Treasury Direct, Beyond I-Bonds

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Calc_is_Easier
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Treasury Direct, Beyond I-Bonds

Post by Calc_is_Easier »

Hello all - thanks to this forum I made the decision to move some $40k of my emergency funds into I-Bonds. I did not have any issues with creating the TD accounts for my wife or myself, adding view/transact rights for each other, etc... thanks to the amazingly helpful threads here. I already have a good low-cost fund (equivalent to BND) in my 401k where my bond exposure lives, and I also have a brokerage and Roth accounts with Schwab but no IRAs (Schwab accounts are all low-cost index equity ETFs). I am at my target AA for bonds. But because >90% of my assets are in the 401k, I don't have much ability to tinker with TIPS, short/long govt notes, foreign debt, etc... My question is - now that I have a TD account, does it make sense to use it beyond I-Bonds?
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vineviz
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Re: Treasury Direct, Beyond I-Bonds

Post by vineviz »

Depending on your age, Series EE savings bonds might be worth a look.

Because they are guaranteed to double in value after 20 years, if you can hold them that long without redeeming you'd earn a 3.54% return which is about double the current yield on BND and more than 1.2% greater than you'd get on a 20-year Treasury bond.
Last edited by vineviz on Wed Jan 19, 2022 7:37 am, edited 1 time in total.
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JoMoney
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Re: Treasury Direct, Beyond I-Bonds

Post by JoMoney »

vineviz wrote: Wed Jan 19, 2022 7:19 am Depending on your age, Series E savings bonds might be worth a look.

Because they are guaranteed to double in value after 20 years, if you can hold them that long without redeeming you'd earn a 3.54% return which is about double the current yield on BND and more than 1.2% greater than you'd get on a 20-year Treasury bond.
Minor technicality, not likely to cause confusion, but probably meant series EE Savings Bonds, they don't offer the E Bond any more.

Note that you must hold the EE bond exactly 20 years, to get the double and then redeem them, else the interest rate on them will be something less. Outside of the 20 year double the interest rate if redeemed prior to then is .10% ... and after the 20 year doubling (which you would get even if you hold longer) the additional interest accumulates at .10% at current rates.

To the advantage of the EE bonds over a 20 year treasury, is if interest rates rise you won't lose any principal value if you change your mind and want to redeem these for something else, and .10% might be more than you were otherwise earning on cash in a bank, so they don't have market/interest rate risk.... but some people like the idea of that market/interest rate risk of long term treasuries hoping it will go up in a crisis and they'll get some sort of rebalancing effect by mixing them with other assets (rather than expecting to hold the bonds to term.)
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vineviz
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Re: Treasury Direct, Beyond I-Bonds

Post by vineviz »

JoMoney wrote: Wed Jan 19, 2022 7:31 am
Minor technicality, not likely to cause confusion, but probably meant series EE Savings Bonds, they don't offer the E Bond any more.
Yes, thank you.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Calc_is_Easier
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Re: Treasury Direct, Beyond I-Bonds

Post by Calc_is_Easier »

Thank you both for your replies and clarification. I am 51 and planning to retire in 8 years; my cash is earning about 0.5% right now in a bank IMMA. I wish I had discovered Series EE back when I was 40.
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Re: Treasury Direct, Beyond I-Bonds

Post by dbr »

I would say that it doesn't not make sense to buy Treasury Notes, Bonds, Bills, or TIPS. However selling any of those before maturity requires transferring them out to a broker for sale. Since Bills are less than one year, if there is some reason to use them, that might work.

I think in general bond funds are more convenient for most people for these things.
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vineviz
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Re: Treasury Direct, Beyond I-Bonds

Post by vineviz »

Calc_is_Easier wrote: Wed Jan 19, 2022 8:32 am Thank you both for your replies and clarification. I am 51 and planning to retire in 8 years; my cash is earning about 0.5% right now in a bank IMMA. I wish I had discovered Series EE back when I was 40.
Since you're already using Treasury Direct for Series I bonds, it may still make sense to initiate a plan now to build up Series EE over the next 15-20 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Calc_is_Easier
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Re: Treasury Direct, Beyond I-Bonds

Post by Calc_is_Easier »

vineviz wrote: Wed Jan 19, 2022 8:45 am
Calc_is_Easier wrote: Wed Jan 19, 2022 8:32 am Thank you both for your replies and clarification. I am 51 and planning to retire in 8 years; my cash is earning about 0.5% right now in a bank IMMA. I wish I had discovered Series EE back when I was 40.
Since you're already using Treasury Direct for Series I bonds, it may still make sense to initiate a plan now to build up Series EE over the next 15-20 years.
Thank you. I will definitely evaluate this suggestion in my cashflow planning spreadsheet to see if it could help improve robustness of my drawdown strategy. I will request a full portfolio review in a separate thread.
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Re: Treasury Direct, Beyond I-Bonds

