I savings bonds for emergency fund

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mrsmitt
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I savings bonds for emergency fund

Post by mrsmitt »

I am very new to I bonds and consider investing 20k of our oversized 90k emergency fund that is currently in CDs.
We should be able to wait for a year in case of an emergency.

Should I consider something else before I purchase I bonds? It looks like the base rate is 0% and the coupon will cover only the inflation rate minus federal tax.
MishkaWorries
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Re: I savings bonds for emergency fund

Post by MishkaWorries »

You got the details right. I can't think of anything out there right now that is better.
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MishkaWorries
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Re: I savings bonds for emergency fund

Post by MishkaWorries »

MishkaWorries wrote: Fri Apr 23, 2021 4:49 pm You got the details right. I can't think of anything out there right now that is better.
On second thought let me change my answer. If you EF is truly oversized, you should take the surplus and invest it in a taxable account at you preferred asset allocation.
We plan. G-d laughs.
jlmitnick
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Re: I savings bonds for emergency fund

Post by jlmitnick »

I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
calwatch
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Re: I savings bonds for emergency fund

Post by calwatch »

jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
It's good because it pays higher interest. You should probably not give up your checking or savings account but few incidents are going to require thousands of dollars immediately in cash (maybe bail money). The three month interest penalty before five years is a concern, but the one year holding period is something to be aware of. Some people choose to use credit card balance transfers to bridge through this period, and eat the 3% fee in the unlikely event they need access to the money beforehand. As far as pulling out the money, it's as easy as the ACH to put the money in and I have taken money in and out of Treasury Direct many times.
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emlowe
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Re: I savings bonds for emergency fund

Post by emlowe »

You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond’s value, you must leave at least $25 in the TreasuryDirect account. Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)
https://www.treasurydirect.gov/indiv/re ... redeem.htm

It may take a couple of days to transfer over to your bank account.

For penalty within 5 years, you only pay a penalty of 3-months interest, which is pretty minimal. Considering the I-Bonds are right now very likely paying more interest than anything else, you are still ahead even with this penalty.
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Ice-9
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Re: I savings bonds for emergency fund

Post by Ice-9 »

jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you can wait the 12 month holding period, yes, it is often worth it. The effective rate even factoring in losing the most recent three months interest often exceeds available savings accounts and CDs.

Yes, once you have your Treasury Direct account set up, you can retrieve the money like you would from an online bank. For me, the transfer is always next day, but it's possible this varies by bank.

The Treasury Direct website is ugly, but it works. If you use a password manager, I'd suggest storing your password in a secure note instead of automatically letting it fill it in for you, because if you get locked out, I hear it's a pain to get back in.

That said, it's been my emergency fund for over a decade, and I'm happy with it.
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MrMars
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Re: I savings bonds for emergency fund

Post by MrMars »

jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
In my mind this is a good vehicle IF you have the extra cash to transition your EF from cash to I Bonds. In other words, and this is what I think I'm going to do..if my EF is for example 30K, but suppose that account actually has 40K in it, I'm going to begin to buy 10K in IBonds this year. Then in 1 year, when the I Bonds are able to be sold, I will keep 20K in cash and 10K in I bonds. Then, the following year, I will buy another 10K in IBonds. When those are eligible to be sold I will then keep 10K in cash and 20K in IBonds. Wash, rinse repeat until the entirety of my EF is IBonds that can be sold in an emergency. Thereby, adding interest (well, maybe someday adding interest) AND protecting that EF from the ravages of inflation over the duration of time that I need to keep an EF.

back of the envelope examples:
30K cash EF over 20 years at 0.5% interest (HYSA) becomes $33000 that thanks to inflation (call it 2.5%) has the buying power in $20200 (2021)

however with that 30K in I Bonds:
over 20 years at 3.5% (I think that's the number I've seen for May '21 purchased bonds) becomes $60700 that has the buying power of $37000 (2021)

This seems like a reasonable way to keep an EF and not lose value due to inflation.
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Re: I savings bonds for emergency fund

Post by SocalLiving »

I Bonds serve a dual purpose as part of our fixed income allocation for retirement as well as our second tier emergency fund. We have built up a ladder of 25k (20k +5k tax refund) each year for the past 5 years, and they have consistently been a better bet than parking cash in our high interest savings account. (We also keep 12 months of cash in our savings account since our income is subject to fluctuation).

