I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

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Mel Lindauer
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

smectym wrote: Thu Jan 13, 2022 9:26 pm
wolf359 wrote: Sun Nov 07, 2021 3:15 pm
Jimsad wrote: Fri Nov 05, 2021 2:18 pm Thank you all for the responses
I would appreciate if anyone can answer whether I can buy 40k worth of I bonds every year

10k- me
10k- spouse
10k- my family LLLP
10k- my business
I'll tackle this one.

No, I-Bonds can only be purchased by individuals, not LLP or business.
Source: https://www.treasurydirect.gov/indiv/re ... uy.htm#who

However, the limit for an individual is 10k in electronic accounts (through Treasury Direct) and $5k in paper accounts (can only be purchased with an IRS tax refund.)
Source: https://www.treasurydirect.gov/indiv/re ... s_0406.htm

So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)

If you file MFJ, you're probably limited to $5k for the paper I-Bond, so a total of $25k of I Bonds in a year.

Caveat: I don't know that the MFS trick works for certain, because I can't find a reference and I've not done this. However, you can read the IRS directions linked above and either interpret the language yourself, or contact a tax attorney. It may not be worth filing MFS if this is the only reason to do so.
>>No, I bonds can only be purchased by individuals, not LLP or business

There’s some confusion here, because I set up a TD account in the name of an LLC and bought I bonds through the TIN on that account, over and above what we could purchase through our personal SSN. Perhaps Mel or one of the other experts here can clear this one up.
If you read through this and other I Bond threads, you'll read about others getting multiples of $10k for their selves, spouses and their trusts and business entities. You'll also see posts about folks loading up big time on gifts for other family members.
Best Regards - Mel | | Semper Fi
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by JBTX »

Mel Lindauer wrote: Fri Jan 14, 2022 1:01 am
smectym wrote: Thu Jan 13, 2022 9:26 pm
wolf359 wrote: Sun Nov 07, 2021 3:15 pm
Jimsad wrote: Fri Nov 05, 2021 2:18 pm Thank you all for the responses
I would appreciate if anyone can answer whether I can buy 40k worth of I bonds every year

10k- me
10k- spouse
10k- my family LLLP
10k- my business
I'll tackle this one.

No, I-Bonds can only be purchased by individuals, not LLP or business.
Source: https://www.treasurydirect.gov/indiv/re ... uy.htm#who

However, the limit for an individual is 10k in electronic accounts (through Treasury Direct) and $5k in paper accounts (can only be purchased with an IRS tax refund.)
Source: https://www.treasurydirect.gov/indiv/re ... s_0406.htm

So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)

If you file MFJ, you're probably limited to $5k for the paper I-Bond, so a total of $25k of I Bonds in a year.

Caveat: I don't know that the MFS trick works for certain, because I can't find a reference and I've not done this. However, you can read the IRS directions linked above and either interpret the language yourself, or contact a tax attorney. It may not be worth filing MFS if this is the only reason to do so.
>>No, I bonds can only be purchased by individuals, not LLP or business

There’s some confusion here, because I set up a TD account in the name of an LLC and bought I bonds through the TIN on that account, over and above what we could purchase through our personal SSN. Perhaps Mel or one of the other experts here can clear this one up.
If you read through this and other I Bond threads, you'll read about others getting multiples of $10k for their selves, spouses and their trusts and business entities. You'll also see posts about folks loading up big time on gifts for other family members.

TD specifically says you can buy entity accounts for businesses or trusts. I did $40k last year and just did $40k this year, plus $5k tax refund last year and will this year.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Griswold »

For any of us (including me) still trying to understand I bonds these links might help.

https://www.investopedia.com/terms/s/seriesibond.asp

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

I am only familiar with series EE bonds. My parents used to buy them in small denominations for my children when they were young. They would buy a
$100 EE bond for $50 and mid child would wait 30 years to cash it in. I think the I bonds work the same way only with the added benefit of the inflation rate. So, the return everyone is talking about - is that the return after 30 years. What is the return if you buy today and decide to sell next year?

There are post here quoting a 6 month return and someone using it as a source of income. Don't you have to wait for the bond to mature. It seems that it is similar to the series EE. What am I missing?
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by BrokerageZelda »

Griswold wrote: Fri Jan 14, 2022 6:55 am For any of us (including me) still trying to understand I bonds these links might help.

https://www.investopedia.com/terms/s/seriesibond.asp

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

I am only familiar with series EE bonds. My parents used to buy them in small denominations for my children when they were young. They would buy a
$100 EE bond for $50 and mid child would wait 30 years to cash it in. I think the I bonds work the same way only with the added benefit of the inflation rate. So, the return everyone is talking about - is that the return after 30 years. What is the return if you buy today and decide to sell next year?

There are post here quoting a 6 month return and someone using it as a source of income. Don't you have to wait for the bond to mature. It seems that it is similar to the series EE. What am I missing?
Savings bonds (both series EE and I) can be redeemed prior to maturity. You can take a paper bond to the bank or log in to TreasuryDirect and hit the Redeem button, and the current accrued value (minus any penalties if applicable) will be credited to your bank account. It may be easier to think of savings bonds more like variable-length CDs than traditional marketable bonds.

I bonds and electronic EE bonds no longer use the "sold at half face value" mechanic; they are sold at face value and earn interest according to the rules of their respective series.

(The rest of this post will focus on I Bonds, as that is the focus of this thread.)

