What's the catch with I Bonds?

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SafeBonds
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Re: What's the catch with I Bonds?

Post by SafeBonds »

invester123 wrote: Tue Sep 28, 2021 6:40 pm Is there any scenario in which putting $ in a savings account would be better than buying I Bonds? What if interest rates drop to near 0?
If you need the money in less than 1 year, (you can't redeem I Bonds for 1 year) or if you need to be able to access the money in <24 hours notice (I'd imagine it might take at least 24 hours when redeeming an I Bond before it lands in your checking account).
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

krafty81 wrote: Tue Sep 28, 2021 6:25 pm
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
I have established a trust but how does one buy an I Bond with a Trust? I have a 10K one and my wife has a 10K one.
Open a new account for the trust.

When you get to the "account type" stage, instead of an "individual" account (which is what yours/wife's are) you will use the applicable option under "Estate or Trust" - but most likely the "Trust" option (the others are for deceased estates and/or court-appointed living estates).

The "Entity Name" would be be the legal name of the trust - as reflected on the trust documents. You should refer to your trust documents, and any guidance from whoever helped you create them. (If it helps, for my living trust, its titled something like "SnowBog Living Trust", and bonds are purchase in the trust are titled for "SnowBog and Successor(s), as Trustee(s) of the SnowBog Living Trust, dated xx-xx-xxxx, as amended". But I'd refer to how yours is/should be titled...)
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Re: What's the catch with I Bonds?

Post by ivgrivchuck »

krafty81 wrote: Tue Sep 28, 2021 6:25 pm I have established a trust but how does one buy an I Bond with a Trust? I have a 10K one and my wife has a 10K one.
You open a new account for your trust.
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invester123
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Re: What's the catch with I Bonds?

Post by invester123 »

How do you go about setting up a beneficiary? I don't see any such option on the TreasturyDirect website when I login. Haven't bought any I bonds yet.. does this appear once you've made your first purchase?

I keep hearing there will be higher rates next cycle in November. Where are people getting this info.. and is there any benefit to waiting another month?
harmony
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Re: What's the catch with I Bonds?

Post by harmony »

Thanks for a most interesting thread. Since I haven’t yet purchased my I bond for 2021, I think I should wait until after the November 2021 rate adjustment which many of you have indicated will be higher than the current rate. Then I’d purchase another $10,000 in January 2022. I’d get the better rate for $20,000 instead of just for the $10,000. As close as we are to November, wouldn’t it be better to wait? My question is similar to one just above.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

invester123 wrote: Tue Sep 28, 2021 11:21 pm How do you go about setting up a beneficiary? I don't see any such option on the TreasturyDirect website when I login. Haven't bought any I bonds yet.. does this appear once you've made your first purchase?

I keep hearing there will be higher rates next cycle in November. Where are people getting this info.. and is there any benefit to waiting another month?
You can select a POD option - pay on death when you are choosing how the bond will be registered. Second, you must understand that the rate on the I bond is variable; if you buy in October or September you get the guarantee of 3.54% for the first 6 months. If you buy in November you get 6% plus BUT you don’t know what you’ll get on May 2022 when the new rate is announced. To recap, buy before November and get 0.5 * 3.54% + 0.5 * 6% or more, blended rate is over 4 percent BUT don’t forget if you cash out before 5 years, you lose the last 3 months of interest.

How is the rate calculated? The Department of Labor publishes the CPI-U index on a monthly basis, the rate is calculated as the difference between the beginning index on April 2021 less the published index count on October 2021 divided by the base index to obtain the annualized inflation rate. That’s how everyone knows what the approximate rate is.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

harmony wrote: Tue Sep 28, 2021 11:29 pm Thanks for a most interesting thread. Since I haven’t yet purchased my I bond for 2021, I think I should wait until after the November 2021 rate adjustment which many of you have indicated will be higher than the current rate. Then I’d purchase another $10,000 in January 2022. I’d get the better rate for $20,000 instead of just for the $10,000. As close as we are to November, wouldn’t it be better to wait? My question is similar to one just above.
No and read my response above why waiting for November is the wrong choice.
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MrJedi
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Re: What's the catch with I Bonds?

