Vwiux or 0.5 % online Savings

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Topic Author
Jimsad
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Vwiux or 0.5 % online Savings

Post by Jimsad »

I want to contribute about 30k toward the fixed income side of my allocation
I know the bond returns have been bad but vwiux is still about 1.28% YTD return . So am I better off contributing to this versus in a 0.5 % online savings account ?
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zaplunken
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Re: Vwiux or 0.5 % online Savings

Post by zaplunken »

I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Topic Author
Jimsad
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Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
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anon_investor
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Re: Vwiux or 0.5 % online Savings

Post by anon_investor »

Jimsad wrote: Sun Sep 19, 2021 8:06 pm
zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
patrick
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Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Vwiux or 0.5 % online Savings

Post by patrick »

You can get much better than 0.5% in checking/savings accounts:

1% with no limit - T-Mobile Money
2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions (bill pays qualify) per month
2.25% on the first $25,000 - Presidential Bank, requires $500 in direct deposits and 7 withdrawal transactions (bill pays qualify) per month, minimum balance $500
3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate
3% on 10% of direct deposits - One Finance, max $1,000 per month into the 3% account, the rest only gets 1% but can be spent or withdrawn
3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month and a monthly electronic deposit
4.07% on the first $7,500 - Genisys Credit Union, requires 10 debit card purchase per month of at least $5 each
5% on the first $500 and 3% on another $3,000 - Service Credit Union
6.17% on the first $1,000 - Digital Credit Union
Topic Author
Jimsad
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Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

anon_investor wrote: Sun Sep 19, 2021 8:09 pm
Jimsad wrote: Sun Sep 19, 2021 8:06 pm
zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
User avatar
zaplunken
Posts: 1368
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Re: Vwiux or 0.5 % online Savings

Post by zaplunken »

Jimsad wrote: Sun Sep 19, 2021 8:23 pm
anon_investor wrote: Sun Sep 19, 2021 8:09 pm
Jimsad wrote: Sun Sep 19, 2021 8:06 pm
zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
Correct not liquid.
Ron Ronnerson
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Location: Bay Area

Re: Vwiux or 0.5 % online Savings

Post by Ron Ronnerson »

Jimsad wrote: Sun Sep 19, 2021 8:23 pm
anon_investor wrote: Sun Sep 19, 2021 8:09 pm
Jimsad wrote: Sun Sep 19, 2021 8:06 pm
zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Topic Author
Jimsad
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Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

Ron Ronnerson wrote: Sun Sep 19, 2021 8:39 pm
Jimsad wrote: Sun Sep 19, 2021 8:23 pm
anon_investor wrote: Sun Sep 19, 2021 8:09 pm
Jimsad wrote: Sun Sep 19, 2021 8:06 pm
zaplunken wrote: Sun Sep 19, 2021 7:59 pm I have both and have been using the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (ITTE) for just over 1 year. It's kind of an apples to oranges comparison. The yield on the online savings is 50 bp but there is no nav changing whereas there is with the ITTE. You could lose money if rates went up a fair amount and at just 20 bp higher yield for the ITTE it wouldn't take much to have less than you put into the fund. The interest on the online savings is taxable whereas it is not on the ITTE but short and long term cap gains are taxable on ITTE fund. It would be best to specify specific id for the cost basis (I assume you are holding it in a taxable/trust account) so you can pick what shares to sell vs just transferring money out of the online savings account. I'm in the 12% federal and no state tax bracket but when RMDs start my income will double and I expect to jump to the 22% bracket and have to pay state income tax too so I want to minimize any income that I can.
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Is it because their yield is higher now ?
UpperNwGuy
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Joined: Sun Oct 08, 2017 7:16 pm

Re: Vwiux or 0.5 % online Savings

Post by UpperNwGuy »

patrick wrote: Sun Sep 19, 2021 8:12 pm You can get much better than 0.5% in checking/savings accounts:

1% with no limit - T-Mobile Money
2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions (bill pays qualify) per month
2.25% on the first $25,000 - Presidential Bank, requires $500 in direct deposits and 7 withdrawal transactions (bill pays qualify) per month, minimum balance $500
3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate
3% on 10% of direct deposits - One Finance, max $1,000 per month into the 3% account, the rest only gets 1% but can be spent or withdrawn
3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month and a monthly electronic deposit
4.07% on the first $7,500 - Genisys Credit Union, requires 10 debit card purchase per month of at least $5 each
5% on the first $500 and 3% on another $3,000 - Service Credit Union
6.17% on the first $1,000 - Digital Credit Union
Are all of these insured by FDIC or NCUA?
Ron Ronnerson
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Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Vwiux or 0.5 % online Savings

Post by Ron Ronnerson »

Jimsad wrote: Sun Sep 19, 2021 8:41 pm
Ron Ronnerson wrote: Sun Sep 19, 2021 8:39 pm
Jimsad wrote: Sun Sep 19, 2021 8:23 pm
anon_investor wrote: Sun Sep 19, 2021 8:09 pm
Jimsad wrote: Sun Sep 19, 2021 8:06 pm
Thanks for your response . To put in another way , in the present environment. I am wondering whether VWIUX or online Savings is the better option
Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Is it because their yield is higher now ?
Yes, they are currently paying 3.54%. If you buy before November 1st, you'll get this rate for six months. For the next six months, you'll get a different rate. I believe it is estimated to be around 6.5% or thereabouts due to inflation. You must hold I bonds for a minimum of one year. If you sell them between 1 and 5 years, you lose 3 months of interest. The interest that is accrued for the month is the same regardless of what day of the month you make the purchase so you can effectively reduce the penalty of 3 months of interest to about 2 months by making the purchase toward the end of the month.

You're allowed to purchase $10k per year electronically per social security number. So a married couple could essentially buy $40k worth of I bonds between now and the beginning part of January ($10k for 2021 and $10k for 2022 times two people). You can also increase the amount you may contribute by $5k/year if you apply your tax refund toward paper I bonds. If you have a trust, that can further increase the limit by another $10k/year.

I did a cash-out mortgage refinance earlier this year (30-year loan at 2.375% at no cost for the refi). I'm in the process of putting some of the equity I took out into I Bonds which will soon be paying about 3x the rate of my mortgage. We're keeping it simple with my wife and I just buying the max now and the max in January. We are not establishing an account in the name of our trust or dealing with paper bonds.
Ron Ronnerson
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Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Vwiux or 0.5 % online Savings

Post by Ron Ronnerson »

patrick wrote: Sun Sep 19, 2021 8:12 pm You can get much better than 0.5% in checking/savings accounts:

1% with no limit - T-Mobile Money
2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions (bill pays qualify) per month
2.25% on the first $25,000 - Presidential Bank, requires $500 in direct deposits and 7 withdrawal transactions (bill pays qualify) per month, minimum balance $500
3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate
3% on 10% of direct deposits - One Finance, max $1,000 per month into the 3% account, the rest only gets 1% but can be spent or withdrawn
3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month and a monthly electronic deposit
4.07% on the first $7,500 - Genisys Credit Union, requires 10 debit card purchase per month of at least $5 each
5% on the first $500 and 3% on another $3,000 - Service Credit Union
6.17% on the first $1,000 - Digital Credit Union
My wife and I each have the last two on the list: Service Credit Union and Digital Credit Union. I also have an account at Blue Federal Credit Union which pays 5% on the first $1k and 1% on the next $4k. None of these accounts require any action on our part to earn the rate (no minimum spending, no monthly transfers or direct deposit requirement, no minimum number of monthly debit card transactions, no monthly log-in requirements).