Having I bonds has allowed us to not hold bond funds in our taxable and still maintain our 70/30 AA.

I know some people really hate dealing with Treasury Direct, but I don't really have a problem with it.
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dratkinson
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Re: I savings bonds for emergency fund

Post by dratkinson »

Another option. Depending upon how large your EF is, your risk tolerance and tax bracket, you might want to consider a higher-yield tax-efficient bond fund in taxable.


Disclosure.

Before. I used savings bonds (EE+I), bought annual limits, and played annual fed tax refund game. But eventually realized that all of this was much more work than just sending excess money to a bond fund in taxable.

Now. Several years back, I went through a drill to simplify my investments and decided to redeem my savings bonds and buy a LT (long-term) national muni fund. Why?

Muni fund in taxable...
--Higher fed+state tax benefits.
--The major component of bond fund total return comes from dividends; longer durations pay more.
--Longer durations less affected by low- and inverted-yield environments.
--No annual contribution limit.
--Can spend/rebalance monthly dividends.
--One fewer account, no savings bonds memory items due to annual statements/tax documents.
--Will be simpler for my heirs/me to manage when old age cognitive decline sets in.

Risk. Bond funds are more risky than savings bonds, and can lose 5-15% during a crash. My solution is to overfund my taxable bonds to ~120% (=1/(1-.15)) of anticipated need (extended EF tier, home projects, new car,...), and stop worrying.

I did TLH (tax-loss harvest) munis in 2018. It wasn't terrible.

So far, so good.
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tonyclifton
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Re: I savings bonds for emergency fund

Post by tonyclifton »

I don’t think that I Bonds are good for an emergency fund because if you have an emergency, cash in the bonds, then pay it back, you have to wait another year to access the funds.
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Re: I savings bonds for emergency fund

Post by BrokerageZelda »

jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you're asking about partial withdrawals, TreasuryDirect allows that - you can pull only $6000 out of a $10000 bond (that's been held at least a year) and you'll end up with $6000 in your checking account and $4000 and change "remaining" in the original bond, still earning interest.

(One of the handful of advantages that TD has over paper bonds.)
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Re: I savings bonds for emergency fund

Post by Mel Lindauer »

BrokerageZelda wrote: Fri Apr 23, 2021 9:32 pm
jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you're asking about partial withdrawals, TreasuryDirect allows that - you can pull only $6000 out of a $10000 bond (that's been held at least a year) and you'll end up with $6000 in your checking account and $4000 and change "remaining" in the original bond, still earning interest.

(One of the handful of advantages that TD has over paper bonds.)
Actually, with paper bonds, you could redeem six $1000 bonds or one $5000 bond and a $1000 bond, or any other combination of bonds that total $6000. Not a problem. Most folks bought a mix of various denominations when buying paper bonds for this flexibility.
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Re: I savings bonds for emergency fund

Post by ApeAttack »

tonyclifton wrote: Fri Apr 23, 2021 7:22 pm I don’t think that I Bonds are good for an emergency fund because if you have an emergency, cash in the bonds, then pay it back, you have to wait another year to access the funds.
The 10k annual limit forces one to gradually move an EF to I-Bonds. It would be a terrible idea to move an entire EF into something that was illiquid for 1 year.
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1moreyr
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Re: I savings bonds for emergency fund

Post by 1moreyr »

long time mutual fund investor just learning my way on I bonds.
I know it is a T bill but what is the price fluctuation on the bond? I know the rates have been low forever but it rates were to increase the value would drop.