Post by MrJedi »

harmony wrote: Tue Sep 28, 2021 11:29 pm Thanks for a most interesting thread. Since I haven’t yet purchased my I bond for 2021, I think I should wait until after the November 2021 rate adjustment which many of you have indicated will be higher than the current rate. Then I’d purchase another $10,000 in January 2022. I’d get the better rate for $20,000 instead of just for the $10,000. As close as we are to November, wouldn’t it be better to wait? My question is similar to one just above.
If you buy now or October you still get the upcoming new rate for 6 months starting in March/April. The main reason to consider waiting is if the current 3.54% rate is undesirable to you, since you will get the updated rate regardless.
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Re: What's the catch with I Bonds?

Post by harmony »

I discovered my question is being more thoroughly discussed here: viewtopic.php?p=6248764#p6248764. I had hoped that the fixed rate might go up in November, but #Cruncher in that thread thinks that the fixed rate is unlikely to go up. I'll keep following that and this thread today. I'm leaning toward purchasing today before the end of September.
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

Da5id wrote: Tue Sep 28, 2021 7:10 pm
invester123 wrote: Tue Sep 28, 2021 6:40 pm Is there any scenario in which putting $ in a savings account would be better than buying I Bonds? What if interest rates drop to near 0?
Pretty much only if you need the money within the one year lockup period.

Other than that case if an I-bond is ever worse than savings accounts you can always liquidate the bond.
Although given the purchase limits, you should evaluate whether this is just a temporary condition. I find this unlikely to happen, though, as I-bonds should at least be keeping up with inflation. We're already at 0% fixed yield.
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Re: What's the catch with I Bonds?

Post by MrJedi »

harmony wrote: Wed Sep 29, 2021 7:41 am I discovered my question is being more thoroughly discussed here: viewtopic.php?p=6248764#p6248764. I had hoped that the fixed rate might go up in November, but #Cruncher in that thread thinks that the fixed rate is unlikely to go up. I'll keep following that and this thread today. I'm leaning toward purchasing today before the end of September.
I agree. There is not an official published formula for the fixed rate, but history shows that it is correlated to TIPS real yields. TIPS real yield is still negative so I think it is relatively safe to expect no increase to fixed rate (Treasury does not seem to allow fixed rate to go below zero, normally fixed rate is a little less than TIPS real yield rates).
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emlowe
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Re: What's the catch with I Bonds?

Post by emlowe »

Just to update - following the September inflation report, the new rate will be a rather stunning 7.12% for 6 months.

With the release of the September inflation report on Wednesday, we got rather stunning news: All U.S. Series I Savings Bonds will have an inflation-adjusted interest rate of 7.12%, annualized, for six months. That rate will launch immediately for I Bonds purchased in November, or in six months for I Bonds purchased in October.

The key thing is: All I Bond investors will get that 7.12% eventually. But if you purchase an I Bond before the end of October, you will get an annualized return of 3.54% for six months, and then the 7.12% for six months. That adds up to a total return of about 5.33% for the year, a stellar number in our dreary world of ultra-low interest rates.
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northernbluegrass
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Re: What's the catch with I Bonds?

Post by northernbluegrass »

nisiprius wrote: Thu Jun 03, 2021 6:54 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm...Does anyone know why the yield seems to be so much higher than other comparable alternatives?...
Last time I checked, the amount of money in savings bonds was very roughly 1% of all Treasury debt. My assumption is that for a long time, but probably not any more, they were actually a cheap way for the government to borrow a not insignificant amount of money.

In the 1970s and on, they were decent savings vehicles, broadly on a par with bank accounts. 1980-1990 bank interest rates began to decline sharply. EE bond interest rates were only reset every six months and toward the end of the six months were quite noticeably higher than whatever banks were paying. I personally took advantage of that a couple of times. If you had money to save and it was near the end of that six months, it was better to buy a savings bond than to put it in a bank.

