US Treasury Bill Calculator

What This Calculator Does

The US Treasury Bill Calculator is designed to help you quickly and accurately estimate the potential returns from investing in US Treasury bills. By entering the face value, discount rate, and term, you can instantly see key results such as purchase price, discount earned, effective yield, and annualized yield. This tool is ideal for anyone who wants to make informed decisions about short-term government securities and understand the real value of their investment.

How to Use This Calculator

1. Enter the Face Value: Input the amount you wish to receive at the maturity of the Treasury bill. This is typically $1,000, but you can input any amount.
2. Input the Discount Rate: Provide the annualized discount rate as a percentage. This rate is usually specified by the US Treasury during auctions.
3. Specify the Term: Enter the number of days until the bill matures (for example, 28, 91, 182, or 364 days).
4. Review the Results: The calculator will automatically display the purchase price, the discount (interest earned), the effective yield, and the annualized yield based on your inputs.
5. Analyze Your Return: Use the results to compare Treasury bills with other investment options or to plan your investment strategy.

Definitions of Key Terms

Face Value

The amount you will receive when the Treasury bill matures. It is the bill's nominal value, typically set in multiples of $1,000.

Discount Rate

The percentage difference between the face value and the purchase price, annualized to a 360-day year. This rate determines how much less than face value you pay for the bill.

Term

The length of time (in days) until the Treasury bill matures and the face value is paid to you. Common terms are 4, 13, 26, or 52 weeks.

Purchase Price

The actual amount you pay to buy the Treasury bill. It is less than the face value and is calculated based on the discount rate and term.

Discount

The difference between the face value and the purchase price. This represents your earnings from the investment.

Effective Yield

The percentage return you earn on your investment, taking into account the actual amount you invested and the term of the bill.

Annualized Yield

The yield expressed as an annual rate, allowing you to compare returns on Treasury bills of different terms as if they were held for a full year.

Calculation Methodology

Purchase Price = Face Value * (1 - (Discount Rate * Term / 36000))

Discount = Face Value - Purchase Price

Effective Yield = (Discount / Purchase Price) * (360 / Term) * 100

Annualized Yield = Effective Yield (already annualized using a 360-day basis)

In these formulas, the Face Value is the amount you receive at maturity, the Discount Rate is the annualized rate set at auction (expressed as a percentage), and the Term is the number of days until maturity. The purchase price is calculated by discounting the face value based on the rate and term. The discount shows your total earnings, while the effective yield and annualized yield let you compare your returns across different terms or with other investment products.

Practical Scenarios

• Comparing Short-Term Investments: You are deciding between investing in a 13-week Treasury bill and a money market account. By using this calculator, you can determine the exact purchase price and annualized yield for the Treasury bill and easily compare it with the interest rate offered by the money market account.
• Planning a Laddered Investment Strategy: You want to build a ladder of Treasury bills with staggered maturities to ensure regular cash flow. Use the calculator to estimate returns for bills of various terms so you can optimize your ladder for both yield and liquidity.
• Evaluating Auction Results: After participating in a Treasury auction, you wish to confirm the actual purchase price and effective yield based on the winning discount rate. Entering the auction results into the calculator gives you a clear picture of your investment return.
• Budgeting for a Specific Goal: You are saving for a short-term goal, such as tuition or a down payment, and want to know how much you will earn by investing in a Treasury bill for a set period. The calculator helps you project the final amount you'll receive, ensuring your savings plan is on track.

Advanced Tips & Best Practices

• Always compare the annualized yield of Treasury bills with other fixed-income investments to ensure you are maximizing your returns while maintaining your desired risk profile.
• Consider reinvesting proceeds from maturing Treasury bills into new bills to take advantage of compounding and potentially higher future yields.
• When entering the discount rate, ensure that it is the rate quoted by the auction and not the bond equivalent yield, as these can differ and lead to miscalculations.
• Use the calculator to assess the impact of different purchase dates or term lengths, especially if you are planning a series of investments or want to match cash flows with future expenses.
• Remember that Treasury bills are exempt from state and local taxes, which can make their after-tax yield more attractive compared to other taxable investments.

Frequently Asked Questions (Optional)

Are Treasury bill returns guaranteed?

Yes, US Treasury bills are backed by the full faith and credit of the United States government, making them one of the safest investments available. The return you calculate is guaranteed if you hold the bill until maturity.

Why is the purchase price lower than the face value?

Treasury bills are sold at a discount to their face value. The difference between the purchase price and face value represents the interest you earn, which is paid out when the bill matures.

How often are Treasury bills issued and what terms are available?

Treasury bills are issued regularly by the US Department of the Treasury, typically with maturities of 4, 8, 13, 17, 26, or 52 weeks. Each term may have its own auction and discount rate.