I know this is an open question but how significant is that? Obviously significance is based on rate of interest increase but i am just trying to understand if this is a good EF vehicle.
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Re: I savings bonds for emergency fund

Post by tonyclifton »

ApeAttack wrote: Sat Apr 24, 2021 5:59 am The 10k annual limit forces one to gradually move an EF to I-Bonds. It would be a terrible idea to move an entire EF into something that was illiquid for 1 year.
Agreed! I think one leap of logic is that emergency funds are not often used (therefore a drag on returns) so put the money in I Bonds. Maybe instead of advising to put an emergency fund into I Bonds it is better advice to buy I Bonds before other types of fixed income.

And to know, that after 1 year, I Bonds can be tapped in the event of an emergency - much like Roth contributions can be withdrawn in an emergency.
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Re: I savings bonds for emergency fund

Post by BrokerageZelda »

1moreyr wrote: Sat Apr 24, 2021 7:37 am long time mutual fund investor just learning my way on I bonds.
I know it is a T bill but what is the price fluctuation on the bond? I know the rates have been low forever but it rates were to increase the value would drop.

I know this is an open question but how significant is that? Obviously significance is based on rate of interest increase but i am just trying to understand if this is a good EF vehicle.
An I Bond falls under the umbrella of 'Treasury securities' - a T-Bill is one type of Treasury security, other types include TIPS, T-Bonds, T-Notes, and Savings Bonds. The different types of Treasury securities have different rules on how they're bought and sold, and how they earn interest.

The 'marketable securities' like T-Bills are able to be resold, and so their resale price fluctuates based on changing interest rates. Series I and Series EE Savings Bonds are non-marketable and non-transferable, meaning that in practice they're more like government-run CDs. Unlike with conventional bonds, their 'resale price' cannot go down when interest rates change because there is no concept of resale, only redemption.

more info: https://www.bogleheads.org/wiki/I_savings_bonds
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Re: I savings bonds for emergency fund

Post by vineviz »

1moreyr wrote: Sat Apr 24, 2021 7:37 am long time mutual fund investor just learning my way on I bonds.
I know it is a T bill but what is the price fluctuation on the bond? I know the rates have been low forever but it rates were to increase the value would drop.

I know this is an open question but how significant is that? Obviously significance is based on rate of interest increase but i am just trying to understand if this is a good EF vehicle.
I'd put the emphasis on the word "savings" in savings bonds, since in many ways they function more like a deposit account at a bank than like a typical bond.

Specifically, there is no price fluctuation on savings bonds in the traditional sense. The price can never go down: it will only every go up, and will go up based entirely on the rate of interest the savings bond is earning at that time.

This is part of what makes them such good places to park emergency cash. Keep in mind the limitation on redeeming in the first 12 months, but otherwise they are definitely a good EF vehicle.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: I savings bonds for emergency fund

Post by ApeAttack »

vineviz wrote: Sat Apr 24, 2021 8:31 am
1moreyr wrote: Sat Apr 24, 2021 7:37 am long time mutual fund investor just learning my way on I bonds.
I know it is a T bill but what is the price fluctuation on the bond? I know the rates have been low forever but it rates were to increase the value would drop.

I know this is an open question but how significant is that? Obviously significance is based on rate of interest increase but i am just trying to understand if this is a good EF vehicle.
I'd put the emphasis on the word "savings" in savings bonds, since in many ways they function more like a deposit account at a bank than like a typical bond.

Specifically, there is no price fluctuation on savings bonds in the traditional sense. The price can never go down: it will only every go up, and will go up based entirely on the rate of interest the savings bond is earning at that time.

