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Bond Equivalent Yield Calculator
Bond Equivalent Yield Calculator
Bond Equivalent Yield
6.11%
Yield Analysis
The $150 discount annualizes to a 6.11% bond-equivalent yield over 91 days, well above the Treasury-bill-style discount yield of 5.93% that banks quote on a 360-day basis. The BEY figure is the right one to compare against coupon-bearing bonds and savings products quoted on a 365-day, annual basis.
*The bank discount yield uses a 360-day year (the market quotation convention); the bond-equivalent and effective yields use a 365-day Australian year. Fees and taxes are excluded. Educational only, not investment advice.
Why Money-Market Yields Need a Common Ruler
Short-term Australian money-market instruments — bank bills, Treasury notes, and short-term corporate paper — do not pay coupons. They are issued at a discount to face value and redeemed at full face at maturity, so the quoted yield is not the return you actually earn; it is an accounting convention. Market convention quotes these on a 360-day 'bank discount' basis, which understates the true return because the discount is measured against face value over an artificially short year. This matters for Australian investors because the same discount can be dressed up to look quite different depending on which yardstick you use. To compare a 91-day bank bill against an at-call savings account, a term deposit or a coupon-bearing bond, you must convert it onto a comparable annual basis — the bond-equivalent yield (BEY) on a 365-day year, or the effective annual yield if you assume the proceeds roll over. Without that conversion, you will systematically undervalue money-market instruments and overvalue quoted coupon rates. This calculator does the conversion in one step and shows all three conventions side by side.
Converting a Discount Into Comparable Annual Yields
A discount instrument earns a fixed dollar amount: face value minus purchase price. The bank (or market) discount yield divides that discount by the face value over a 360-day year: (Discount ÷ Face) × (360 ÷ Days), which is the headline number dealers quote — and the one that understates your real return. The bond-equivalent yield fixes both distortions. It measures the return against the money you actually invested — the purchase price, not the face value — and scales it across a full 365-day year: (Discount ÷ Purchase Price) × (365 ÷ Days). Because the base is smaller and the year is longer, the BEY always exceeds the discount yield. Finally, the effective annual yield answers: what if you could roll the instrument over at the same return for a full year? It compounds the holding-period return: (1 + Discount ÷ Price)^(365 ÷ Days) − 1. For instruments under six months it sits between the discount rate and the BEY, and the gap between the three figures is itself a signal of how short the holding period is — the shorter the term, the more dramatically the conventions diverge.
Expert Insights
Always Compare BEY to BEY, Never Discount to Coupon
A 91-day bank bill quoted at a 4.2% bank discount earns roughly 4.4% on a bond-equivalent basis. If you compare the 4.2% quote against a term deposit paying 4.3%, you will wrongly conclude the deposit wins. Professional money managers convert everything onto a common basis before choosing — this calculator does the same.
The 360-Day Year Is a Quotation Trick, Not Your Return
The 360-day convention is an international money-market relic that makes yields look smaller than they are. Your money is actually invested against a real calendar. When the RBA's cash rate or at-call accounts quote on a 365-day actual basis, you must convert the discount yield up to compare like with like — otherwise you are comparing apples with a slightly smaller apple.
Use Effective Yield for Roll-Over Strategies
If you intend to keep rolling short bills throughout the year, the effective annual yield is your true expected return, because it assumes the proceeds — including the discount — are reinvested at the same rate. It is slightly higher than the BEY. But remember rollover means repricing risk: each new bill is bought at whatever the market offers that day.
Actionable Tips
- 1
Read the Quote Before You Buy
Ask your broker or platform whether the quoted yield for a bank bill or note is bank discount or bond-equivalent. The difference is not trivial, and some platforms show one while the confirmation shows the other. Confirm which convention you are looking at before you decide the price is acceptable.
- 2
Weigh Credit Against the Yield Uplift
A corporate bill pays more than a Treasury note because the market is pricing the chance the issuer does not pay. The dollar discount is larger, so the calculated BEY looks more attractive — but your security is weaker. Before choosing the higher-yielding paper, confirm the issuer's credit rating and whether the uplift compensates you for the added risk.
- 3
Match the Term to Your Cash Need
The shorter the days to maturity, the more sensitive the annualised yield is to tiny price changes, and the more often you must reinvest. If you know when you need the cash, pick a maturity that lands near that date rather than rolling repeatedly — it removes both repricing and reinvestment risk.
Real-World Examples
Priya Compared a Bank Bill to Her Savings Account
Priya was offered a 91-day bank bill at a 4.15% bank discount quote while her at-call savings paid 4.10%. Running it through the calculator showed the bill's bond-equivalent yield was actually 4.36%, comfortably beating the account. She parked $50,000 in the bill and pocketed the difference.
Daniel Caught the 360-Day Illusion
Daniel's broker quoted a 182-day Treasury note at a 4.6% 'yield' and Daniel nearly dismissed it against a 4.5% term deposit. The calculator revealed the 4.6% was the bank discount figure; the true bond-equivalent yield was 4.78%. He took the note, correctly judging it superior on both yield and credit.
The Henderson Family Trust Rolled Short Bills
The Hendersons kept a cash reserve for distributions, rolling 90-day bills all year. Using the effective annual yield, they projected the year's true return at 4.9% rather than the 4.7% the discount quotes suggested — and sized their distribution budget on the right number.
Glossary of Terms
- Bank Discount Yield
- The money-market quoting convention that divides the discount by face value over a 360-day year — the quoted, understated figure.
- Bond Equivalent Yield (BEY)
- The discount instrument's return measured against the purchase price and annualised over a 365-day year, comparable with coupon-bearing bonds.
- Effective Annual Yield
- The compounded annual return you would earn if the instrument's proceeds were reinvested at the same rate for a full year.
Frequently Asked Questions
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Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.