The Bogleheads Wiki has a good article on the basic mechanics of I Bonds:
https://www.bogleheads.org/wiki/I_savings_bonds

I won't get into every detail but the parts about "6 months" seem to be the ones that trip people up the most.

I Bonds have two parts to the interest rate; a "fixed rate" that is determined at the month of issue, and a floating "inflation rate" that changes every six months according to government inflation reports. If prices rise quickly, the interest rate of an I Bond will be high for that period of time. That is why news about high inflation and excitement about I Bonds have exploded at the same time.

The inflation rates are calculated and announced twice a year, in May and November, from inflation reports (the "non-seasonally-adjusted CPI-U") from the past six months. However, the effective interest rate does not change for all I Bonds at the same time; they operate on staggered six-month schedules, based on the month of issue. This is so that nobody will 'win' or 'lose' by buying immediately before a rate change.

https://www.bogleheads.org/wiki/I_savin ... ings_rates

See the "New Rate Takes Effect" column in that section to see when each bond will change interest rates. You will always get a full six months of every rate; the shifting ensures that even if you buy in April 2022, you still get the full six months of the current floating rate of 7.12% interest.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Franmom »

z3r0c00l wrote: Fri Nov 05, 2021 8:33 am But don't let being late make you be even later next time.
Story of my life.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Makaveli »

goodenyou wrote: Fri Nov 05, 2021 8:26 am
exodusNH wrote: Fri Nov 05, 2021 7:59 am
Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
It's only 7% for six months. So simple math is $350 per $10k.

The fixed amount is 0. While the floating rate with keep up with "inflation." (Scare quotes because inflation isn't one thing and your personal inflation rate might be very different.)

I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.

I'm buying them for retirement expenses like property taxes and insurance.
If you purchase I bonds every year, and you have a spouse, in 10 years you will have purchased $200,000 of I bonds. Interest rates can fluctuate, but if there is a spike in interest rates, you will be very happy that your “risk less” asset is paying this kind of interest. I have been buying I bonds since the digital limit was $30,000 per SS# per year.
$30k per SS# per year? Where did this number come from? I see $10k.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by BrokerageZelda »

Makaveli wrote: Fri Jan 14, 2022 7:47 am
goodenyou wrote: Fri Nov 05, 2021 8:26 am If you purchase I bonds every year, and you have a spouse, in 10 years you will have purchased $200,000 of I bonds. Interest rates can fluctuate, but if there is a spike in interest rates, you will be very happy that your “risk less” asset is paying this kind of interest. I have been buying I bonds since the digital limit was $30,000 per SS# per year.
$30k per SS# per year? Where did this number come from? I see $10k.
The regulations have been amended a few times over the years to change the annual purchase limits. The annual limit was $30k early on.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by goodenyou »

Makaveli wrote: Fri Jan 14, 2022 7:47 am
goodenyou wrote: Fri Nov 05, 2021 8:26 am
exodusNH wrote: Fri Nov 05, 2021 7:59 am
Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
It's only 7% for six months. So simple math is $350 per $10k.

The fixed amount is 0. While the floating rate with keep up with "inflation." (Scare quotes because inflation isn't one thing and your personal inflation rate might be very different.)

I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.

I'm buying them for retirement expenses like property taxes and insurance.
If you purchase I bonds every year, and you have a spouse, in 10 years you will have purchased $200,000 of I bonds. Interest rates can fluctuate, but if there is a spike in interest rates, you will be very happy that your “risk less” asset is paying this kind of interest. I have been buying I bonds since the digital limit was $30,000 per SS# per year.
$30k per SS# per year? Where did this number come from? I see $10k.
It unfortunately changed to $10k in 2008.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by #Cruncher »

simpleidiot wrote: Thu Jan 13, 2022 8:14 pmI am confused about folks on this thread worrying about the annual return being LESS than 7% anytime soon. When I copy n paste the historical COMPOSITE return from the Treasury Direct website (below), the rate has never been below 7%. Am I missing something?
From Through
Nov. 2021 Apr. 2022 7.12%
May 2021 Oct. 2021 7.12%
Nov. 2020 Apr. 2021 7.12%
May 2020 Oct. 2020 7.12%
Nov. 2019 Apr. 2020 7.33%
...
May 1999 Oct. 1999 10.54%
Nov. 1998 Apr. 1999 10.54%
Sept. 1998 Oct. 1998 10.64%
As several posters have already noted the composite rates you copied include the current six-month rates for I Bonds purchased previously. Below is a table that repeats these in the "Comp Now" column. However, the right-hand column also shows the Overall Return for these purchases from time of purchase up to the latest six-month period which grows at the "Comp Now" rate.

Code: Select all

                      Fixed  Inflat     Comp          Overall
  From       Thru      Rate    Rate      Now   Years   Return

Code: Select all

Nov 2021   Apr 2022    0.0%   3.56%    7.12%     0.5    7.12% [1]
May 2021   Oct 2021    0.0%   1.77%    7.12%     1.0    5.33%
Nov 2020   Apr 2021    0.0%   0.84%    7.12%     1.5    4.10% [2]
May 2020   Oct 2020    0.0%   0.53%    7.12%     2.0    3.34%

Nov 2019   Apr 2020    0.2%   1.01%    7.33%     2.5    3.28%
May 2019   Oct 2019    0.5%   0.70%    7.64%     3.0    3.30%
Nov 2018   Apr 2019    0.5%   1.16%    7.64%     3.5    3.21%
May 2018   Oct 2018    0.3%   1.11%    7.43%     4.0    2.97%