This is part of what makes them such good places to park emergency cash. Keep in mind the limitation on redeeming in the first 12 months, but otherwise they are definitely a good EF vehicle.
I look at I and EE Bonds as fancy CDs (an incomplete amalogy, I know). There is a penalty if you withdraw too early (5 years for I-Bonds, 20 years for EE-Bonds) but you will never lose money in nomimal terms.
May all your index funds gain +0.5% today.
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Re: I savings bonds for emergency fund

Post by ApeAttack »

tonyclifton wrote: Maybe instead of advising to put an emergency fund into I Bonds it is better advice to buy I Bonds before other types of fixed income.
I am temporarily increasing the cash portion of my EF by the amount of I-Bonds that are 0-1 years old. For example, if my desired EF is 50k, and I want to buy 5k of I-Bonds, I would have 55k cash EF prior to the purchase. During the next year I would be 50k cash and 5k illiquid I-Bonds.

One year later, my EF becomes 55k (50k cash, 5k liquid I-Bonds), and I can purchase another 5k with cash. Then I am back down to 50k liquid EF for the next year (45k cash, 5k liquid I-Bond, 5k illiquid-I-Bond). And repeat each year until I have the desired amount of I-Bonds.
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mrsmitt
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Re: I savings bonds for emergency fund

Post by mrsmitt »

Thanks, everyone. This is all really good info.

I just scheduled five $2k purchases of i-Bonds for the next week. I need to do the same for my wife. It looks like this is a good vehicle to park some EF $ for now.

Do you have any suggestions on how to manage multiple i-Bonds? Will a $2k bond purchase make more sense or should I go even lower - $1k? I am new to TreasuryDirect. Do I need to create a separate account for my wife? Is it possible to link accounts and manage everything from one place?
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anon_investor
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Re: I savings bonds for emergency fund

Post by anon_investor »

mrsmitt wrote: Sat Apr 24, 2021 1:04 pm Thanks, everyone. This is all really good info.

I just scheduled five $2k purchases of i-Bonds for the next week. I need to do the same for my wife. It looks like this is a good vehicle to park some EF $ for now.

Do you have any suggestions on how to manage multiple i-Bonds? Will a $2k bond purchase make more sense or should I go even lower - $1k? I am new to TreasuryDirect. Do I need to create a separate account for my wife? Is it possible to link accounts and manage everything from one place?
No reason not to do one $10k purchase in each account. You can redeem partial amounts from the $10k after the 1 year holding period is over.
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Re: I savings bonds for emergency fund

Post by BrokerageZelda »

mrsmitt wrote: Sat Apr 24, 2021 1:04 pm Do I need to create a separate account for my wife? Is it possible to link accounts and manage everything from one place?
For individual accounts, it's one login per SSN, so you'll need another account for your wife. If you have bonds in each other's accounts registered with the other partner as Primary/Secondary (A WITH B), you can "assign View/Transact rights" to each other - there are instruction pages on TreasuryDirect about how to do that.
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Re: I savings bonds for emergency fund

Post by slowandsteadywins »

I have about 25% of my emergency fund moved into I-Bonds, and plan to do 25% each year after the initial 12 month period where one cannot access it at all. Part of me wants to put all $10,000 / year and on the chance a true emergency occurs, I could use my Portfolio's "Borrow" function up to 30% of my portfolio with an effective federal funds rate +3.60% interest owed. Thoughts on this? - I welcome feedback.

edit 1: Just realized Thrift Savings Plan also offers loans repayable within 1-5 years with a $50 charge for admin fees, and then loan rate equal to the G Fund's rate at time of the loan. Not bad! That is likely better than the borrow option with Wealthfront/brokerage.
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Re: I savings bonds for emergency fund

Post by vineviz »

mrsmitt wrote: Sat Apr 24, 2021 1:04 pm Thanks, everyone. This is all really good info.

I just scheduled five $2k purchases of i-Bonds for the next week. I need to do the same for my wife. It looks like this is a good vehicle to park some EF $ for now.

Do you have any suggestions on how to manage multiple i-Bonds? Will a $2k bond purchase make more sense or should I go even lower - $1k? I am new to TreasuryDirect. Do I need to create a separate account for my wife? Is it possible to link accounts and manage everything from one place?
I'd stick with $5k or $10k purchases, just to simplify your bookkeeping in the future.