In 2008, suddenly, and with no real explanation before or since, and with only 31 days' notice, the Treasury cut the annual purchase limit from $30,000 to $5,000. They subsequently raised it to $10,000. They also begin the bizarre business of not allowing you to buy paper I bonds any more, yet allowing you to request that up to $5,000 of your tax refund be paid in the form of paper I bonds. I have never seen any coherent explanation of why.
The preamble to the Final Rule offers some explanation (apparently to push larger investors towards "normal" Treasury bonds):

"The change will permit Treasury to continue to offer savings options for investors with limited means and market opportunities, while encouraging those with greater financial resources to participate in marketable Treasury securities auctions, which are a more efficient means for Treasury to issue debt. Both savings bonds and marketable securities are offered to individuals through TreasuryDirect, which is an internet-accessed, book-entry system for purchasing, holding, and conducting transactions in Treasury securities. Reducing the cap on yearly purchases will not affect the vast majority of current savings bond purchasers, approximately 98 percent of whom buy less than $5,000, our new cap, annually."

"Offering and Governing Regulations for Series EE and Series I Savings Bonds, TreasuryDirect" 72 Fed. Reg. 67853 (2007)



May as well cover the explanation for the subsequently increased limit of $10,000 while we're at it:


"SUPPLEMENTARY INFORMATION: This rule increases the amount of book-entry Series EE and Series I savings bonds a person may acquire each year. Prior to this change, an investor could purchase up to $5,000 each of definitive and book-entry Series EE savings bonds ($10,000 total), and $5,000 each of definitive and book-entry Series I savings bonds ($10,000 total) per person, per calendar year. However, Treasury discontinued the issuance of definitive savings bonds, effective January 1, 2012. (See 76 FR 66,855 (Oct. 28, 2011)). In order to allow investors to maintain the same level of savings that existed prior to the elimination of definitive savings bonds, this rule will permit investors to acquire a principal amount of $10,000 of book-entry Series EE savings bonds and $10,000 of book-entry Series I savings bonds per person, per calendar year. Book-entry savings bonds are offered to individuals through TreasuryDirect [supreg], which is an Internet-accessed, book-entry system for purchasing, holding, and conducting transactions in Treasury securities."

"United States Savings Bonds, Series EE and I", 77 Fed. Reg. 213 (2012)
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Re: What's the catch with I Bonds?

Post by AnnetteLouisan »

SnowBog wrote: Tue Sep 28, 2021 7:52 pm
krafty81 wrote: Tue Sep 28, 2021 6:25 pm
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
I have established a trust but how does one buy an I Bond with a Trust? I have a 10K one and my wife has a 10K one.
Open a new account for the trust.

When you get to the "account type" stage, instead of an "individual" account (which is what yours/wife's are) you will use the applicable option under "Estate or Trust" - but most likely the "Trust" option (the others are for deceased estates and/or court-appointed living estates).

The "Entity Name" would be be the legal name of the trust - as reflected on the trust documents. You should refer to your trust documents, and any guidance from whoever helped you create them. (If it helps, for my living trust, its titled something like "SnowBog Living Trust", and bonds are purchase in the trust are titled for "SnowBog and Successor(s), as Trustee(s) of the SnowBog Living Trust, dated xx-xx-xxxx, as amended". But I'd refer to how yours is/should be titled...)
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Re: What's the catch with I Bonds?

Post by NorCalDad »

Found this thread after seeing I Bonds at 7.12 percent! Thanks for the explanations. Pretty sure I've never seen the current level of inflation in my adult life, though I am probably on the younger end of Bogleheads. Seems like retailers and restaurants are raising prices almost monthly where I live.
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Re: What's the catch with I Bonds?

Post by fundseeker »

I am excited to reported that I just checked our TD account and I earned $88 on the $10,000 that I bought a few months ago! It's too hard to log in so I did not check on my spouse's account. Just which I could do that with all of the other cash we have sitting around!
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Re: What's the catch with I Bonds?

Post by m@ver1ck »

We're a family of 4 (2 minors) so the effective limit is 40K. That's plenty.
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Re: What's the catch with I Bonds?