Nov 2017   Apr 2018    0.1%   1.24%    7.22%     4.5    2.73%
May 2017   Oct 2017    0.0%   0.98%    7.12%     5.0    2.57%
Nov 2016   Apr 2017    0.0%   1.38%    7.12%     5.5    2.60%
May 2016   Oct 2016    0.1%   0.08%    7.22%     6.0    2.48%

Nov 2015   Apr 2016    0.1%   0.77%    7.22%     6.5    2.41%
May 2015   Oct 2015    0.0%  (0.80%)   7.12%     7.0    2.16%
Nov 2014   Apr 2015    0.0%   0.74%    7.12%     7.5    2.11%
May 2014   Oct 2014    0.1%   0.92%    7.22%     8.0    2.19%

Nov 2013   Apr 2014    0.2%   0.59%    7.33%     8.5    2.23%
May 2013   Oct 2013    0.0%   0.59%    7.12%     9.0    2.00%
Nov 2012   Apr 2013    0.0%   0.88%    7.12%     9.5    1.98%
May 2012   Oct 2012    0.0%   1.10%    7.12%    10.0    1.99%

Nov 2011   Apr 2012    0.0%   1.53%    7.12%    10.5    2.04%
May 2011   Oct 2011    0.0%   2.30%    7.12%    11.0    2.16%
Nov 2010   Apr 2011    0.0%   0.37%    7.12%    11.5    2.09%
May 2010   Oct 2010    0.2%   0.77%    7.33%    12.0    2.27%

Nov 2009   Apr 2010    0.3%   1.53%    7.43%    12.5    2.40%
May 2009   Oct 2009    0.1%  (2.78%)   7.22%    13.0    2.13%
Nov 2008   Apr 2009    0.7%   2.46%    7.84%    13.5    2.79%
May 2008   Oct 2008    0.0%   2.42%    7.12%    14.0    2.24%

Nov 2007   Apr 2008    1.2%   1.53%    8.36%    14.5    3.39%
May 2007   Oct 2007    1.3%   1.21%    8.47%    15.0    3.49%
Nov 2006   Apr 2007    1.4%   1.55%    8.57%    15.5    3.62%
May 2006   Oct 2006    1.4%   0.50%    8.57%    16.0    3.58%

Nov 2005   Apr 2006    1.0%   2.85%    8.16%    16.5    3.31%
May 2005   Oct 2005    1.2%   1.79%    8.36%    17.0    3.54%
Nov 2004   Apr 2005    1.0%   1.33%    8.16%    17.5    3.35%
May 2004   Oct 2004    1.0%   1.19%    8.16%    18.0    3.36%

Nov 2003   Apr 2004    1.1%   0.54%    8.26%    18.5    3.41%
May 2003   Oct 2003    1.1%   1.77%    8.26%    19.0    3.46%
Nov 2002   Apr 2003    1.6%   1.23%    8.78%    19.5    3.93%
May 2002   Oct 2002    2.0%   0.28%    9.19%    20.0    4.28%

Nov 2001   Apr 2002    2.0%   1.19%    9.19%    20.5    4.28%
May 2001   Oct 2001    3.0%   1.44%   10.23%    21.0    5.29%
Nov 2000   Apr 2001    3.4%   1.52%   10.64%    21.5    5.70% [3]
May 2000   Oct 2000    3.6%   1.91%   10.85%    22.0    5.93%

Nov 1999   Apr 2000    3.4%   1.76%   10.64%    22.5    5.76%
May 1999   Oct 1999    3.3%   0.86%   10.54%    23.0    5.65%
Nov 1998   Apr 1999    3.3%   0.86%   10.54%    23.5    5.64%
Sep 1998   Oct 1998    3.4%   0.62%   10.64%    24.0    5.71%
The "Overall Return" column agrees with the returns shown from $1,000 I Bond Growth in Value. (Click desired issue month to view growth for a particular I Bond. The overall return is displayed at the bottom of each page.) Here are sample calculations for three bonds. Note these are annual growth rates with semi-annual compounding, the same convention as is used for Treasury bonds.
  1. 0% fixed rate I Bond issued Nov 2021 thru Apr 2022 after six months:
    7.12% = 2 * (1.0356 - 1)
  2. 0% fixed rate I Bond issued Nov 2020 thru Apr 2021 after 1-1/2 years:
    4.10% = 2 * ((1.0084 * 1.0177 * 1.0356) ^ (1 / 3) - 1)
  3. 3.4% fixed rate I Bond issued Nov 2000 thru Apr 2001 where a $1,000 bond grows to $3,348.40 after 21-1/2 years.
    5.70% = 2 * ((3348.40 / 1000) ^ (1 / 43) - 1)
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by krafty81 »

Stillwater1971 wrote: Fri Nov 05, 2021 10:12 am I bought 10k worth in September and was planning to buy another 10k in January. This will eventually be used to help pay for my son's College Education since there is a Tax exemption for College Expenditures.

Now, if I wanted to purchase another 10k and put it in my son's name (he's currently 16 yrs old), would THAT 10k be tax exempt if used for college as well? Or is the tax exemption only for parents?
I think that tax exemption for college expenses has some caveats. As I remember, there were income limits involved. I could be mistaken but I remember being frustrated at the time.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by BrokerageZelda »

krafty81 wrote: Fri Jan 14, 2022 1:23 pm
Stillwater1971 wrote: Fri Nov 05, 2021 10:12 am I bought 10k worth in September and was planning to buy another 10k in January. This will eventually be used to help pay for my son's College Education since there is a Tax exemption for College Expenditures.