They are for limited dollar amounts and having a bunch of accounts does add complexity. However, if you're willing to deal with a bunch of accounts, you can earn a better return on some of your money. Also, all these credit union accounts that I have are insured by NCUA. Some of them took a while to open up (filling out paperwork and whatnot) but they are on auto-pilot now as nothing needs to be done to earn the higher rate. Beware, though. They can change the rates at any time that they want.
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AnnetteLouisan
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Location: New York, NY

Re: Vwiux or 0.5 % online Savings

Post by AnnetteLouisan »

Good question. And relatedly, why is HMBradley paying 3 percent on savings and why is it by invitation only???!!!
Topic Author
Jimsad
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Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

Ron Ronnerson wrote: Sun Sep 19, 2021 9:13 pm
Jimsad wrote: Sun Sep 19, 2021 8:41 pm
Ron Ronnerson wrote: Sun Sep 19, 2021 8:39 pm
Jimsad wrote: Sun Sep 19, 2021 8:23 pm
anon_investor wrote: Sun Sep 19, 2021 8:09 pm

Buy I Bonds, no brainer for a taxable account right now.
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Is it because their yield is higher now ?
Yes, they are currently paying 3.54%. If you buy before November 1st, you'll get this rate for six months. For the next six months, you'll get a different rate. I believe it is estimated to be around 6.5% or thereabouts due to inflation. You must hold I bonds for a minimum of one year. If you sell them between 1 and 5 years, you lose 3 months of interest. The interest that is accrued for the month is the same regardless of what day of the month you make the purchase so you can effectively reduce the penalty of 3 months of interest to about 2 months by making the purchase toward the end of the month.

You're allowed to purchase $10k per year electronically per social security number. So a married couple could essentially buy $40k worth of I bonds between now and the beginning part of January ($10k for 2021 and $10k for 2022 times two people). You can also increase the amount you may contribute by $5k/year if you apply your tax refund toward paper I bonds. If you have a trust, that can further increase the limit by another $10k/year.

I did a cash-out mortgage refinance earlier this year (30-year loan at 2.375% at no cost for the refi). I'm in the process of putting some of the equity I took out into I Bonds which will soon be paying about 3x the rate of my mortgage. We're keeping it simple with my wife and I just buying the max now and the max in January. We are not establishing an account in the name of our trust or dealing with paper bonds.
Thank you .
What is the best way to buy them ? Also we have to pay ordinary tax on the earnings when withdrawn except for few ‘qualified ‘ withdrawals like for education ; correct ?
Ron Ronnerson
Posts: 3559
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Vwiux or 0.5 % online Savings

Post by Ron Ronnerson »

Jimsad wrote: Mon Sep 20, 2021 5:04 am
Ron Ronnerson wrote: Sun Sep 19, 2021 9:13 pm
Jimsad wrote: Sun Sep 19, 2021 8:41 pm
Ron Ronnerson wrote: Sun Sep 19, 2021 8:39 pm
Jimsad wrote: Sun Sep 19, 2021 8:23 pm
But aren’t I bonds more for long term and not as liquid as these other 2 options ?
You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Is it because their yield is higher now ?
Yes, they are currently paying 3.54%. If you buy before November 1st, you'll get this rate for six months. For the next six months, you'll get a different rate. I believe it is estimated to be around 6.5% or thereabouts due to inflation. You must hold I bonds for a minimum of one year. If you sell them between 1 and 5 years, you lose 3 months of interest. The interest that is accrued for the month is the same regardless of what day of the month you make the purchase so you can effectively reduce the penalty of 3 months of interest to about 2 months by making the purchase toward the end of the month.

You're allowed to purchase $10k per year electronically per social security number. So a married couple could essentially buy $40k worth of I bonds between now and the beginning part of January ($10k for 2021 and $10k for 2022 times two people). You can also increase the amount you may contribute by $5k/year if you apply your tax refund toward paper I bonds. If you have a trust, that can further increase the limit by another $10k/year.

I did a cash-out mortgage refinance earlier this year (30-year loan at 2.375% at no cost for the refi). I'm in the process of putting some of the equity I took out into I Bonds which will soon be paying about 3x the rate of my mortgage. We're keeping it simple with my wife and I just buying the max now and the max in January. We are not establishing an account in the name of our trust or dealing with paper bonds.
Thank you .
What is the best way to buy them ? Also we have to pay ordinary tax on the earnings when withdrawn except for few ‘qualified ‘ withdrawals like for education ; correct ?
You can buy I bonds through Treasury Direct.

