Shift some emergency funds to I bonds for 3.54% interest?

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jsandra
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Shift some emergency funds to I bonds for 3.54% interest?

Post by jsandra »

Due to a recent burst of inflation, it appears the interest rate on I bonds is going to reset to 3.54% in May.

https://tipswatch.com/

This is way better than the yield on my "high" yield savings and municipal bond funds. Any reason not to switch some funds over? Would you invest in the last few days in April or wait until May?
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anon_investor
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

jsandra wrote: Sat Apr 17, 2021 5:17 pm Due to a recent burst of inflation, it appears the interest rate on I bonds is going to reset to 3.54% in May.

https://tipswatch.com/

This is way better than the yield on my "high" yield savings and municipal bond funds. Any reason not to switch some funds over? Would you invest in the last few days in April or wait until May?
I Bonds have a 1 year lock up then 3 month interest penalty of redeemed before 5 years. If you have a large EF, then moving some to I Bonds makes sense. I did this last year.

I was debating whether to buy this month and lock 6 months at 1.68% for 6 months then 6 months at 3.54%, or buy in May and get 3.54% immediately. My spouse and I have decided to wait until May to buy.
GoPackGo
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by GoPackGo »

This is mentioned in the TIPS Watch article at https://tipswatch.com/2021/04/15/i-bond ... til-later/.
...I’ve presented inflation-adjusted variable rate scenarios ranging from 0.0% to 3.0%, and one thing is very clear: Investing in May will out-perform investing in April in every scenario.

Even if the inflation-adjusted variable rate drops to 0.0% for the second six months, the investor would get a return of 1.77% — and the three-month penalty would be zero, because no interest was earned in the last six months. The Buy-In-May scenarios outperform Buy-in-April scenarios in every case.

Conclusion. If you are looking to invest in an I Bond as a safe place to store cash as an 11-month investment, wait until near the end of May 2021 to invest, then redeem early in May 2022.
as9
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by as9 »

Any reason i bonds wouldn’t make sense for a retired person holding a lot of cash? Asking for a parent and don’t know a ton about them.
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anon_investor
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

as9 wrote: Sat Apr 17, 2021 6:22 pm Any reason i bonds wouldn’t make sense for a retired person holding a lot of cash? Asking for a parent and don’t know a ton about them.
If they will not need the money for 1 year, they are a good parking place right now, but there is $10k annual purchase limit per social security number.
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jsandra
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by jsandra »

This is mentioned in the TIPS Watch article at https://tipswatch.com/2021/04/15/i-bond ... til-later/.
...I’ve presented inflation-adjusted variable rate scenarios ranging from 0.0% to 3.0%, and one thing is very clear: Investing in May will out-perform investing in April in every scenario.

Even if the inflation-adjusted variable rate drops to 0.0% for the second six months, the investor would get a return of 1.77% — and the three-month penalty would be zero, because no interest was earned in the last six months. The Buy-In-May scenarios outperform Buy-in-April scenarios in every case.

Conclusion. If you are looking to invest in an I Bond as a safe place to store cash as an 11-month investment, wait until near the end of May 2021 to invest, then redeem early in May 2022.
This is just what I was looking for. Thanks!
Doc7
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by Doc7 »

I said to heck with it and put $20K of my $28K emergency fund in I Bonds over the last two weeks.
Doc7
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by Doc7 »

jsandra wrote: Sat Apr 17, 2021 6:50 pm
This is mentioned in the TIPS Watch article at https://tipswatch.com/2021/04/15/i-bond ... til-later/.
...I’ve presented inflation-adjusted variable rate scenarios ranging from 0.0% to 3.0%, and one thing is very clear: Investing in May will out-perform investing in April in every scenario.

Even if the inflation-adjusted variable rate drops to 0.0% for the second six months, the investor would get a return of 1.77% — and the three-month penalty would be zero, because no interest was earned in the last six months. The Buy-In-May scenarios outperform Buy-in-April scenarios in every case.

Conclusion. If you are looking to invest in an I Bond as a safe place to store cash as an 11-month investment, wait until near the end of May 2021 to invest, then redeem early in May 2022.
This is just what I was looking for. Thanks!