Now, if I wanted to purchase another 10k and put it in my son's name (he's currently 16 yrs old), would THAT 10k be tax exempt if used for college as well? Or is the tax exemption only for parents?
I think that tax exemption for college expenses has some caveats. As I remember, there were income limits involved. I could be mistaken but I remember being frustrated at the time.
https://www.treasurydirect.gov/indiv/pl ... cation.htm

The official TD page above contains a link to the IRS table on Form 8815 for income limits for claiming the education tax exclusion.

Also, the bond must have been issued in the name of someone 24 or older as of the date of issue. A bond owned or co-owned by a 16-year-old as of the date of issue is not eligible for the education tax exclusion.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

BrokerageZelda wrote: Fri Jan 14, 2022 2:14 pm
krafty81 wrote: Fri Jan 14, 2022 1:23 pm
Stillwater1971 wrote: Fri Nov 05, 2021 10:12 am I bought 10k worth in September and was planning to buy another 10k in January. This will eventually be used to help pay for my son's College Education since there is a Tax exemption for College Expenditures.

Now, if I wanted to purchase another 10k and put it in my son's name (he's currently 16 yrs old), would THAT 10k be tax exempt if used for college as well? Or is the tax exemption only for parents?
I think that tax exemption for college expenses has some caveats. As I remember, there were income limits involved. I could be mistaken but I remember being frustrated at the time.
https://www.treasurydirect.gov/indiv/pl ... cation.htm

The official TD page above contains a link to the IRS table on Form 8815 for income limits for claiming the education tax exclusion.

Also, the bond must have been issued in the name of someone 24 or older as of the date of issue. A bond owned or co-owned by a 16-year-old as of the date of issue is not eligible for the education tax exclusion.
I usually recommend that I Bond owners who plan to use their I Bonds for qualifying educational expenses keep abreast of the current and future income limits to qualify. Should they find themselves approaching the income limit, they can redeem the I Bonds and put the ENTIRE proceeds into a 529 Plan and get the tax-free treatment before they go over the income limits.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by #Cruncher »

BrokerageZelda wrote: Wed Jan 12, 2022 10:28 amThe non-seasonally-adjusted December 2021 CPI-U was ... about 1.638% higher than the September 2021 rate, which is the starting benchmark for the next I Bond rate change. ... if you want to make the baseline assumption that deflation will not happen over the next three months, you could say that the next I Bond [annualized] inflation rate will be at least 3.27%. If you wanted to make a naive prediction that inflation will continue on the exact same trajectory for the next three months as it has for the past three months, the next I Bond [annualized] inflation rate would be 6.55%. But in reality there's no way to know. (underline added)
Yes, we certainly can't know what the September 2021 -> March 2022 CPI increase will be until the scheduled release of the March report on 4/12/2022. However, we can make a better estimate than either assuming March will equal December or that the increase December -> March will equal the September -> December increase. One better way would be to use the implied breakeven inflation rate based on the prices of TIPS and nominal Treasury securities maturing at the same time.

The next two TIPS mature on April 15 and July 15, approximately 3 and 6 months from today. As of Friday 1/14/2022 the 3-month and 6-month T-Bills are yielding 0.13% and 0.30% respectively according to the Daily Treasury Par Yield Curve Rates. Also on 1/14/2022 the ask prices of the April and July TIPS are 101+11/32 and 102+14/32 respectively according to the WSJ TIPS Quotes.

Since their prices are above par, if there were no further inflation adjustment to their principal values, they would have a negative yield to maturity. No one would buy a TIPS maturing in 3 months with a negative return when he could guarantee a +0.13% return by buying a 3-month T-Bill. Likewise he wouldn't buy a TIPS maturing in 6 months with a negative return when he could guarantee a +0.30% return by buying a 6-month T-Bill. The market is assuming there will be an upward inflation adjustment to their principal value on the dates they mature.

It would be reasonable to assume that the market expects there to be an upward inflation adjustment to the principal value of these TIPS such that their nominal returns will be about 0.13% (April) and 0.30% (July). The table below shows how this can be calculated.

Code: Select all

Row                        Col A        Col B        Col C    Formula in column B
  1                    Principal       10,000
  2           CPI September 2021      274.310
  3            CPI December 2021      278.802
  4                   Settlement    1/18/2022
  5  Reference CPI on settlement    277.33426
  6                     Maturity    4/15/2022    7/15/2022
  7                       Coupon       0.125%       0.125%
  8                    Ask price   101.34375%   102.43750%

Code: Select all

  9               Days in period          182          181   =COUPDAYS($B4,B6,2,1)
 10       Days before settlement           95            3   =COUPDAYBS($B4,B6,2,1)
 11        Days after settlement           87          178   =COUPDAYSNC($B4,B6,2,1)
 12             Accrued interest         3.26         0.10   =$B1*(B7/2)*(B10/B9)
 13                Purchase cost    10,137.64    10,243.85   =$B1*B8+B12

 14       Expected nominal yield        0.13%        0.30%
 15            Value at maturity    10,140.79    10,258.96   =B13*(1+B14/2)^(B11/B9)
 16  Redemption if no CPI change    10,006.25    10,006.25   =$B1*(1+B7/2)
 17    Index ratio must increase        1.34%        2.53%   =B15/B16-1
 18         Needed Reference CPI    281.06309    284.33852   =$B5*(1+B17)
 19     Increase vs Sep 2021 CPI        2.46%        3.66%   =B$18/$B2-1
 20     Increase vs Dec 2021 CPI        0.81%        1.99%   =B$18/$B3-1
Row 17 shows that the index ratio used to calculate the inflation adjustment needs to increase 1.34% by April 15 and 2.53% by July 15 when the two TIPS mature. From this row 18 calculates that the Reference CPIs on these two dates need to be 281.06309 and 284.33852 respectively. These are 2.46% and 3.66% increases over the September 2021 CPI.

