Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Bank-discount yield and investment yield, or bond-equivalent yield, are two different, commonly quoted conventions for measuring the identical T-bill's return, and they use different day-count bases in their calculations, which means comparing a discount-yield quote directly against an investment-yield quote for a different instrument understates or overstates the real comparison.
Before you rely on it
What to check
Confirm which yield convention, discount or investment, a quoted figure is using before comparing it against another short-term instrument's stated yield.
The common error
Where people go wrong with treasury bill calculator
Comparing a T-bill's bank-discount yield directly against another instrument's investment yield as if the two conventions were interchangeable. They use different calculation bases, and mixing them produces a comparison that isn't actually apples to apples.
Sensitivity evidence
How purchase price changes the investment yield
| Purchase price | Investment yield | Discount yield |
|---|---|---|
| $7,800 | 56.6% | 43.5% |
| $8,775 | 28.0% | 24.2% |
| $9,750worked example | 5.1% | 4.9% |
| $10,725 | -13.6% | -14.3% |
| $11,700 | -29.1% | -33.6% |
Every input, tested
Which input moves the investment yield most
| Input | Tested from | To | Investment yield at each end | Swing |
|---|---|---|---|---|
| Maturity value | $9,000 | $11,000 | -15.4% to 25.7% | 41.1% (800%) |
| Purchase price | $8,775 | $10,725 | 28.0% to -13.6% | 41.6% (808%) |
| Days to maturity | 164.0 days | 200.0 days | 5.7% to 4.7% | 1.0% (20%) |
Two variables at once
Investment yield by purchase price and maturity value
| Purchase price \ Maturity value | $8,000 | $10,000 | $12,000 |
|---|---|---|---|
| $7,800 | 5.1% | 56.6% | 108.0% |
| $8,775 | -17.7% | 28.0% | 73.7% |
| $9,750 | -36.0% | 5.1% | 46.3% |
| $10,725 | -51.0% | -13.6% | 23.8% |
| $11,700 | -63.4% | -29.1% | 5.1% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Maturity value | $10,000 |
| Purchase price | $9,750 |
| Days to maturity | 182.0 days |
| Investment yield | 5.1% |
| Discount yield | 4.9% |
Where the inputs come from
Maturity value is the face amount paid at maturity, usually $10,000 for a bill, purchase price is what you pay, and days to maturity is the time until the bill matures, from 4 weeks to 52 weeks. Treasury auction results and brokerage screens show the discount rate, price and investment yield. T-bills pay no coupon: the return is the difference between price and face value. Confirm the price after any fees.
Using the investment yield in a real decision
Use the investment yield to compare a T-bill with a CD or savings account.
When the result stops applying
The quoted discount rate understates the return because it uses face value as the base and a shorter year. T-bill interest is exempt from state and local income tax but subject to federal tax. Yields change at each auction. The calculation ignores reinvestment when the bill matures and assumes you hold it to maturity.
What to compare it with
Compare with the CD calculator and APY calculator, and see the after-tax comparison on the tax-equivalent yield page. The bond ladder calculator builds a series of maturities, and the real yield page adjusts for inflation. Buying at auction through TreasuryDirect avoids brokerage fees.
People also ask
Frequently asked questions
What is the difference between discount yield and investment yield?
The discount yield uses face value and a 360-day year, while the investment yield uses the purchase price and a 365-day year, so it is higher and comparable to other savings rates.
Is T-bill interest taxable?
It is subject to federal income tax but exempt from state and local income tax, which makes it attractive in high-tax states.
How do I buy a Treasury bill?
Through TreasuryDirect at auction or through a brokerage on the secondary market. Auctions are held regularly for various maturities.