The quoted post is only referring to an 11 month investment.... for one year obviously at 0% in the second 6 months, buying in now at 1.68 wins out. Kind of a strange cherry picked quote about a specific situation (with drawing bonds early).
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anon_investor
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

Doc7 wrote: Sat Apr 17, 2021 6:53 pm I said to heck with it and put $20K of my $28K emergency fund in I Bonds over the last two weeks.
Hope you managed to snag the 0.2% fixed rate ones last year like I did! :sharebeer

I wish I had started buying in 2019 when the 0.5% fixed rate ones were available!
GoPackGo
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by GoPackGo »

Doc7 wrote: Sat Apr 17, 2021 6:56 pm The quoted post is only referring to an 11 month investment.... for one year obviously at 0% in the second 6 months, buying in now at 1.68 wins out. Kind of a strange cherry picked quote about a specific situation (with drawing bonds early).
This thread is about switching some amount of emergency funds to I Bonds, which I would expect to be as liquid as possible so treating this as a short (as possible) term investment seemed appropriate to me.
Doc7
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by Doc7 »

anon_investor wrote: Sat Apr 17, 2021 7:02 pm
Doc7 wrote: Sat Apr 17, 2021 6:53 pm I said to heck with it and put $20K of my $28K emergency fund in I Bonds over the last two weeks.
Hope you managed to snag the 0.2% fixed rate ones last year like I did! :sharebeer

I wish I had started buying in 2019 when the 0.5% fixed rate ones were available!


I never even heard of an I Bond until March. This was right when we put our emergency fund on lockdown (it finally hit my target, and we said no more to spending that money down on projects, etc). I put $10K in on the 0/1.68s..... then A day later decided to go another 8..... and then yesterday bit the bullet and did another $2K. I knew if I didn’t, I would spend the next 7 months wondering if I should buy the annual 2021 limit or not, so I decided to head it off at the pass :)
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anon_investor
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

Doc7 wrote: Sat Apr 17, 2021 7:16 pm
anon_investor wrote: Sat Apr 17, 2021 7:02 pm
Doc7 wrote: Sat Apr 17, 2021 6:53 pm I said to heck with it and put $20K of my $28K emergency fund in I Bonds over the last two weeks.
Hope you managed to snag the 0.2% fixed rate ones last year like I did! :sharebeer

I wish I had started buying in 2019 when the 0.5% fixed rate ones were available!


I never even heard of an I Bond until March. This was right when we put our emergency fund on lockdown (it finally hit my target, and we said no more to spending that money down on projects, etc). I put $10K in on the 0/1.68s..... then A day later decided to go another 8..... and then yesterday bit the bullet and did another $2K. I knew if I didn’t, I would spend the next 7 months wondering if I should buy the annual 2021 limit or not, so I decided to head it off at the pass :)
You will enjoy that 3.54% in 6 months!
JBTX
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by JBTX »

as9 wrote: Sat Apr 17, 2021 6:22 pm Any reason i bonds wouldn’t make sense for a retired person holding a lot of cash? Asking for a parent and don’t know a ton about them.
For the most part they seem a no brainer. The only downsides:

1. Money is locked up one year.
2. You lose 3 months of interest if held less than 5 years. Even without 3 months of interest your net yield still easily beats banks or money markets.
3. I'm not sure that savings bonds are the easiest thing in the world to pass upon the death of a spouse. Not an expert here
4. There is no definitive guarantee that treasury direct will reimburse you if your account is hacked and money electronically stolen. They may or may not, but there is nothing that specifically states they will.
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

JBTX wrote: Sat Apr 17, 2021 9:50 pm
as9 wrote: Sat Apr 17, 2021 6:22 pm Any reason i bonds wouldn’t make sense for a retired person holding a lot of cash? Asking for a parent and don’t know a ton about them.
For the most part they seem a no brainer. The only downsides:

1. Money is locked up one year.
2. You lose 3 months of interest if held less than 5 years. Even without 3 months of interest your net yield still easily beats banks or money markets.
3. I'm not sure that savings bonds are the easiest thing in the world to pass upon the death of a spouse. Not an expert here
4. There is no definitive guarantee that treasury direct will reimburse you if your account is hacked and money electronically stolen. They may or may not, but there is nothing that specifically states they will.
If your spouse is a beneficiary listed on the I Bond in your TD account, they just have to submit your death certificate with a form to have the I Bonds transfered to their TD account or bank account info to redeem them.