The CPI for a month equals the Reference CPI for the first day three months later. E.g., the April 1st Ref CPI equals the January CPI and the May 1st Ref CPI equals the February CPI. Reference CPIs for other days of the months are interpolated. So the Ref CPI for April 15 equals approximately the average of the CPIs for January and February. Likewise the Ref CPI for July 15 equals approximately the average of the CPIs for April and May.

A good estimate of the CPI for March would be the average of January, February, April, and May. Based on the explanation in the previous paragraph, this is the same as the average of the April 15 and July 15 Reference CPIs. This average is 282.701 [(281.06309 + 284.33852) / 2]. This is 3.06% (282.701 / 274.310 - 1) more than the September 2021 CPI. So today, in my opinion, 3.06% would be a good estimate for the next I Bond semi-annual inflation rate. If the fixed rate announced May 1st remains at 0%, this would produce a 6.12% annual composite rate.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Doc7 »

I have seen the graphic around the web showing the amount of I-Bonds purchased in the last 3 months exceeds the lifetime total of I-Bonds purchased in years prior.

Out of curiosity sake and nothing more, does this indicate that the Treasury will determine it has issued enough I-Bonds and be unlikely to raise the fixed rate above 0% for a time? Presumably, they raise the fixed rate when they wish to borrow more of our money, and currently we in general are gleefully lending them our money at 0%+inflation index, right?
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by neurosphere »

Doc7 wrote: Mon Jan 17, 2022 3:07 pm I have seen the graphic around the web showing the amount of I-Bonds purchased in the last 3 months exceeds the lifetime total of I-Bonds purchased in years prior.

Out of curiosity sake and nothing more, does this indicate that the Treasury will determine it has issued enough I-Bonds and be unlikely to raise the fixed rate above 0% for a time? Presumably, they raise the fixed rate when they wish to borrow more of our money, and currently we in general are gleefully lending them our money at 0%+inflation index, right?
Not only lending at 0% + inflation only but ALSO getting some of that return back in form of taxes. From the government/IRS standpoint, it's an investment that is guaranteed to provide an inflation-beating return!

It's unclear how they determine the fixed rate, but I've read here that it indirectly related to the real rate on TIPS. If one day people are asking for a positive real return on TIPS, then I-bond fixed rates may follow.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by BrokerageZelda »

neurosphere wrote: Mon Jan 17, 2022 3:14 pm Not only lending at 0% + inflation only but ALSO getting some of that return back in form of taxes. From the government/IRS standpoint, it's an investment that is guaranteed to provide an inflation-beating return!
I'm all for being clear-eyed on I Bonds but I don't think this is a fair criticism. The government is not reaping "inflation-beating return" by paying out inflation-indexed interest on public debt.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Doc7 »

Upon further thinking (I am by no means a bond or even investments expert) I am realizing that I-Bonds will likely be redeemed as quickly as they were purchased if the public finds that there are positive real rates elsewhere, thus incentivizing fixed rates movements.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by neurosphere »

BrokerageZelda wrote: Mon Jan 17, 2022 3:39 pm
neurosphere wrote: Mon Jan 17, 2022 3:14 pm Not only lending at 0% + inflation only but ALSO getting some of that return back in form of taxes. From the government/IRS standpoint, it's an investment that is guaranteed to provide an inflation-beating return!
I'm all for being clear-eyed on I Bonds but I don't think this is a fair criticism. The government is not reaping "inflation-beating return" by paying out inflation-indexed interest on public debt.
Sorry, I was making a light-hearted comment, imagining a similar investment being offered by, for example, an insurance company that would offer such a product of paying out an inflation rate but then in taking a portion of that back later (and yet perhaps still have the ability to buy such products from others and owe no tax). And yes, I misspoke it would not be "inflation beating" in the way we commonly think about it (e.g. earning some amount in ADDITION to inflation) but rather simply guaranteeing that on average the rate paid would be less than inflation (in contrast to a nomimal bond which has inflation "risk" to both the borrower and the lender).
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

Doc7 wrote: Mon Jan 17, 2022 3:48 pm Upon further thinking (I am by no means a bond or even investments expert) I am realizing that I-Bonds will likely be redeemed as quickly as they were purchased if the public finds that there are positive real rates elsewhere, thus incentivizing fixed rates movements.
I think that's true for the people chasing 7%!!!

