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Are you interested in purchasing Treasury bills but unsure of how you can profit from them? Let us explain.
Unlike other Treasurys, T-bills do not pay interest in the traditional sense. Instead, you purchase the bills at a discounted price and hold onto them until they mature. At maturity, you will receive the full face value of the bill.
Let’s take a closer look at a Treasury bill auction to understand how a T-bill purchase process works.
For example, on May 15, 2024, the Treasury conducted an auction for a 17-week Treasury bill with an issue date of May 21 and a maturity date of Sept. 17. The price per $100 was approximately $98.27, equating to an annualized discount rate of 5.225%.
If you were to invest $1,000 in T-bills during this auction, you would have paid $982.73 on May 15. By Sept. 17, you would receive $1,000, resulting in a profit of $17.27 on your investment.
Should you choose to reinvest in the same T-bill for one year, you can calculate the annual investment rate based on the initial purchase price of $982.73.
To further explore this concept, utilize our T-bill calculator below.