Post by Da5id »

m@ver1ck wrote: Sun Nov 07, 2021 12:44 pm We're a family of 4 (2 minors) so the effective limit is 40K. That's plenty.
Bear in mind that bonds in kids names belong to the kids. If you mean to be gifting $10K to the kids each year, unclear to me that I-bonds are where you'd want the money. If the money is for their distant future use, other asset classes might be better. I like and am buying I-bonds (and the 7% rate is crazy good), but they aren't the correct asset class for all purposes. In any case, worth noting that assets of the kids count very very heavily against financial aid if that is a possibility.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

Da5id wrote: Sun Nov 07, 2021 1:27 pm
m@ver1ck wrote: Sun Nov 07, 2021 12:44 pm We're a family of 4 (2 minors) so the effective limit is 40K. That's plenty.
Bear in mind that bonds in kids names belong to the kids. If you mean to be gifting $10K to the kids each year, unclear to me that I-bonds are where you'd want the money. If the money is for their distant future use, other asset classes might be better. I like and am buying I-bonds (and the 7% rate is crazy good), but they aren't the correct asset class for all purposes. In any case, worth noting that assets of the kids count very very heavily against financial aid if that is a possibility.
Given the choice between "financial aid" (a loan) or giving up a savings bond to pay for it - the choice should be obvious.
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Re: What's the catch with I Bonds?

Post by Da5id »

Grt2bOutdoors wrote: Sun Nov 07, 2021 1:45 pm
Da5id wrote: Sun Nov 07, 2021 1:27 pm
m@ver1ck wrote: Sun Nov 07, 2021 12:44 pm We're a family of 4 (2 minors) so the effective limit is 40K. That's plenty.
Bear in mind that bonds in kids names belong to the kids. If you mean to be gifting $10K to the kids each year, unclear to me that I-bonds are where you'd want the money. If the money is for their distant future use, other asset classes might be better. I like and am buying I-bonds (and the 7% rate is crazy good), but they aren't the correct asset class for all purposes. In any case, worth noting that assets of the kids count very very heavily against financial aid if that is a possibility.
Given the choice between "financial aid" (a loan) or giving up a savings bond to pay for it - the choice should be obvious.
Some people get financial aid that is straight grants. I don't know the posters circumstances, though the ability to give the kids $10K each suggests they aren't poor. Given the possibilities and options, not obvious to me.
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Re: What's the catch with I Bonds?

Post by m@ver1ck »

My income is about 500K.and spend about 120K. Rest is taxes or saved away. In that context, I figured I-Bonds would be a good way to save money. We've got about 2.5M in savings - with 90% in stocks.

As I look more into putting money into bonds, it seems legitimate to buy I-Bonds before any other form of bonds.. everyone else is paying 1.7% and these guys are paying 7%.

The ROTH IRA is 100% stocks and will probably end up.gping to the kids someday.
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Re: What's the catch with I Bonds?

Post by dogagility »

Been participating in the forum since 2017 and never considered I-Bonds as an investing vehicle I would use. With the current government inflation rate, I've seen the light for I-bonds as a part of my retirement portfolio fixed income allocation.

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Re: What's the catch with I Bonds?

Post by MrCheapo »

I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
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Re: What's the catch with I Bonds?

Post by ApeAttack »

MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
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Re: What's the catch with I Bonds?

Post by tetractys »

Jack FFR1846 wrote: Thu Jun 03, 2021 5:55 am As I approach retirement, I'm more focused on "forced" income from my investments. Dividends and interest from mutual funds, ETFs and savings accounts are a negative in my view because they can't easily be controlled, thus generating tax liability and potentially jumping up tax brackets. Like non-dividend paying stock, savings bonds can simply be held, deferring tax liability until their sale can be planned during a low income year. I hold just under $400k in paper savings bonds. No medallion nonsense to cash. Just a trip to my credit union with my passport.
I’ve talked to people who have used savings bonds as their entire retirement account. I bonds are just a recent phenomenon of that. Very safe of course! But those days of viability are largely gone.
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Re: What's the catch with I Bonds?

