@dividendman - True. The problem is you can't trade the T-bills if you buy directly from Treasury Direct. You are stuck waiting until they mature, or you need to transfer it to a brokerage first to sell it. I've heard it's a pain in the ass to do and takes a long time. For short-term bills, maybe you're ok with potentially being locked up until maturity. But buying at a brokerage gives you the ability to sell at any time and have the money to withdraw within days. To me, that's worth it. And as you said, I do think the interface is better. I like Fidelity, but you could do Vanguard or Schwab or probably any other broker.
I believe at Treasury Direct you can buy in smaller increments which could be one advantage. At brokerages, you need to buy at $1k intervals. But probably not a real consideration for OP with $40k.
Question about principal loss. If you buy t bill at auction on Fidelity, Vanguard, etc… there is no loss in principal if you hold to maturity, is that accurate? Meaning if you put your 2 month t bill on the auction again before maturity you’ll get what you anticipate for yield through maturity?
If you buy a t-bill at auction anywhere and hold until maturity, you will not lose principal and will earn the interest rate determined at the auction. You do not know beforehand what the interest rate will be, but you can usually estimate based on what secondary bills are trading for.
T-bills are zero coupon. So that means you buy at a price <$100 and get $100 back when they mature. Take the recent 4 week t-bill which auctioned yesterday. It's issued Dec 6 and matures Jan 3. The price was 99.692778. So the annualized rate is: ((100-99.692778)/99.692778) * (365/28) = 4.017%. On Jan 3, you will get $100 back for every $99.692778 that you put into it.
If you were to sell this before it matures on Jan 3, you are not guaranteed to get a price above 99.692778 so you could lose principal. Say the next 4 week t-bill auctioned for 20% interest rate. No one will want your now 3 week t-bill paying 4%. So you'd need to sell for a discount so a new investor would get something near the equivalent of the new 20% bill. This would be a price of 98.862 to get an equivalent of 20% on a 3 week bill.
Obviously that's an extreme example. If rates only rose from 4 to 5%, the price would be 99.713 so you wouldn't lose principal in this case, except maybe on the bid/ask spread. But even that is highly unlikely to happen in one week. It took most of this year of aggressive rate hikes to get from 0 to 4%. So I think 4 week t-bills are pretty darn safe even if you need to sell early. The longer the term, the more risk you take if you need liquidity, but also the higher rate you get. I built myself a ladder with bills maturing every month or so. I may need these for everyday expenses as I'm semi-retired and will be putting the majority of my part-time income into my Roth and HSA. If I don't need the money as it matures, I'll buy another 6 month t-bill and keep the ladder rolling.
You say "put up for auction again" but I assume you mean selling the t-bill on the secondary market. T-bills trade just like stocks. You sell yours to a willing buyer. There is no auction after the initial purchase.
Hope that helps. Sorry to hijack the thread a bit OP. Your approach of using a money market account makes sense if you think you might need the money quickly. The important thing is getting it out of your current account paying basically nothing.