No you need to mail in a form with a signature guarantee to change address and/or linked bank account, so theft is much harder.
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by #Cruncher »

GoPackGo wrote: Sat Apr 17, 2021 6:07 pm This is mentioned in the TIPS Watch article at https://tipswatch.com/2021/04/15/i-bond ... til-later/.
... Conclusion. If you are looking to invest in an I Bond as a safe place to store cash as an 11-month investment, wait until near the end of May 2021 to invest, then redeem early in May 2022.
This is correct if one assumes the April purchase is redeemed next April and the May purchase is redeemed next May, each with a 3-month penalty. Here is the table from the TIPS Watch article.

Code: Select all

                           First    Second   Overall
                        6 months  6 months  One Year
Invest before May 1        1.68%     3.54%     1.73%  = 1.68% / 2 + 3.54% / 4
Invest near end of May     3.54%     0.00%     1.77%  = 3.54% / 2 + 0.00% / 4
Invest near end of May     3.54%     0.50%     1.90%  = 3.54% / 2 + 0.50% / 4
Invest near end of May     3.54%     1.00%     2.02%  = 3.54% / 2 + 1.00% / 4
Invest near end of May     3.54%     1.50%     2.15%  = 3.54% / 2 + 1.50% / 4
Invest near end of May     3.54%     2.00%     2.27%  = 3.54% / 2 + 2.00% / 4
Invest near end of May     3.54%     2.50%     2.40%  = 3.54% / 2 + 2.50% / 4
Invest near end of May     3.54%     3.00%     2.52%  = 3.54% / 2 + 3.00% / 4
Invest near end of May     3.54%     3.50%     2.65%  = 3.54% / 2 + 3.50% / 4
But a better comparison would be when both purchases are redeemed in the same month. This is particularly so for an emergency fund and we don't know when the money will be needed. The big difference would be April 2022 when the April, but not the May, purchase can first be redeemed. For redemptions in May, June, or July the value of the April purchase will reflect 10 to 12 months of interest after penalty, but the value of the May purchase will reflect only 9 to 11 months.

Here is a table showing the value of an April and a May purchase redeemed in April through August 2022 for each $25 of face value. [1] It shows that a $25 April purchase can be redeemed in May, June, or July of 2022 for $25.51, $25.58, or $25.66 respectively. For a $25 May purchase to be redeemed for about the same amount the next composite rate would need to be 1.0%, 1.5%, or 2.0% respectively.

Code: Select all

  1     Face value     25.00
  2     April rate     1.68%   25.21 <- value Oct 2021 = 25 * 1.0084
  3       May rate     3.54%   25.44 <- value Nov 2021 = 25 * 1.0177
  4    2022 redeem               Apr     May     Jun     Jul     Aug
  5  Less 3 months               Jan     Feb     Mar     Apr     May
  6   April months                 9      10      11      12      13 
  7     May months                         9      10      11      12

Code: Select all

  8            Buy  2nd rate
  9       In April     3.54%   25.43  [25.51] [25.58] [25.66]  ??.?? [2]        
 10         In May     0.00%           25.44   25.44   25.44   25.44
 11         In May     0.50%           25.47   25.48   25.49   25.50
 12         In May    [1.00%]         [25.50]  25.52   25.55   25.57
 13         In May    [1.50%]          25.54  [25.57]  25.60   25.63
 14         In May    [2.00%]          25.57   25.61  [25.65]  25.69 [3]
 15         In May     2.50%           25.60   25.65   25.70   25.76
 16         In May     3.00%           25.63   25.69   25.76   25.82
 17         In May     3.50%           25.66   25.74   25.81   25.89
  1. The value all I Bonds is a multiple of the value of a $25 bond rounded to the nearest penny. So a difference of $0.01 below corresponds to a difference of $4 for a $10,000 purchase. The values for a May purchase are slightly understated since by delaying from April to May one would earn a month's interest. For a 0.5% savings account this amounts to about one penny per $25.
  2. Example calculation of April purchase redeemed in July: 25.66 = 25.21 * (1 + 0.0354 / 2)
    The value of an August redemption would depend on the 2nd composite rate for a May purchase. For example if it was 2%, the value (after penalty) would be: 25.70 = 25.66 * (1 + 0.02 / 2) ^ (1 / 6)
  3. Example calculation of May purchase redeemed in July: 25.65 = 25.44 * (1 + 0.02 / 2) ^ (5 / 6)
Last edited by #Cruncher on Sun Apr 18, 2021 5:17 pm, edited 3 times in total.
an_asker
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by an_asker »

GoPackGo wrote: Sat Apr 17, 2021 6:07 pm This is mentioned in the TIPS Watch article at https://tipswatch.com/2021/04/15/i-bond ... til-later/.
...I’ve presented inflation-adjusted variable rate scenarios ranging from 0.0% to 3.0%, and one thing is very clear: Investing in May will out-perform investing in April in every scenario.