Post by MrCheapo »

I’ve talked to people who have used savings bonds as their entire retirement account. I bonds are just a recent phenomenon of that. Very safe of course! But those days of viability are largely gone.
If one used I-Bonds in principle their money would not lose value. But funding such a setup would be tough even with a mid 6 figure retirement account: a married couple can only fund $30K a year into I-Bonds if they received a tax return payment and $20K if they did not.
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Re: What's the catch with I Bonds?

Post by TropikThunder »

livesoft wrote: Wed Jun 02, 2021 8:23 pm The main catch for me is that one can only purchase a limited dollar amount, so they are just a distraction.
The purchase limit is higher than the contribution limit for an IRA. If you’re single, it’s higher than the limits on an IRA and HSA combined. Are IRA’s and HSA’s just a distraction too?
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Re: What's the catch with I Bonds?

Post by livesoft »

TropikThunder wrote: Sat Dec 04, 2021 12:21 pm The purchase limit is higher than the contribution limit for an IRA. If you’re single, it’s higher than the limits on an IRA and HSA combined. Are IRA’s and HSA’s just a distraction too?
Interest from I-bonds is not tax-exempt. They are only tax-deferred. IRAs invested in equities are different from I-bonds. HSA are tax-advantaged like Roth IRAs.

Sure, go get some I-bonds.
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Re: What's the catch with I Bonds?

Post by Nutmeg »

I am interested in buying some paper I-bonds with our tax refund to start. As we have previously had only the amount that we expect to owe in federal taxes withheld, it seems that my husband and I would need to make a $10,000 estimated tax payment in December in order to generate the refund necessary for us to buy that amount of I-bonds. Given the low previous inflation rates, we haven’t been too concerned about the fact that one pension is not inflation-adjusted, but now it seems that investing some in I-bonds and some in an existing small TIPS mutual fund might be a good idea.

As we have cash equivalents of about 2 years’ worth of expenses (admittedly a large amount, purposely kept in cash equivalents to make any future move smoother), we don’t expect to need the money any time soon.

Is there a catch for us?
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Re: What's the catch with I Bonds?

Post by AnEngineer »

You can only get $5k in I bonds per tax return.
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Re: What's the catch with I Bonds?

Post by tibbitts »

Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
There is an advantage to having a group of smaller-denomination bonds, and that's that you can redeem small or large amounts at your local bank, as needed, without having to deal with a TD account.
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Re: What's the catch with I Bonds?

Post by tibbitts »

Mel Lindauer wrote: Sun Dec 05, 2021 12:50 pm
tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
There is an advantage to having a group of smaller-denomination bonds, and that's that you can redeem small or large amounts at your local bank, as needed, without having to deal with a TD account.
Except when the local bank looks at you like you're from another planet when you ask about redeeming savings bonds, so that's another battle you have to fight. After you've already fought the lost-in-the-USmail battle. And the can't-change-bond-beneficiary battle. Like most things in life, savings bonds are great, except when they aren't.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

tibbitts wrote: Sun Dec 05, 2021 12:58 pm
Mel Lindauer wrote: Sun Dec 05, 2021 12:50 pm
tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
There is an advantage to having a group of smaller-denomination bonds, and that's that you can redeem small or large amounts at your local bank, as needed, without having to deal with a TD account.
Except when the local bank looks at you like you're from another planet when you ask about redeeming savings bonds, so that's another battle you have to fight. After you've already fought the lost-in-the-USmail battle. And the can't-change-bond-beneficiary battle. Like most things in life, savings bonds are great, except when they aren't.
And Treasury Direct has it's problems, too, with registration issues, lockouts, no paper statement trail for heirs to find, and requirements for medallion signatures which are harder and harder to get.

If you want I Bonds, you have to choose which one you think will be the least problem. For me, it's paper I Bonds since I've never had problems redeeming them. While not everyone in the bank is familiar with I Bonds, I've found that every branch I've worked with seems to have at least one person who knows how to handle them.
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Re: What's the catch with I Bonds?

