Results of my year-long T-bill experiment

Last July I began an experiment with 4-week T-bills. Now that I have an entire year of results I can compare the results to other short-term, low-risk vehicles for storing cash.

My experiment was simply a $1,000 investment which purchased ten $100 4-week T-bills electronically on an automated reinvestment plan using TreasuryDirect.

Since they have a duration of four weeks rather than a month, there are thirteen investment periods in a year.

Since my investment was small, there was no opportunity to re-invest the interest back into the same T-bill investment plan. I simply moved the interest from my bank account into my Fidelity brokerage account "core cash" where it earned something on the order of 4.45%.

Since T-bills are purchased at a discount and then return the full face amount at maturity, my actual initial investment was not $1,000, but happened to be $996.32, giving me $3.68 interest for the first four weeks.

The total interest directly from the T-bills was $49.64 which works out to a simple annualized rate of 4.982%, which is a litle better than the typical 7-day yield for Fidelity Cash Reserves (FDRXX) of 4.96% or so.

Calculating the compounding interest on the T-bill interest payments (difference between the face amount payment and the discounted purchase price) at my 4.45% 7-day yield amounted to another $1.22, for a total interest of $50.96, or a total yield of 5.104%. The rough total yield for FDRXX was on the order of 5.07% (4.96% + compounded interest.) So, the T-bills came out ahead.

In short, this 28-day T-bill investment plan gave my a very slightly better return than FDRXX, but hardly enough to justify the effort, and maybe not worth the anxiety of the wild volatility swings of the weekly T-bill auctions (low of 4.71% to high of 5.31%.)

There is no guarantee that the returns for future years would match my results (even if the Fed does not change interest rates.)

And results would be somewhat different for 13-week and 26-week T-bills.

I'm going to continue this experiment for at least another year, both because it was not a "failure", it did give a slightly better return than FDRXX, and it is on auto-pilot, so it would actually be extra effort for me to shut it down.

The only difference this year is that I will move a small amount of cash from my core account to FDRXX each month to get a higher yield on the compounding interest.

-- Jack Krupansky