubled the 6-month rate. I believe that is 4.9793%. Perhaps you truncated that to 4.97%.
But for that same T-bill, the Auction Results web page says the "discount rate" is 4.805% and the "interest rate" is 5.007%.
Can someone explain how those rates are computed; that is, provide the formulas and demonstrate the computation?
I would not rely on a WSJ article for current or best CD rates.
On the same date as that T-bill rate, my bank was offering
4.93% on 6-month CDs with a minimum $5000 investment, with an APY of 5.05%.Of course, for some states, we need to factor in the fact that T-bill interest is exempt from state income tax, whereas CD interest is not.
(On the other hand, that is not a concern for an IRA.)
For a Calif taxpayer in the highest bracket (9.3%), the after-tax difference is about $173 less interest on $100,000 invested in 6-month CDs.
That difference might be overcome by savings due to higher rates on other accounts and other perks because the CD account is linked to other accounts held in the same bank.
(100-97.570806)*(360/182) = 4.80499 = 4.805
((100/97.570806)-1)*(366/182) = .050069 = 5.007
These equations provide the results of the Treasury Direct site. I don't know when they started using 366 to produce annual return numbers, but this works for the 5 instances I looked at on that site. JOE
In the early 1980s hyper-inflation I cashed a CD early, took the tax- deductable
90-day penalty and reinvested in a new CD with a an interest rate more than two percent higher. You'd come out ahead then. I recall the rates peaked at 18% for up to a 30-year term. Sometime in the mid-80s the stock market took off and started returning more than CDs.
Banks continue to use fear tactics on ignorant people. I've heard them tell people "Our CDs are FDIC insured, T-Bills are not, and they can lose value." It would take quite the swing in rates for a one year T-Bill to lose much, and, if properly laddered, there's little risk of needing to sell early.
JOE
Yes.
I would have annualized it as: (100/97.570806)^2 - 1 = 5.041%, since 26 weeks is exactly half of 52 weeks.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.