For me, I never consciously experienced inflation; I became an adult in the early 90s. Looking forward ~20 years, my housing expense will be dominated by property taxes. I'm making the assumption they'll roughly track inflation. The I Bonds I've purchased are intended to cover that expense plus some utilities.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Griswold »

Post by z3r0c00l » Fri Nov 05, 2021 9:33 am

Yes I think it is a no-brainer for almost any normal investor who keeps a certain amount of cash/bonds on hand because this is far better than you will get from cash or bonds any time soon. Sadly it is a bit late in the game to get interested in I bonds now. The best time to buy them was for the last 10 years, preparing for just such an unexpectedly high inflation event. But don't let being late make you be even later next time.
I don't see why it's too late. Isn't inflation kicking in now. With interest rates about to rise, why isn't now the ideal time to buy I Bonds?
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by z3r0c00l »

Griswold wrote: Thu Jan 27, 2022 8:31 pm
Post by z3r0c00l » Fri Nov 05, 2021 9:33 am

Yes I think it is a no-brainer for almost any normal investor who keeps a certain amount of cash/bonds on hand because this is far better than you will get from cash or bonds any time soon. Sadly it is a bit late in the game to get interested in I bonds now. The best time to buy them was for the last 10 years, preparing for just such an unexpectedly high inflation event. But don't let being late make you be even later next time.
I don't see why it's too late. Isn't inflation kicking in now. With interest rates about to rise, why isn't now the ideal time to buy I Bonds?
Because it takes many years to accumulate a significant amount. Lots of people hearing about them for the first time didn't lay the groundwork when they were a plain-Jane product. Those who flit from one bond product to another every few years can't really take advantage of I bonds.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

Griswold wrote: Thu Jan 27, 2022 8:31 pm
Post by z3r0c00l » Fri Nov 05, 2021 9:33 am

Yes I think it is a no-brainer for almost any normal investor who keeps a certain amount of cash/bonds on hand because this is far better than you will get from cash or bonds any time soon. Sadly it is a bit late in the game to get interested in I bonds now. The best time to buy them was for the last 10 years, preparing for just such an unexpectedly high inflation event. But don't let being late make you be even later next time.
I don't see why it's too late. Isn't inflation kicking in now. With interest rates about to rise, why isn't now the ideal time to buy I Bonds?
Yes, inflation is high and that's what the 7.12% represents. While that rate only applies for the first six months you own the bonds, the continuing inflation makes it reasonable to think that the following six months may also be high.

The important thing to remember is that there are currently no better (or even close) risk-free, tax-deferred options available.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by fetch5482 »

Starting this year I'm also substituting a small portion of my bonds allocation to I-Bonds. I know several people here like to think of it as emergency funds and that's fine. However we do things slightly different.
We have a total of 4 accounts in the family for I-Bonds: me, my spouse, our combined living trust and kid.

We treat the kids account as their own, and may potentially dip into it if the 529 we are contributing towards falls short. If we don't end up using it, it'll become the kids account upon adulthood which we are fine with.

We treat the living trust as emergency funds. Each year 10K goes from our CDs to I-Bonds until we only have I-Bonds holding emergency funds.

We treat the accounts under our individual names as a substitute to bonds. So right now, from the 20% allocated towards bonds, 20K is in I-Bonds, and the rest is in BND equivalent. Each year our glidepath increases, so we plan to max out the 20K and put the remaining in BND equivalent until we reach a 50/50 portfolio.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by TropikThunder »

dbr wrote: Thu Jan 13, 2022 9:26 pm Exactly. I bonds are a legitimate portfolio component which can be acquired over time.
No no, I Bonds are useless since the purchase limit is so small that it's irrelevant to a retirement portfolio.





Despite the purchase limit being higher than either an IRA or an HSA, both of which are better than sliced bread.

Clearly this post is sarcastic, but there are at least a couple prominent BH'ers who hold this view.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

TropikThunder wrote: Thu Jan 27, 2022 10:20 pm
dbr wrote: Thu Jan 13, 2022 9:26 pm Exactly. I bonds are a legitimate portfolio component which can be acquired over time.
No no, I Bonds are useless since the purchase limit is so small that it's irrelevant to a retirement portfolio.





Despite the purchase limit being higher than either an IRA or an HSA, both of which are better than sliced bread.

Clearly this post is sarcastic, but there are at least a couple prominent BH'ers who hold this view.
They add up over 10 or 15 years.

The 401k limit is only 2x the I Bond limit. People fall over themselves trying to max it out.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dbr »

Probably a more accurate statement is that the purchase limit, unless one goes to extremes involving a collection of trusts, means that it takes years to eventually build up a large holding, which a person can certainly do. What is much more difficult is shifting a large fixed income asset that a retired person might have to I bonds in a shorter period of time. The difference is between acquiring such fixed income at a rate similar to tax protected account limits and trying to move $1M or something.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Griswold »

What I am gathering from all the post is:

Because the limit is 10K its not feasible to switch over to I Bonds in your IRA (assuming you currently hold a % of bonds)

I think a good fit for I Bonds may be when you are taking RMD's and not going to use them immediately. The question becomes how long the optimum time is to cash them in. That gets confusing with a base return and a return on inflation and a penalty for an early cash in. So, what exactly are I Bonds used for? Do they only pay off 20 years down the line?
by dbr » Fri Jan 28, 2022 10:22 am

Probably a more accurate statement is that the purchase limit, unless one goes to extremes involving a collection of trusts, means that it takes years to eventually build up a large holding, which a person can certainly do. What is much more difficult is shifting a large fixed income asset that a retired person might have to I bonds in a shorter period of time. The difference is between acquiring such fixed income at a rate similar to tax protected account limits and trying to move $1M or something.
Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?
by exodusNH » Fri Jan 28, 2022 12:35 am

TropikThunder wrote: ↑Fri Jan 28, 2022 12:20 am
dbr wrote: ↑Thu Jan 13, 2022 11:26 pm
Exactly. I bonds are a legitimate portfolio component which can be acquired over time.
No no, I Bonds are useless since the purchase limit is so small that it's irrelevant to a retirement portfolio.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by nolesrule »

Griswold wrote: Sat Jan 29, 2022 9:04 am Because the limit is 10K its not feasible to switch over to I Bonds in your IRA (assuming you currently hold a % of bonds)
Just to be perfectly clear you cannot hold I Bonds in an IRA.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Stormfloatter »

I hope people realize who is actually paying for this 7.12%....Unfortunately if this does not normalize and goes back to close to 0 in about a year, you will have more worries than thinking about an ibond.