Since we're close to the end of the month, it wouldn't be crazy to buy $5k this week and $5k after May 1st.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
1moreyr
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Re: I savings bonds for emergency fund

Post by 1moreyr »

BrokerageZelda wrote: Sat Apr 24, 2021 8:30 am
1moreyr wrote: Sat Apr 24, 2021 7:37 am long time mutual fund investor just learning my way on I bonds.
I know it is a T bill but what is the price fluctuation on the bond? I know the rates have been low forever but it rates were to increase the value would drop.

I know this is an open question but how significant is that? Obviously significance is based on rate of interest increase but i am just trying to understand if this is a good EF vehicle.
An I Bond falls under the umbrella of 'Treasury securities' - a T-Bill is one type of Treasury security, other types include TIPS, T-Bonds, T-Notes, and Savings Bonds. The different types of Treasury securities have different rules on how they're bought and sold, and how they earn interest.

The 'marketable securities' like T-Bills are able to be resold, and so their resale price fluctuates based on changing interest rates. Series I and Series EE Savings Bonds are non-marketable and non-transferable, meaning that in practice they're more like government-run CDs. Unlike with conventional bonds, their 'resale price' cannot go down when interest rates change because there is no concept of resale, only redemption.

more info: https://www.bogleheads.org/wiki/I_savings_bonds
Thank you that was very helpful I think it's time to pull the trigger.
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Re: I savings bonds for emergency fund

Post by Cosmo »

Mel Lindauer wrote: Sat Apr 24, 2021 12:44 am
BrokerageZelda wrote: Fri Apr 23, 2021 9:32 pm
jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you're asking about partial withdrawals, TreasuryDirect allows that - you can pull only $6000 out of a $10000 bond (that's been held at least a year) and you'll end up with $6000 in your checking account and $4000 and change "remaining" in the original bond, still earning interest.

(One of the handful of advantages that TD has over paper bonds.)
Actually, with paper bonds, you could redeem six $1000 bonds or one $5000 bond and a $1000 bond, or any other combination of bonds that total $6000. Not a problem. Most folks bought a mix of various denominations when buying paper bonds for this flexibility.
I find it a little unsettling that banks are getting very reluctant in cashing paper iBonds. My local WF branch won't touch them.
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anon_investor
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Re: I savings bonds for emergency fund

Post by anon_investor »

Cosmo wrote: Sat Apr 24, 2021 7:22 pm
Mel Lindauer wrote: Sat Apr 24, 2021 12:44 am
BrokerageZelda wrote: Fri Apr 23, 2021 9:32 pm
jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you're asking about partial withdrawals, TreasuryDirect allows that - you can pull only $6000 out of a $10000 bond (that's been held at least a year) and you'll end up with $6000 in your checking account and $4000 and change "remaining" in the original bond, still earning interest.

(One of the handful of advantages that TD has over paper bonds.)
Actually, with paper bonds, you could redeem six $1000 bonds or one $5000 bond and a $1000 bond, or any other combination of bonds that total $6000. Not a problem. Most folks bought a mix of various denominations when buying paper bonds for this flexibility.
I find it a little unsettling that banks are getting very reluctant in cashing paper iBonds. My local WF branch won't touch them.
You can always mail them in to get them added to your TD account!
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Re: I savings bonds for emergency fund

Post by ivgrivchuck »

mrsmitt wrote: Sat Apr 24, 2021 1:04 pm Thanks, everyone. This is all really good info.

I just scheduled five $2k purchases of i-Bonds for the next week. I need to do the same for my wife. It looks like this is a good vehicle to park some EF $ for now.

Do you have any suggestions on how to manage multiple i-Bonds? Will a $2k bond purchase make more sense or should I go even lower - $1k? I am new to TreasuryDirect. Do I need to create a separate account for my wife? Is it possible to link accounts and manage everything from one place?
I purchase them in $10k chunks for myself and my wife. For our kids I use $5k chunks.

Anything smaller is just too inconvenient for me.

