C. D.'s and Treasuries

[lawman]

When buying C. D's and Treasuries through Schwab at say 3.5% for 1 year will they both pay exactly the same amount or will there be a difference as a result of compounding and when interest payments are made? I called Schwab..She had no clue.

 

[disneysteve]

I'm not sure of the answer, and this doesn't apply to you in TX which has no state income tax, but for others, Treasury interest is state-tax free which would make them the better deal.

 

[audreyh1]

Neither brokered CDs nor Treasuries allow interest to be added to the principal for compounding, so they should pay exactly the same amount of interest.

 

[aja8888]

When buying C. D's and Treasuries through Schwab at say 3.5% for 1 year will they both pay exactly the same amount or will there be a difference as a result of compounding and when interest payments are made? I called Schwab..She had no clue.

Just look at the A.P.R. (annual percentage rate.)

Most, if not all, brokered CD's are not compounded (interest paid when scheduled). T Bills and Bonds are paid on a schedule. One year or less is discounted on purchase. Coupon T bonds pay per the period specified.

 

[pb4uski]

Just look at the A.P.R. (annual percentage rate.)

Most, if not all, brokered CD's are not compounded (interest paid when scheduled). T Bills and Bonds are paid on a schedule. One year or less is discounted on purchase. Coupon T bonds pay per the period specified.

To elaborate on that, there is a nuance of a difference though. If you buy a $100,000 one year brokered CD the has a 3.5% APR you will pay $100,000 today and receive $103,500 at maturity. If yo buy a $100,000 oe year UST that pays 3.5% you will pay $96,618.36 today and receive $100,000 at maturity.

 

[lawman]

To elaborate on that, there is a nuance of a difference though. If you buy a $100,000 one year brokered CD the has a 3.5% APR you will pay $100,000 today and receive $103,500 at maturity. If yo buy a $100,000 oe year UST that pays 3.5% you will pay $96,618.36 today and receive $100,000 at maturity.

How do they pay if longer than 1 year maturities?

 

[Car-Guy]

How do they pay if longer than 1 year maturities?

When you buy a CD it will (should) tell you how often interest payments are made for that CD. I have some that pay monthly, some that pay semi-annually, some that pay annually and some that pay at maturity... That simply continues for the life of the CD. Matter of fact I just got an interest payment credited to my account on Friday from one of the CD's that I have that pays monthly.

 

[audreyh1]

How do they pay if longer than 1 year maturities?

Treasuries longer than one year pay coupons, like bonds do. They pay every 6 months. They are not zero coupon bills. They are notes. https://www.thebalancemoney.com/what-are-treasury-bills-notes-and-bonds-3305609

Notes are still auctioned. They have a stated coupon rate when announced, but the auction determines the ultimate rate. See this page and press on the Auction Results tab and then scroll down to the notes section. You can see the results of the most recent auction.
https://www.treasurydirect.gov/instit/instit.htm?upcoming