The US cannot and should not be servicing ibonds at 7% interest. I hope this does not last.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dbr »

Stormfloatter wrote: Sat Jan 29, 2022 9:18 am I hope people realize who is actually paying for this 7.12%....Unfortunately if this does not normalize and goes back to close to 0 in about a year, you will have more worries than thinking about an ibond.

The US cannot and should not be servicing ibonds at 7% interest. I hope this does not last.
It is correct that 7% inflation will hurt all of us to an extent that buying some I bonds will not even begin to repair. It is far more than just the cost of government borrowing either.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by whodidntante »

Stormfloatter wrote: Sat Jan 29, 2022 9:18 am I hope people realize who is actually paying for this 7.12%....Unfortunately if this does not normalize and goes back to close to 0 in about a year, you will have more worries than thinking about an ibond.

The US cannot and should not be servicing ibonds at 7% interest. I hope this does not last.
Massive inflation is great! It inflates away debt and raises tax revenue for the world's greatest nation! :twisted:
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

dbr wrote: Fri Jan 28, 2022 8:22 am Probably a more accurate statement is that the purchase limit, unless one goes to extremes involving a collection of trusts, means that it takes years to eventually build up a large holding, which a person can certainly do.
Don't know why you continue to downplay the annual I Bond purchase limit. Accumulating I Bonds will certainly go a whole lot faster than buying bonds for one's Traditional IRA (10K or 15K per year for I Bonds without going to any of the "extremes" you allude to vs the lesser amounts one can contribute to a Traditional IRA). And, based on the posts we see here, many investors don't find the things that you call "extremes" to actually be "extreme" obstacles to purchasing larger quantities of I Bonds.

And, if you feel the I Bond purchase limit is not worth it, should folks not bother with TIRAs either, since it means that "it might take many years to eventually build up a large holding?"

I think not; I'd recommend that folks do both since each has its advantages.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Tier1Capital »

Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by SpideyIndexer »

Just wanted to double check this: IBonds' 30 year maturity means they no longer earn interest after 30 years. There are no penalties for cashing out after 5 years. Is this correct?

Somewhat different than maturity for a CD, for which cashing out subjects one to an EWP.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Affable at 50 »

SpideyIndexer wrote: Mon Feb 07, 2022 2:55 pm Just wanted to double check this: IBonds' 30 year maturity means they no longer earn interest after 30 years. There are no penalties for cashing out after 5 years. Is this correct?

Somewhat different than maturity for a CD, for which cashing out subjects one to an EWP.
I think you got it.

You have to wait at least 12 months before cashing out an IBond. Between 1 and 5 years, the penalty is merely three months of the most recent interest. After 5 years, there is no penalty.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tibbitts »

Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Oh, I think setting up a trust entirely for the purpose of buying I-bonds rates about a 13.48 on a scale of 1 to 10 for extremes.

It's not possible to determine how much effort the tax refund I-bonds may take; obviously that could just work out, or turn into a complete disaster.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tenkuky »

Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Is setting up trusts for sake of iBonds something I can do without attorneys and their fees?
Any guidance on what sort?
So far, only had an ILIT years ago which the tax attorney and insurance agent helped set up (long story, I’m letting it sunset after using up the paid premiums).
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by fetch5482 »

tenkuky wrote: Mon Feb 07, 2022 4:57 pm
Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Is setting up trusts for sake of iBonds something I can do without attorneys and their fees?
Any guidance on what sort?
So far, only had an ILIT years ago which the tax attorney and insurance agent helped set up (long story, I’m letting it sunset after using up the paid premiums).
It's easy to make a trust using software like Willmaker. I'm sure they're are free online softwares as well.. But given that you can easily find old versions of willmaker for cheap, I think that option is great.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Grt2bOutdoors »

tenkuky wrote: Mon Feb 07, 2022 4:57 pm
Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Is setting up trusts for sake of iBonds something I can do without attorneys and their fees?
Any guidance on what sort?
So far, only had an ILIT years ago which the tax attorney and insurance agent helped set up (long story, I’m letting it sunset after using up the paid premiums).
Read this piece from TFB : https://thefinancebuff.com/simple-livin ... bonds.html
I used the Nolo book, the software might be quicker but I wanted to read the ins and outs carefully rather than rely on a piece of software.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tenkuky »

Grt2bOutdoors wrote: Tue Feb 08, 2022 3:56 pm
tenkuky wrote: Mon Feb 07, 2022 4:57 pm
Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Is setting up trusts for sake of iBonds something I can do without attorneys and their fees?
Any guidance on what sort?
So far, only had an ILIT years ago which the tax attorney and insurance agent helped set up (long story, I’m letting it sunset after using up the paid premiums).
Read this piece from TFB : https://thefinancebuff.com/simple-livin ... bonds.html
I used the Nolo book, the software might be quicker but I wanted to read the ins and outs carefully rather than rely on a piece of software.
Thank you! Picking up the book (and software) this week from public library.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Tier1Capital »

tibbitts wrote: Mon Feb 07, 2022 4:33 pm
Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Oh, I think setting up a trust entirely for the purpose of buying I-bonds rates about a 13.48 on a scale of 1 to 10 for extremes.