You and your wife need to have separate accounts.
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calwatch
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Re: I savings bonds for emergency fund

Post by calwatch »

anon_investor wrote: Sat Apr 24, 2021 7:30 pm
Cosmo wrote: Sat Apr 24, 2021 7:22 pm
Mel Lindauer wrote: Sat Apr 24, 2021 12:44 am
BrokerageZelda wrote: Fri Apr 23, 2021 9:32 pm
jlmitnick wrote: Fri Apr 23, 2021 5:21 pm I’m seeing a lot of posts about using I bonds for emergency fund. I’m new to Ibonds myself. I think of an emergency fund as something to have in case you have an unplanned large expense. Why is this a good vehicle as opposed to cash in a savings account or checking account? It seems like you need to hold for 1 year before you’re even allowed to get your money out and 5 years to do so without forfeiting any interest. Also is it really that liquid? Let’s say I buy $10,000 of I bonds each year the next 3 years. In year three I need $6000 to pay for a repair. Is it easy to just pull $6000 out of the bonds and into checking account?
If you're asking about partial withdrawals, TreasuryDirect allows that - you can pull only $6000 out of a $10000 bond (that's been held at least a year) and you'll end up with $6000 in your checking account and $4000 and change "remaining" in the original bond, still earning interest.

(One of the handful of advantages that TD has over paper bonds.)
Actually, with paper bonds, you could redeem six $1000 bonds or one $5000 bond and a $1000 bond, or any other combination of bonds that total $6000. Not a problem. Most folks bought a mix of various denominations when buying paper bonds for this flexibility.
I find it a little unsettling that banks are getting very reluctant in cashing paper iBonds. My local WF branch won't touch them.
You can always mail them in to get them added to your TD account!
I take my tax refund I Bonds and mail them to TD within days of receiving them.
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mrsmitt
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Re: I savings bonds for emergency fund

Post by mrsmitt »

Thanks for the info. I just canceled my scheduled purchases and will probably go with 10k this month and 10k next month for my wife.
anon_investor wrote: Sat Apr 24, 2021 1:10 pm No reason not to do one $10k purchase in each account. You can redeem partial amounts from the $10k after the 1 year holding period is over.
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mrsmitt
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Re: I savings bonds for emergency fund

Post by mrsmitt »

Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?

Lol, it is funny that I have to chase a 1.68% yield. However, in a long run, it should preserve capital in EF.
vineviz wrote: Sat Apr 24, 2021 4:14 pm Since we're close to the end of the month, it wouldn't be crazy to buy $5k this week and $5k after May 1st.
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Re: I savings bonds for emergency fund

Post by WolfgangPauli »

emlowe wrote: Fri Apr 23, 2021 5:31 pm
You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond’s value, you must leave at least $25 in the TreasuryDirect account. Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)
https://www.treasurydirect.gov/indiv/re ... redeem.htm

It may take a couple of days to transfer over to your bank account.

For penalty within 5 years, you only pay a penalty of 3-months interest, which is pretty minimal. Considering the I-Bonds are right now very likely paying more interest than anything else, you are still ahead even with this penalty.
Just a clarifier.. the penalty is the last three months of interest. The reason why this is important is if the economy every really tanks like it did in 2009 and your inflation goes negative and eats your fixed rate to 0 you will essentially pay no penalty. So, let's say the fixed rate is .10 and inflation turns into deflation of 1%. Then your rate on your bond will go to 0 (ibonds, unlike TIPS, never go below 0). If you go three months at 0% then cash them out you effectively have no penalty.

Just some more protection in a real down turn.
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Re: I savings bonds for emergency fund

Post by anon_investor »

mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?