Even if the inflation-adjusted variable rate drops to 0.0% for the second six months, the investor would get a return of 1.77% — and the three-month penalty would be zero, because no interest was earned in the last six months. The Buy-In-May scenarios outperform Buy-in-April scenarios in every case.

Conclusion. If you are looking to invest in an I Bond as a safe place to store cash as an 11-month investment, wait until near the end of May 2021 to invest, then redeem early in May 2022.
It has been a while since I last bought I bonds (Is there a minimum one year holding period? I forget). Wouldn't it be possible to redeem early February 2022 and get that same return in nine months?
BrokerageZelda
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by BrokerageZelda »

an_asker wrote: Sun Apr 18, 2021 2:24 pm It has been a while since I last bought I bonds (Is there a minimum one year holding period? I forget). Wouldn't it be possible to redeem early February 2022 and get that same return in nine months?
I Bonds are totally locked down and un-cashable until the beginning of the twelfth month after issue. If you need the money in nine months, the Treasury will 😂 at you and tell you to wait another three months.

After the first twelve months, though, no restrictions on when you can cash out if you don't mind a 3 month penalty before 5 years.
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anon_investor
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by anon_investor »

BrokerageZelda wrote: Sun Apr 18, 2021 2:42 pm
an_asker wrote: Sun Apr 18, 2021 2:24 pm It has been a while since I last bought I bonds (Is there a minimum one year holding period? I forget). Wouldn't it be possible to redeem early February 2022 and get that same return in nine months?
I Bonds are totally locked down and un-cashable until the beginning of the twelfth month after issue. If you need the money in nine months, the Treasury will 😂 at you and tell you to wait another three months.

After the first twelve months, though, no restrictions on when you can cash out if you don't mind a 3 month penalty before 5 years.
Unless you live in an official disaster-declared area. If you do, TD will let you redeem them early, but you have to contact them, and likely they will match up your address on your account to confirm.
as9
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by as9 »

anon_investor wrote: Sat Apr 17, 2021 11:56 pm
JBTX wrote: Sat Apr 17, 2021 9:50 pm
as9 wrote: Sat Apr 17, 2021 6:22 pm Any reason i bonds wouldn’t make sense for a retired person holding a lot of cash? Asking for a parent and don’t know a ton about them.
For the most part they seem a no brainer. The only downsides:

1. Money is locked up one year.
2. You lose 3 months of interest if held less than 5 years. Even without 3 months of interest your net yield still easily beats banks or money markets.
3. I'm not sure that savings bonds are the easiest thing in the world to pass upon the death of a spouse. Not an expert here
4. There is no definitive guarantee that treasury direct will reimburse you if your account is hacked and money electronically stolen. They may or may not, but there is nothing that specifically states they will.
If your spouse is a beneficiary listed on the I Bond in your TD account, they just have to submit your death certificate with a form to have the I Bonds transfered to their TD account or bank account info to redeem them.

No you need to mail in a form with a signature guarantee to change address and/or linked bank account, so theft is much harder.
Thank you both. Seems like a no-brainer.
dbr
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by dbr »

You can't purchase enough in I bonds at one time to be of much help to this kind of discussion. It's $10k max per person per year unless you finagle with tax refunds.

It can make a lot of sense to systematically build an I bond deposit over time.
an_asker
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Re: Shift some emergency funds to I bonds for 3.54% interest?

Post by an_asker »

BrokerageZelda wrote: Sun Apr 18, 2021 2:42 pm
an_asker wrote: Sun Apr 18, 2021 2:24 pm It has been a while since I last bought I bonds (Is there a minimum one year holding period? I forget). Wouldn't it be possible to redeem early February 2022 and get that same return in nine months?
I Bonds are totally locked down and un-cashable until the beginning of the twelfth month after issue. If you need the money in nine months, the Treasury will 😂 at you and tell you to wait another three months.

After the first twelve months, though, no restrictions on when you can cash out if you don't mind a 3 month penalty before 5 years.
Got it. I had forgotten!
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