This may be the first thing l’ve ever written on reddit and it may be stupid. But Ive lingered long enough to learn about a lot of things.
Please help me understand how t-bills work.
It looks like as of may 10, 2023 you can buy a 1-month t-bill with a little over 5% interest. Its a little wonky. you actually pay them $950, wait a month, and get the full $1,000.
I’ve never messed with this stuff, but here is how my thought process worked..and it sounds too good to be true. Can someone tell me what I’ve got wrong?
If I’m right, you’d essentially be able to make 60% profit on your money as follows:
I’m going to do a little rounding, and 1’m not going to reinvest profits in this example for simplicity. Assume a 5% rate and a 1 month t-bill. Assume the interest rate remains 5% for the next year.
Month 1: Spend $950 on $1,000 t-bill. After a month, you’ve made $50 proft.
Do the same for months 2 through 12.
$50 monrhly profit x 12 months = $600. You now have $950 + $600 = $1550. this is about 60% profit in a year!
With 10k, you’d have $16k..1 00k, you’d have 160k.
What do I have wrong here? Do you earn 5% after 1 month if that is the rate they quote at time of purchase?
Thank you to anyone who can straighten me out on this. If it works like I’ve described I’m in!
Be gentle…I have a feeling I’m dumber than I realize.