Lol, it is funny that I have to chase a 1.68% yield. However, in a long run, it should preserve capital in EF.
vineviz wrote: Sat Apr 24, 2021 4:14 pm Since we're close to the end of the month, it wouldn't be crazy to buy $5k this week and $5k after May 1st.
That is what we are doing, buying in May.
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Re: I savings bonds for emergency fund

Post by ivgrivchuck »

mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?
I believe that's what most people are intending to do...
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Re: I savings bonds for emergency fund

Post by ApeAttack »

ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm
mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?
I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
Last edited by ApeAttack on Sun Apr 25, 2021 12:09 am, edited 1 time in total.
May all your index funds gain +0.5% today.
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Re: I savings bonds for emergency fund

Post by ApeAttack »

WolfgangPauli wrote: Sat Apr 24, 2021 10:46 pm
emlowe wrote: Fri Apr 23, 2021 5:31 pm
You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond’s value, you must leave at least $25 in the TreasuryDirect account. Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)
https://www.treasurydirect.gov/indiv/re ... redeem.htm

It may take a couple of days to transfer over to your bank account.

For penalty within 5 years, you only pay a penalty of 3-months interest, which is pretty minimal. Considering the I-Bonds are right now very likely paying more interest than anything else, you are still ahead even with this penalty.
Just a clarifier.. the penalty is the last three months of interest. The reason why this is important is if the economy every really tanks like it did in 2009 and your inflation goes negative and eats your fixed rate to 0 you will essentially pay no penalty. So, let's say the fixed rate is .10 and inflation turns into deflation of 1%. Then your rate on your bond will go to 0 (ibonds, unlike TIPS, never go below 0). If you go three months at 0% then cash them out you effectively have no penalty.

Just some more protection in a real down turn.
I hadn't thought of that. Another reason to get I Bonds.
May all your index funds gain +0.5% today.
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Re: I savings bonds for emergency fund

Post by anon_investor »

ApeAttack wrote: Sun Apr 25, 2021 12:08 am
ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm
mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?
I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
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Re: I savings bonds for emergency fund

Post by ApeAttack »

anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am
ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm
mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?
I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
May all your index funds gain +0.5% today.
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Re: I savings bonds for emergency fund

Post by anon_investor »

ApeAttack wrote: Sun Apr 25, 2021 12:46 am
anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am
ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm
mrsmitt wrote: Sat Apr 24, 2021 10:37 pm Good point, as the May 1st rate will likely be higher due to the increasing inflation. Should I make both 10k purchases in May?
I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
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Re: I savings bonds for emergency fund

Post by SmileyFace »

anon_investor wrote: Sun Apr 25, 2021 6:29 am
ApeAttack wrote: Sun Apr 25, 2021 12:46 am
anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am
ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm

I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Everyone always says this in this threads but for me this would be savings of less than a dollar (10000*0.5%/12) - not worth thinking about.
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Re: I savings bonds for emergency fund

Post by anon_investor »

SmileyFace wrote: Sun Apr 25, 2021 7:01 am
anon_investor wrote: Sun Apr 25, 2021 6:29 am
ApeAttack wrote: Sun Apr 25, 2021 12:46 am
anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am

I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Everyone always says this in this threads but for me this would be savings of less than a dollar (10000*0.5%/12) - not worth thinking about.
On our $20k it is about $5-6 after tax. Yes not a lot, but free $ and causes me no inconvenience to schedule a future purchase date.
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Re: I savings bonds for emergency fund

Post by ApeAttack »

anon_investor wrote: Sun Apr 25, 2021 6:29 am
ApeAttack wrote: Sun Apr 25, 2021 12:46 am
anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am
ivgrivchuck wrote: Sat Apr 24, 2021 11:15 pm

I believe that's what most people are intending to do...
I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Ooo... I didn't know that. Probably won't make much of a difference, but it does take a little pressure off of timing the purchase.
May all your index funds gain +0.5% today.
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Re: I savings bonds for emergency fund

Post by anon_investor »

ApeAttack wrote: Sun Apr 25, 2021 11:35 am
anon_investor wrote: Sun Apr 25, 2021 6:29 am
ApeAttack wrote: Sun Apr 25, 2021 12:46 am
anon_investor wrote: Sun Apr 25, 2021 12:22 am
ApeAttack wrote: Sun Apr 25, 2021 12:08 am

I'm waiting until early May. It makes me feel better to get double the interest for 6 months compared to buying now.
That is why we are waiting until May.
And thus... May.
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Ooo... I didn't know that. Probably won't make much of a difference, but it does take a little pressure off of timing the purchase.
Just one of the tricks of buying I Bonds. If you buy at the end of the month and redeem at the beginning of a month you can effectively reduce the true interest rate penalty to almost 2 months (instead of 3 months).
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Re: I savings bonds for emergency fund

Post by mrsmitt »

Thanks! This is a great tip.