It's not possible to determine how much effort the tax refund I-bonds may take; obviously that could just work out, or turn into a complete disaster.
As you can see from the recent posts, it's actually quite easy to set up a trust. Doing so may not be worth your time but it's neither extreme nor complicated for most of us here.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tibbitts »

Tier1Capital wrote: Tue Feb 08, 2022 5:45 pm
tibbitts wrote: Mon Feb 07, 2022 4:33 pm
Tier1Capital wrote: Sat Jan 29, 2022 6:22 pm Setting up a trust also isn't going to extremes. Adding another $45,000 to our (myself & wife) annual tax deferred space between regular contributions, trust contributions and $5,000 from tax refund is absolutely worth our effort.
Oh, I think setting up a trust entirely for the purpose of buying I-bonds rates about a 13.48 on a scale of 1 to 10 for extremes.

It's not possible to determine how much effort the tax refund I-bonds may take; obviously that could just work out, or turn into a complete disaster.
As you can see from the recent posts, it's actually quite easy to set up a trust. Doing so may not be worth your time but it's neither extreme nor complicated for most of us here.
I'm aware of how to set up a trust, which is why I absolutely consider it off-the-scale extreme to create one purely for the purpose of investing in a product that for most of us is guaranteed to lose money in real terms. Now if you were pushing this back in the 3%+ era I might knock it down to just a 9.9 out of 10 on the extreme scale. Okay maybe 9.85 but that's being generous.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by supalong52 »

This is probably a dumb question. DW and I each bought $10k in ibonds on December 1, 2021. When I log into TD, under my account / current holdings it says:

Series I Savings Bond $10,000.00 $10,000.00

This is the same as what we purchased 2 1/2 months ago. At what point do I see interest reflected in the value of my holdings?
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by drk »

supalong52 wrote: Tue Feb 15, 2022 6:30 pm This is the same as what we purchased 2 1/2 months ago. At what point do I see interest reflected in the value of my holdings?
Here you go:
You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest. Note: If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by supalong52 »

drk wrote: Tue Feb 15, 2022 6:33 pm
supalong52 wrote: Tue Feb 15, 2022 6:30 pm This is the same as what we purchased 2 1/2 months ago. At what point do I see interest reflected in the value of my holdings?
Here you go:
You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest. Note: If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already.
Thanks!!!
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

supalong52 wrote: Fri Feb 18, 2022 4:44 pm
drk wrote: Tue Feb 15, 2022 6:33 pm
supalong52 wrote: Tue Feb 15, 2022 6:30 pm This is the same as what we purchased 2 1/2 months ago. At what point do I see interest reflected in the value of my holdings?
Here you go:
You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest. Note: If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already.
Thanks!!!
Remember that as time goes on, the penalty will be a moving target, since, as drk correctly pointed out (and I bolded), it's the last three months' interest.
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by wbarabas »

I see a lot of posts for people who do not bother with purchasing I bonds because the 10k limit is not worth their time. For us poor folk, this still seems like a good deal and safe asset allocation. It's actually a pretty big accomplishment for some of us if we can make this purchase every year.

We may need two Boglehead sections. One for the elite and one for "the others."
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theac
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by theac »

wbarabas wrote: Sat Feb 19, 2022 5:45 am I see a lot of posts for people who do not bother with purchasing I bonds because the 10k limit is not worth their time. For us poor folk, this still seems like a good deal and safe asset allocation. It's actually a pretty big accomplishment for some of us if we can make this purchase every year.

We may need two Boglehead sections. One for the elite and one for "the others."
Drop by drop a bucket gets filled! :D
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
sidwin516
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by sidwin516 »

I finally got mine. Still waiting for the wife. Omg was it a pita. Took almost a month. Had to go to the bank and get a medallion stamp to verify who we are. My wife is still not done. I thought the max is $10k a person per year. I had a cd mature utma for the kids. So I took the funds to buy ibonds.
dbr
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Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dbr »

wbarabas wrote: Sat Feb 19, 2022 5:45 am I see a lot of posts for people who do not bother with purchasing I bonds because the 10k limit is not worth their time. For us poor folk, this still seems like a good deal and safe asset allocation. It's actually a pretty big accomplishment for some of us if we can make this purchase every year.

We may need two Boglehead sections. One for the elite and one for "the others."
Usually it isn't elite but age. A beginning investor who has not yet accumulated a very large portfolio can make a significant allocation to I bonds over time starting now. An older investor with a large accumulation does not have that opportunity, especially if it means paying tax to withdraw from a bond holding 401k or IRA.

I began investing in 1965. I bonds did not exist until 1978 and at that time it was far more attractive for me to save first in a before tax 401k account where I bonds can't be held. After maxing that we were occupied paying a mortgage and trying to meet expenses. By 2000 when TIPS funds became available to be held in a 401k that investment appeared to make more sense than opening a TD account for I bonds. The I bond fixed rate was falling to 0% and in the twenty years since then TIPS funds have had a real return of about 3%. There is no reason to especially expect I bonds to be a better investment than TIPS over the next 20-30 years even though presently the SEC real yield on TIPS funds is negative. The 30 year TIPS is already positive in real yield and the 20 year TIPS close, but the 5 year TIPS is still down at -1%. Very likely these yields will be positive before long, though who knows. The curve has shifted upward by about 0.2% in the last two weeks. The real SEC yield on VIPSX is =1.39% but that is also less negative over a couple of weeks. The last VIPSX dividend payout was at an annual rate of about 7.8% or something.

https://m.treasury.gov/resource-center/ ... =realyield
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