Post by tibbitts »

Mel Lindauer wrote: Sun Dec 05, 2021 1:03 pm
tibbitts wrote: Sun Dec 05, 2021 12:58 pm
Mel Lindauer wrote: Sun Dec 05, 2021 12:50 pm
tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
There is an advantage to having a group of smaller-denomination bonds, and that's that you can redeem small or large amounts at your local bank, as needed, without having to deal with a TD account.
Except when the local bank looks at you like you're from another planet when you ask about redeeming savings bonds, so that's another battle you have to fight. After you've already fought the lost-in-the-USmail battle. And the can't-change-bond-beneficiary battle. Like most things in life, savings bonds are great, except when they aren't.
And Treasury Direct has it's problems, too, with registration issues, lockouts, no paper statement trail for heirs to find, and requirements for medallion signatures which are harder and harder to get.

If you want I Bonds, you have to choose which one you think will be the least problem. For me, it's paper I Bonds since I've never had problems redeeming them. While not everyone in the bank is familiar with I Bonds, I've found that every branch I've worked with seems to have at least one person who knows how to handle them.
I agree that TD has its problems too, the signature guarantee being one. Ultimately nobody has a choice now other than TD, starting the first time you need to change the registration. Otherwise I might still have paper bonds in my safe deposit box, just because they predated TD. I'm not sure I'd buy them through taxes today, because that means the communication between the tax return processing, then the treasury issuing the bonds, and then the USPS for each separate bond. If the IRS gave a TD alternative I might, especially if there was a TD routing number and account number that would allow ACHing a direct bond purchase into your account like a bank account refund works.
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Re: What's the catch with I Bonds?

Post by prioritarian »

ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
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Re: What's the catch with I Bonds?

Post by SnowBog »

prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
TIPS and I Bonds are both forms of US government bonds...

Clearly, I'm missing something...
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Re: What's the catch with I Bonds?

Post by ivgrivchuck »

prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
The correct Statements are:

1) If the inflation will turn out lower than expected, then nominals shall beat TIPs.

2) If the inflation rate ends up lower than the nominal U.S. treasury rate, then nominals start outperforming i-bonds.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
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Re: What's the catch with I Bonds?

Post by Angst »

tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
Years ago I found it was quite easy to simply "lose" my paper I and EE Bonds and then mail in the proper form to TD reporting my "lost" bonds and simultaneously having them converted to electronic. They've been in my electronic account ever since, albeit still in the same miscellaneous paper denominations from before. I can't say I remember whether or not there was a medallion signature guarantee involved in the process, but my local bank branch (US Bank) has done that for me before and it was never very difficult to do.

In the last few years though I've accumulated still more paper I Bonds through tax refunds, but I expect that at some point down the road I'll "lose" these ones too, somewhere in the clutter covering my desktop... :wink:
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Re: What's the catch with I Bonds?

Post by tibbitts »

Angst wrote: Sun Dec 05, 2021 4:11 pm
tibbitts wrote: Sat Dec 04, 2021 7:05 pm
Nutmeg wrote: Sat Dec 04, 2021 2:19 pm
Is there a catch for us?
Besides the per-return cap, there's the nuisance of dealing with USmail for a group of low-denomination bonds, then dealing with converting them to electronic bonds (or maintaining them separately, without being able to make registration or other changes over the years.)
Years ago I found it was quite easy to simply "lose" my paper I and EE Bonds and then mail in the proper form to TD reporting my "lost" bonds and simultaneously have them converted to electronic. They've been in my electronic account ever since, albeit still in the same miscellaneous paper denominations from before. I can't say I remember whether or not there was a medallion signature involved in the process, but my local bank branch (US Bank) has done that for me before and it was never very difficult to do.

In the last few years I've accumulated still more paper I Bonds through tax refunds, but I expect that at some point down the road I'll "lose" these ones too, somewhere in the clutter covering my desktop... :wink:
I hadn't thought of "losing" my bonds before I sent them in, so that's interesting. I'd just assumed (I know...) that they'd be difficult (although possible) to replace. If I hadn't read Bogleheads lately I would have thought "no problem" with regard to medallion guarantees, but then when I took in the TD form, for the first time my bank was a little reluctant to provide it. They did, but there seems to be a trend away from them, so even if you got one just months ago, I'm not sure that means a lot going forward.
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Re: What's the catch with I Bonds?