How does it work with a 12 month lockup period. Do you have to wait 365 days from the time of purchase or can I sell any time in May 2022 if purchased at the end of May 2021?

anon_investor wrote: Sun Apr 25, 2021 6:29 am
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
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Re: I savings bonds for emergency fund

Post by BrokerageZelda »

mrsmitt wrote: Mon Apr 26, 2021 2:25 pm Thanks! This is a great tip.

How does it work with a 12 month lockup period. Do you have to wait 365 days from the time of purchase or can I sell any time in May 2022 if purchased at the end of May 2021?

anon_investor wrote: Sun Apr 25, 2021 6:29 am
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Treasury backdates the issue date to the first day of whatever month you buy it in. So an I Bond purchased on May 29 will have an issue date of May 1, and you can therefore pay it out on May 1 the following year.
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Re: I savings bonds for emergency fund

Post by Mel Lindauer »

BrokerageZelda wrote: Mon Apr 26, 2021 2:44 pm
mrsmitt wrote: Mon Apr 26, 2021 2:25 pm Thanks! This is a great tip.

How does it work with a 12 month lockup period. Do you have to wait 365 days from the time of purchase or can I sell any time in May 2022 if purchased at the end of May 2021?

anon_investor wrote: Sun Apr 25, 2021 6:29 am
We are actually waiting until the last week of May, since you get May's interest from I Bonds whether you buy on May 1 or the last day of May.
Treasury backdates the issue date to the first day of whatever month you buy it in. So an I Bond purchased on May 29 will have an issue date of May 1, and you can therefore pay it out on May 1 the following year.
And you'll also get May's interest rate if you buy on the last day of April. It will just kick in in Nov after getting the current attractive rate of 1.64% for the first six months.
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Re: I savings bonds for emergency fund

Post by framus »

Setting up a Treasury Direct account experience:

The website is ok with one exception.
I use a password manager (1password) and the complex passwords that it automagically generates.
Unfortunately, the TD site wants a user to use a virtual keyboard to input one's TD account password. This is a measure that discourages complex, abstract passwords.
I couldn't find a way to autofill the password field and had to fall back to a less complex password that can be manually input using the site's virtual keyboard.
If someone knows of a way to work around this drawback that would be helpful.

It wasn't clear to me how one designates a beneficiary or a secondary account holder. I wasn't able to discover this information on the TD website.
I phoned to find out how this works and the helpful person who answered explained that these designations are made when bonds are purchased.

-Framus
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Re: I savings bonds for emergency fund

Post by vineviz »

framus wrote: Mon Apr 26, 2021 4:41 pm I couldn't find a way to autofill the password field and had to fall back to a less complex password that can be manually input using the site's virtual keyboard.
If someone knows of a way to work around this drawback that would be helpful.
Safari has no trouble auto filling my TD password.
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Re: I savings bonds for emergency fund

Post by framus »

vineviz wrote: Mon Apr 26, 2021 4:50 pm
framus wrote: Mon Apr 26, 2021 4:41 pm I couldn't find a way to autofill the password field and had to fall back to a less complex password that can be manually input using the site's virtual keyboard.
If someone knows of a way to work around this drawback that would be helpful.
Safari has no trouble auto filling my TD password.
Does Safari merely fill the field that shows up above the virtual keyboard?
I try to only have my passwords retained in my password manager but I'll try using safari for this.

-Framus
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