Post by SnowBog »

If interested, here's my attempt to create an EE Bond Manifesto modeled after Mel (and friends) I Bond Manifesto. viewtopic.php?t=358793
moneyflowin
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Re: Treasury Direct, Beyond I-Bonds

Post by moneyflowin »

Calc_is_Easier wrote: Wed Jan 19, 2022 8:32 am Thank you both for your replies and clarification. I am 51 and planning to retire in 8 years; my cash is earning about 0.5% right now in a bank IMMA.
I wish I had discovered Series EE back when I was 40.
Why? When you were 40, they were yielding 1.2% while 20-yr Treasuries were yielding 3-4%.

What difference would it make if you knew about them? Would you really have bought a 1.2% bond back then?
SnowBog
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Re: Treasury Direct, Beyond I-Bonds

Post by SnowBog »

moneyflowin wrote: Thu Jan 20, 2022 3:59 am
Calc_is_Easier wrote: Wed Jan 19, 2022 8:32 am Thank you both for your replies and clarification. I am 51 and planning to retire in 8 years; my cash is earning about 0.5% right now in a bank IMMA.
I wish I had discovered Series EE back when I was 40.
Why? When you were 40, they were yielding 1.2% while 20-yr Treasuries were yielding 3-4%.

What difference would it make if you knew about them? Would you really have bought a 1.2% bond back then?
Umm... Series EE have always had a "doubling" guarantee. Currently at 20 years, that's a guaranteed 3.5% return.

I don't recall what it was years ago, but it was at least - or better - that 3.5% if the doubling was shorter than 20 years (I think it was 17 and 15 at an earlier point in time).

I'm assuming your 1.2% reference was the annual return. Currently EE Bonds are at 0.1%. No one buys them for 0.1%. We buy them for the guaranteed doubling.
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Re: Treasury Direct, Beyond I-Bonds

Post by calwatch »

The rates for T-Bills and Notes have been below the leading online savings banks rates like Ally, Alliant, and Marcus: https://www.treasurydirect.gov/instit/a ... result.htm
There is a benefit to not having to pay state taxes and, if you already have a TD account, it would be convenient to put them there rather than create another account at an online bank to chase rates.
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vineviz
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Re: Treasury Direct, Beyond I-Bonds

Post by vineviz »

SnowBog wrote: Thu Jan 20, 2022 11:43 am Umm... Series EE have always had a "doubling" guarantee. Currently at 20 years, that's a guaranteed 3.5% return.
Before 2011 the yield on marketable 20-year Treasuries consistently higher than 3.5%, which effectively eliminated the value of the "doubling guarantee" for EE savings bonds issued in those years. But EE bonds were a viable alternative to 3-month Treasury bills from 2008 until 2015 or so, with the promise of 20-year doubling making them a clearly excellent choice after 2011.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Calc_is_Easier
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Re: Treasury Direct, Beyond I-Bonds

Post by Calc_is_Easier »

SnowBog wrote: Thu Jan 20, 2022 2:00 am If interested, here's my attempt to create an EE Bond Manifesto modeled after Mel (and friends) I Bond Manifesto. viewtopic.php?t=358793
Very nice. You lay out a lovely "why buy EE at age 40" scenario. In reality I doubt I had a spare $20k in my budget to put into EE-Series (kids are expensive) or if I did, maybe I would have just put it into VTI (not being able to talk to my 51yo self). Hindsight is always :oops:
SnowBog
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Re: Treasury Direct, Beyond I-Bonds

Post by SnowBog »

Calc_is_Easier wrote: Thu Jan 20, 2022 4:31 pm
SnowBog wrote: Thu Jan 20, 2022 2:00 am If interested, here's my attempt to create an EE Bond Manifesto modeled after Mel (and friends) I Bond Manifesto. viewtopic.php?t=358793
Very nice. You lay out a lovely "why buy EE at age 40" scenario. In reality I doubt I had a spare $20k in my budget to put into EE-Series (kids are expensive) or if I did, maybe I would have just put it into VTI (not being able to talk to my 51yo self). Hindsight is always :oops:
I get it!

If it makes you feel better, I think I'll only get something like 6 years of "coverage" from my EE Bonds. I found out about them, and started much later than I would have liked.

Had I known earlier, I could maybe have added another 2-3 years...

But to go further, I would have needed to find BH and have been far more financially aware/mature than I was back then.

FWIW, I am going crazy loading up on I Bonds, including via trusts & tax refunds, to make up the gap. My I Bonds will exclusively cover the early years, and my EE Bonds will cover the years that are 20+ out from when I started building this income floor.
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