Post by Angst »

tibbitts wrote: Sun Dec 05, 2021 4:15 pmI hadn't thought of "losing" my bonds before I sent them in, so that's interesting. I'd just assumed (I know...) that they'd be difficult (although possible) to replace. If I hadn't read Bogleheads lately I would have thought "no problem" with regard to medallion guarantees, but then when I took in the TD form, for the first time my bank was a little reluctant to provide it. They did, but there seems to be a trend away from them, so even if you got one just months ago, I'm not sure that means a lot going forward.
Well, my curiosity got the best of me: I went to TD and found my "conversion account" within my regular TD account (I'd created it years ago) and discovered that almost the whole process is online now, and a LOT easier than it used to be when I had to tediously fill out the old form with each paper bond's info. This time, I easily entered all of my recent tax refund/paper I Bonds and now have a "conversion manifest" printed out. All I have to do is mail it in with my I Bonds (I'm not going to "lose" them this time) and there's no guarantee or notarization involved at all. I probably won't use certified mail either. My paper bonds' issue dates and serial numbers are already entered into my TD conversion account and I keep backup image files of the bonds, so even if they were stolen through the mail, I don't see too much cause for concern. I'll send them off sometime this week, and thank you tibbitts for inadvertently giving me the push to get it done! :D

Hint: For anyone doing this online, be sure to first organize you paper bonds in order by serial numbers. In the entry fields in TD you can recall all the serial numbers (and issue dates) you already entered using the down-arrow key, so going consecutively with serial numbers is a breeze.
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Re: What's the catch with I Bonds?

Post by ApeAttack »

prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
Mr Cheapo said I-Bonds "represent lost opportunity cost for returns on equities."

All bonds could be viewed in that manner, not just I-Bonds. I think I-Bonds should be compared to other types of bonds (as you did), not equities (as Mr Cheapo did).
May all your index funds gain +0.5% today.
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Re: What's the catch with I Bonds?

Post by SnowBog »

ApeAttack wrote: Sun Dec 05, 2021 8:00 pm
prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
Mr Cheapo said I-Bonds "represent lost opportunity cost for returns on equities."

All bonds could be viewed in that manner, not just I-Bonds. I think I-Bonds should be compared to other types of bonds (as you did), not equities (as Mr Cheapo did).
+1

Whenever I see someone comparing equities to I Bonds - I think of compering an airplane to a car (both are modes of transportation, right...)

Sure - for a particular vacation - one will choose between taking an airplane or a car. But over one's lifetime, most people (at least on BH) will use both. And more particularly, for people who decide to buy a car - at no point would they consider a plane as an alternative to have a car - they would evaluate the different car type options (electric/gas/hybrid, 2-/4-/SUV/truck, etc.) and pick from those.

Same is true for I Bonds - compare them to other fixed income/bond options...
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

SnowBog wrote: Sun Dec 05, 2021 8:29 pm
ApeAttack wrote: Sun Dec 05, 2021 8:00 pm
prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection


That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
Mr Cheapo said I-Bonds "represent lost opportunity cost for returns on equities."

All bonds could be viewed in that manner, not just I-Bonds. I think I-Bonds should be compared to other types of bonds (as you did), not equities (as Mr Cheapo did).
+1

Whenever I see someone comparing equities to I Bonds - I think of compering an airplane to a car (both are modes of transportation, right...)

Sure - for a particular vacation - one will choose between taking an airplane or a car. But over one's lifetime, most people (at least on BH) will use both. And more particularly, for people who decide to buy a car - at no point would they consider a plane as an alternative to have a car - they would evaluate the different car type options (electric/gas/hybrid, 2-/4-/SUV/truck, etc.) and pick from those.

Same is true for I Bonds - compare them to other fixed income/bond options...
Well said! Your comparisons clearly explain how equities and bonds are different animals.
Best Regards - Mel | | Semper Fi
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Re: What's the catch with I Bonds?

Post by prioritarian »

SnowBog wrote: Sun Dec 05, 2021 2:25 pm
prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
TIPS and I Bonds are both forms of US government bonds...

Clearly, I'm missing something...
You are adding something.
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Re: What's the catch with I Bonds?