Take a look at these links for more details:

https://www.bogleheads.org/wiki/I_savings_bonds

https://www.treasurydirect.gov/indiv/re ... dterms.htm

You’re correct about the tax treatment but there are some important things to consider. For example, even in a high bracket, I bonds are quite likely to return more than you can probably get elsewhere at the moment (meaning the next year or so). Still, the benefit is greater to those in lower federal tax brackets. Also, you don’t pay state income tax on them so the benefit is greater to those in high state income tax brackets.

If your AGI is below a certain number (see the links for the details, including phase out range), then you can avoid paying tax if used for qualified education expenses. Contributions to 529 plans count. It’s sort of a lot of rules and I may have missed something so it’s best to take the time to read the information in the links above yourself.

I am not an expert on I bonds, but just someone who recognizes them to be a particularly good deal at the moment.
Topic Author
Jimsad
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Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

Thank you .
I am in a high tax bracket but probably worth adding some O binds as I have none now
Topic Author
Jimsad
Posts: 903
Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

Ron Ronnerson wrote: Mon Sep 20, 2021 9:01 am
Jimsad wrote: Mon Sep 20, 2021 5:04 am
Ron Ronnerson wrote: Sun Sep 19, 2021 9:13 pm
Jimsad wrote: Sun Sep 19, 2021 8:41 pm
Ron Ronnerson wrote: Sun Sep 19, 2021 8:39 pm

You must hold them for at least a year but I bonds are a great suggestion. I recommend looking into them as well.
Is it because their yield is higher now ?
Yes, they are currently paying 3.54%. If you buy before November 1st, you'll get this rate for six months. For the next six months, you'll get a different rate. I believe it is estimated to be around 6.5% or thereabouts due to inflation. You must hold I bonds for a minimum of one year. If you sell them between 1 and 5 years, you lose 3 months of interest. The interest that is accrued for the month is the same regardless of what day of the month you make the purchase so you can effectively reduce the penalty of 3 months of interest to about 2 months by making the purchase toward the end of the month.

You're allowed to purchase $10k per year electronically per social security number. So a married couple could essentially buy $40k worth of I bonds between now and the beginning part of January ($10k for 2021 and $10k for 2022 times two people). You can also increase the amount you may contribute by $5k/year if you apply your tax refund toward paper I bonds. If you have a trust, that can further increase the limit by another $10k/year.

I did a cash-out mortgage refinance earlier this year (30-year loan at 2.375% at no cost for the refi). I'm in the process of putting some of the equity I took out into I Bonds which will soon be paying about 3x the rate of my mortgage. We're keeping it simple with my wife and I just buying the max now and the max in January. We are not establishing an account in the name of our trust or dealing with paper bonds.
Thank you .
What is the best way to buy them ? Also we have to pay ordinary tax on the earnings when withdrawn except for few ‘qualified ‘ withdrawals like for education ; correct ?
You can buy I bonds through Treasury Direct.

Take a look at these links for more details:

https://www.bogleheads.org/wiki/I_savings_bonds

https://www.treasurydirect.gov/indiv/re ... dterms.htm

You’re correct about the tax treatment but there are some important things to consider. For example, even in a high bracket, I bonds are quite likely to return more than you can probably get elsewhere at the moment (meaning the next year or so). Still, the benefit is greater to those in lower federal tax brackets. Also, you don’t pay state income tax on them so the benefit is greater to those in high state income tax brackets.

If your AGI is below a certain number (see the links for the details, including phase out range), then you can avoid paying tax if used for qualified education expenses. Contributions to 529 plans count. It’s sort of a lot of rules and I may have missed something so it’s best to take the time to read the information in the links above yourself.

I am not an expert on I bonds, but just someone who recognizes them to be a particularly good deal at the moment.
Thank you
I am in a high tax bracket and also at my income , Will likely phase out of any qualified exemptions; but probably worth adding some as I have none now
tomsense76
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Re: Vwiux or 0.5 % online Savings

Post by tomsense76 »

Would not compare a savings account to an intermediate term bond fund. They are just not comparable things.

