Purchasing T-Bills through TreasuryDirect.Gov

The more important Question is why are you buying 91 day T-Bills at

3.999% which I know are state income tax exampted. When you can get 4.25%+ for many online banks like HSBC, FirstFedDirect, GMAC, Umberllabank.com, and Capitalone. With everyone expecting the fed to raise fed funds rates to 4.75% on Jan 31 thoses same bank will more than likely be paying over 4.50% if not more considering umberllabank.com already pays 4.40%

Well, there's actually many ways you might account for this. Here's one way to do it:

First, set up an asset account to hold the T-Bill. You could set up a "brokerage" account called "T-Bills Direct" or something similar to hold this T-Bill, and any other T-Bills you might purchase. Record a transfer of the $4,950.65 from your bank into the new T-Bills Direct account.

Next, set up a "liability" account to hold the discount on the T-Bill. You could name this "T-Bills Discount" or something similar. Record an increase in this account in the amount of the discount ($5,000.00 - $4,950.65 = $49.35) with an offset to the T-Bills Direct account. The T-Bills Direct account will now have $5,000 "cash."

Next, buy your T-Bill in the T-Bills Direct account. If you think you'll only have one T-Bill open at any one time you could just buy a bond called "T-Bill." If you think you might have more than one T-Bill in your Treasury Direct account at any one time you might buy and bond called "T-Bill Due 3/30/2006" or some such to distinguish it from other T-Bill you might buy.

You'll now have a balance sheet with a T-Bill asset of $5,000 and a T-Bill "liability" (it's really a deferred revenue but Quicken doesn't have that sort of account) of $49.35 which nets to $4,950.65, which is just what got deducted from your bank account.

When the T-Bill matures you "sell" the T-Bill in the Treasury Direct account for $5,000 (no capital gain or loss) and transfer the money to your bank account, which is just what the Treasury will wire into your bank. You then go over to your T-Bills Discount account and reduce it by $49.35 (bringing the account balance to $0) with the offset being something like "Interest Income:T-Bills." You now have nothing on your balance sheet for the T-Bill except the $5,000 in the bank, which is correct.

The above treatment isn't theoretically "pure" - you should really accrete the discount to income over time - but, since T-Bill interest isn't taxable until the T-Bill matures the above method is consistent with tax purposes.

Tom Young

I am trying to diversify a little bit, but I also didn't realize that rates had risen so much since I starting buying CD's. I just checked bankrate.com and found that I can get 4.84% with FirstFedDirect; I immediately purchased a one year CD. Using bankrate.com, I purchased a 1 year CD at Corus Bank on

9/14/05 and got 4.47%. I purchased a 1 yr CD at IndyMac Bank on 12/2/05 and got 4.35%. Evidently, the 1 yr CD rate hs risen almost half a percent in the last thirty days. That's a great trend for us consumers :)

BTW, when I first applied for a TreasuryDirect account about 2-3 weeks ago, I checked and didn't find a large difference between the t-bill and cd rates, but evidently, that has changed.

On Fri 30 Dec 2005 09:07:09p, Z Man wrote in news:xBmtf.889$tJ1.0@trndny01:

I found a 12 month CD for 4.75% at Charter One back on October 28th. Their rate was initially non-advertised and apparently only at the one branch; they have been advertising it (inside the bank) in recent weeks. IIRC there are now some even higher advertised rates out there.

It's amazing to see the rate spread around here. The nearest bank where I have a bunch of accounts has continued to pay miserable rates for about

4 or 5 years now.

If you are comparing CD then you need to look at the 182 day T-Bills they are paying about 4.40% and are state tax-exepted. IMO thoses are only ones worth buying as they are paying a little more than what most

6 month CD are paying if you add back in what the tax-savings would be they are paying close to what most 1 year cd are paying.

All the accounts I listed for you are all liquid savings accounts. And they are paying same or more than 91 day T-Bills if not more depending on the state you live in and what your state income tax is.

You are correct, I should be looking at 6 mo CD's vs 6 mo t-bills. Thanks for the astute advice.

[comments at bottom]

Your method makes sense, but to keep it simple, I could skip recording the deferred income and simply sell the bill and record the income at maturity. Since the interest is reportable when the bill is redeemed, I would end up with the same result at maturity. What do you think?

That's fine too. Quicken will report it as gain on sale but unless you're trying to automatically transfer information between Quicken and TurboTax it really doesn't matter.

A slight variation is to sell at cost and record the difference as interest income in QW. This eliminates the gain problem.

Another alternate would be to sell at face value and record a negative return of capital and an interest income to balance. This also avoids the gain problem.

Seems a key item is to get QW to match the Gross Proceeds that the FI will report to the IRS. This is for entry of the info into TTax.

Actually, it is not fine, as I don't want interest income reported as a capital. I don't use TurboTax (actually, I use CCH Prosystem fX), but I still want it to be shown correctly. Had you not mentioned it, I would have realized my error when the first t-bill came due.