Post by prioritarian »

ivgrivchuck wrote: Sun Dec 05, 2021 3:21 pm
prioritarian wrote: Sun Dec 05, 2021 2:04 pm
ApeAttack wrote: Sat Dec 04, 2021 10:24 am
MrCheapo wrote: Sat Dec 04, 2021 9:07 am I like I bonds and invest in them but there is a catch. Namely in a prolonged very low inflation
environment they represent lost opportunity cost for returns on equities.

I use them for emergency funds. Safe as a bank but with some inflation protection

Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
That is true of all bonds. I don't think the proper comparison is between IBonds and equities. Rather, it is between IBonds and other types of bonds or bond funds.
In a low to negative inflation environment US government bonds outperform TIPs and greatly outperform IBonds (they lack a return due to market price entirely).
The correct Statements are:

1) If the inflation will turn out lower than expected, then nominals shall beat TIPs.

2) If the inflation rate ends up lower than the nominal U.S. treasury rate, then nominals start outperforming i-bonds.
The correct interpretation of my comment would be to understand that bond coupons are only one component of bond total returns.
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Re: What's the catch with I Bonds?

Post by HonoluluGator »

OK... I have a wife, we each have a trust, and we have an LLC, so it seems I can buy $50k per year (not including the potential for paper) and have set up 5 TD accounts.

Now, I have read and read, but the math still confuses me. Do I buy now or do I wait for the new rates which will come out late April (or even wait until the fall) with the assumption we have inflation this year? Does timing really make a difference?
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Re: What's the catch with I Bonds?

Post by SnowBog »

Currently, I think the general consensus is to buy before May (now is fine if you have the funds available) if you can.

It's highly unlikely that the fixed rate will be > 0% this year, and while we won't know until later, it's likely the current 7.12% rate is the highest we'll see this year.

So buying before May gets you 6 months at a very high rate, and then whatever rates follow. Even if the rates are higher in May, you'd still get 7.12% for 6 months then the higher rate.

The only "risk" is if the fixed rate is > 0%, which seems very, very unlikely at this point.
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Re: What's the catch with I Bonds?

Post by HonoluluGator »

SnowBog wrote: Wed Jan 12, 2022 12:20 pm Currently, I think the general consensus is to buy before May (now is fine if you have the funds available) if you can.

It's highly unlikely that the fixed rate will be > 0% this year, and while we won't know until later, it's likely the current 7.12% rate is the highest we'll see this year.

So buying before May gets you 6 months at a very high rate, and then whatever rates follow. Even if the rates are higher in May, you'd still get 7.12% for 6 months then the higher rate.

The only "risk" is if the fixed rate is > 0%, which seems very, very unlikely at this point.
Thank you very much. I think maybe I'll hold until April 15-30 time frame to see if the fixed rate moves any... that seems low risk to me. Feel free to point out the possible error in my logic.
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

HonoluluGator wrote: Thu Jan 13, 2022 8:10 am
SnowBog wrote: Wed Jan 12, 2022 12:20 pm Currently, I think the general consensus is to buy before May (now is fine if you have the funds available) if you can.

It's highly unlikely that the fixed rate will be > 0% this year, and while we won't know until later, it's likely the current 7.12% rate is the highest we'll see this year.

So buying before May gets you 6 months at a very high rate, and then whatever rates follow. Even if the rates are higher in May, you'd still get 7.12% for 6 months then the higher rate.

The only "risk" is if the fixed rate is > 0%, which seems very, very unlikely at this point.
Thank you very much. I think maybe I'll hold until April 15-30 time frame to see if the fixed rate moves any... that seems low risk to me. Feel free to point out the possible error in my logic.
The new fixed rate (unlike the inflation rate) is not announced in advance. Late April is when the inflation numbers will be known that let us know the next inflation rate, but the fixed rate is determined based on interest rate policy and the Treasury has the ability to set whatever level it wants.

With TIPS interest rates far below zero, most I Bond watchers believe that Treasury will not raise the fixed rate in May. While in my opinion you can take that prediction to the bank, it's not a guarantee, and by the time you know for sure, it will be too late to make a choice between two options.
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