The savings account has an effective duration of 0yrs. The intermediate bond fund has average maturity of ~4yrs. A savings account keeps a fixed value in nominal terms (the cash in it remains at the same value), but may lose out to inflation over time (the dollars in there purchase less even though the same number of dollars are there). A bond fund has a NAV that can vary over time, but in the long run does a better job keeping up with inflation typically (the purchasing power of the invested money tends to keep up over time). If rates go up, the savings account will get more interest, but the bond fund will lose NAV in the short term (though will make up for this in the longer term).

The relevant things you should be thinking about is what is the purpose of this money that you are asking about investing, how soon will you need it, and what risk level are you comfortable with. Is it an emergency fund? If so, it probably should stay in a bank (maybe I bonds if you can wait out the year lockup). Is it for some purchase in the next few years (new car, house, etc.)? Maybe a bond fund of matching duration would make sense. Is it for retirement? If so, would invest according to your retirement funds asset allocation of stocks and bonds.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Topic Author
Jimsad
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Joined: Mon Mar 20, 2017 5:54 pm

Re: Vwiux or 0.5 % online Savings

Post by Jimsad »

tomsense76 wrote: Mon Sep 20, 2021 4:29 pm Would not compare a savings account to an intermediate term bond fund. They are just not comparable things.

The savings account has an effective duration of 0yrs. The intermediate bond fund has average maturity of ~4yrs. A savings account keeps a fixed value in nominal terms (the cash in it remains at the same value), but may lose out to inflation over time (the dollars in there purchase less even though the same number of dollars are there). A bond fund has a NAV that can vary over time, but in the long run does a better job keeping up with inflation typically (the purchasing power of the invested money tends to keep up over time). If rates go up, the savings account will get more interest, but the bond fund will lose NAV in the short term (though will make up for this in the longer term).

The relevant things you should be thinking about is what is the purpose of this money that you are asking about investing, how soon will you need it, and what risk level are you comfortable with. Is it an emergency fund? If so, it probably should stay in a bank (maybe I bonds if you can wait out the year lockup). Is it for some purchase in the next few years (new car, house, etc.)? Maybe a bond fund of matching duration would make sense. Is it for retirement? If so, would invest according to your retirement funds asset allocation of stocks and bonds.
Thanks for your reply . This is not for emergency fund but for the non stock ‘stable ‘portion of my portfolio . I am doing this exercise as I am a bit worried about the gloomy picture and projected negative returns of bond funds
tomsense76
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Joined: Wed Oct 14, 2020 1:52 am

Re: Vwiux or 0.5 % online Savings

Post by tomsense76 »

Jimsad wrote: Mon Sep 20, 2021 4:43 pm Thanks for your reply . This is not for emergency fund but for the non stock ‘stable ‘portion of my portfolio . I am doing this exercise as I am a bit worried about the gloomy picture and projected negative returns of bond funds
Ofc. So this is the fixed income portion of your portfolio? Sure VWIUX would make sense. As would I Bonds, a Stable Value fund in one's pre-tax accounts, etc. Personally hold several of these and sleep well at night.

Would not base this decision on stories from the financial media. There have been people predicting the death of bonds for over a decade. Here's an article about Bill Gross formerly known as the "Bond King" on his bet against US Treasuries in the late 2000s/early 2010s. Would recommend reading with popcorn :happy Here's a teaser:
Gross was expecting Treasuries to tank as Bernanke’s second round of quantitative easing came to an end. His logic was that with the main source of demand for Treasuries out of the market (i.e. with the Fed endings its asset purchase program), U.S. sovereign bonds would tank.

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Global markets completely broke down in August, fueling a flow into “safe-havens,” which, paradoxically included U.S. Treasuries, despite the Standard & Poor’s downgrade.

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With gold and Treasuries on the rise, Gross got clobbered.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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