What's the catch with I Bonds?

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

Post by AlwaysLearningMore »

livesoft wrote: Thu Jun 03, 2021 4:30 pm So now we have to put I-bonds in the "Prioritizing investments order" list somewhere, right?
Zvi Bodie: I Bonds Are Best for Most Investors
https://tinyurl.com/y2gvtnbk

One retirement consultant calls I bonds ‘the best-kept secret in America.’ Right now they’re yielding over 3.5%, nearly risk free.
https://tinyurl.com/hry8sp4
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
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Re: What's the catch with I Bonds?

Post by spdoublebass »

livesoft wrote: Fri Jun 04, 2021 8:40 am
Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
As a reader of this forum who between DW and myself cannot max out both our Roth IRA's and 401K's, this post is really key. It's important when reading BHs to figure out what is applicable to your own situation. I am enchanted by EE and I bonds for some reason. However, I have no use for EE bonds in my situation. With I Bonds I have found a way to include them in my EF.
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

spdoublebass wrote: Fri Jun 04, 2021 12:48 pm
livesoft wrote: Fri Jun 04, 2021 8:40 am
Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
As a reader of this forum who between DW and myself cannot max out both our Roth IRA's and 401K's, this post is really key. It's important when reading BHs to figure out what is applicable to your own situation. I am enchanted by EE and I bonds for some reason. However, I have no use for EE bonds in my situation. With I Bonds I have found a way to include them in my EF.
They are great for an EF (after the required 1 year holding period) right now. Although I remember a couple of years ago, CD rates were high enough that I Bonds were not all that attractive, especially if you did not already have a TD account.

Initially started buying I Bonds for my EF last year when the interest rates dropped to nothing and I had CDs that were part of my EF expire. I have now "I Bond-ized" most of my emergency fund, but I am likely to continue buying at least some I Bonds annually going forward. Although, I am in the group of people fortunate to already max all tax advantages accounts and have to invest in a taxable account.
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Re: What's the catch with I Bonds?

Post by livesoft »

AlwaysLearningMore wrote: Fri Jun 04, 2021 12:27 pm
livesoft wrote: Thu Jun 03, 2021 4:30 pm So now we have to put I-bonds in the "Prioritizing investments order" list somewhere, right?
Zvi Bodie: I Bonds Are Best for Most Investors
https://tinyurl.com/y2gvtnbk

One retirement consultant calls I bonds ‘the best-kept secret in America.’ Right now they’re yielding over 3.5%, nearly risk free.
https://tinyurl.com/hry8sp4
Prof. Zvi Bodie's 2003 "Worry-free Investing" and even the link from 2012 have not aged well. I always felt he was too afraid to invest in equities at all, but then he didn't have to since he was a tenured professor with a great 403(b) who loved his job and retired at age 72 about 6 years ago.

As for the 2nd link, yes, I-bonds will pay 3.54% apparently for a little while, but that's not the whole story with their "early withdrawal" penalty and changing rates.
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abc132
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Re: What's the catch with I Bonds?

Post by abc132 »

livesoft wrote: Fri Jun 04, 2021 8:40 am
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
I-Bond vs other alternatives is a valid consideration. In my case, I need to access more money for pre 59.5 retirement and I-Bonds make some sense for planned spending during the gap years.

Rebalancing is generally not an added benefit for an IRA, because the amount of bonds people generally hold outside of TD is still enough to rebalance. The 10k yearly individual contribution limit almost guarantees this.
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Re: What's the catch with I Bonds?

Post by Broken Man 1999 »

I-bonds have worked very well for us, as well as our Vanguard VA. And, neither require RMDs, which I have started addressing via conversions last year. It was sure nice seeing the shekels pile up :D , but not so nice to pay the taxes on the conversion. :(

At this moment in time, our I-bond stash is 6.11% of our total portfolio, and 14.15% of our bond portfolio.

Most likely I will continue buy at least $10,000/year of I-bonds POD to the grandchildren. I might even take a swing at buying some EE savings bonds. Might double up with DW also.

I like the characteristics of both, hopefully the Treasury will offer both types for many years to come.

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Re: What's the catch with I Bonds?

Post by friar1610 »

kacang wrote: Thu Jun 03, 2021 12:35 am Our AA says we should be getting more bonds, so we're looking into this as well. Considering that tax on interest is deferred and state-exempted, 3.54% is attractive. The annual limit does make it less useful.

But according to https://www.bogleheads.org/wiki/I_savin ... #529_Plans it could be federal-tax exempted if used for qualified educational expenses, including rolling into a 529. That opens up another possibility, hold it for 5 years and if we don't need it, use it to seed a 529. Do this for a few years and this can be a pretty nice 529 for a future grandkid.
My understanding is that the tax exemption applies only to your own kids, not to grandkids (unless they are your dependents.) If you have an authoritative source that shows otherwise, I would be most happy to see it. I have a bunch of the old 3.4% fixed rate I-Bonds and a granddaughter graduating from high school on Sunday. Her parents and I would be very happy if I could get the exemption.
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Noobvestor
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Re: What's the catch with I Bonds?

Post by Noobvestor »

samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
A zero percent real fixed rate is better than most TIPS offer or Treasuries are likely to return. It may 'sound' low (no one likes the sound of 'zero') but it's a great deal in the realm of safe fixed-income. Better way to to think about it: your return will align with inflation - if inflation goes up, you get a higher nominal return. If it stays low, well, so it goes. Mix in EE Bonds (held to doubling) for deflation and you've got a winning combination.

Investing is always a matter of alternatives, and in this case that would be TIPS, which are less flexible and many of which offer negative real returns.
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Re: What's the catch with I Bonds?

Post by kacang »

friar1610 wrote: Fri Jun 04, 2021 3:00 pm
kacang wrote: Thu Jun 03, 2021 12:35 am Our AA says we should be getting more bonds, so we're looking into this as well. Considering that tax on interest is deferred and state-exempted, 3.54% is attractive. The annual limit does make it less useful.

But according to https://www.bogleheads.org/wiki/I_savin ... #529_Plans it could be federal-tax exempted if used for qualified educational expenses, including rolling into a 529. That opens up another possibility, hold it for 5 years and if we don't need it, use it to seed a 529. Do this for a few years and this can be a pretty nice 529 for a future grandkid.
My understanding is that the tax exemption applies only to your own kids, not to grandkids (unless they are your dependents.) If you have an authoritative source that shows otherwise, I would be most happy to see it. I have a bunch of the old 3.4% fixed rate I-Bonds and a granddaughter graduating from high school on Sunday. Her parents and I would be very happy if I could get the exemption.
You are right, a rollover in a non-dependent grandkid's 529 may not work. An option is to roll it into my 529, to pay for the classes I've always wanted to take in retirement. If there's leftover in the 529, change beneficiary when a grandkid is born & keep an eye on the GST.
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Re: What's the catch with I Bonds?

Post by Broken Man 1999 »

kacang wrote: Fri Jun 04, 2021 5:07 pm
friar1610 wrote: Fri Jun 04, 2021 3:00 pm
kacang wrote: Thu Jun 03, 2021 12:35 am Our AA says we should be getting more bonds, so we're looking into this as well. Considering that tax on interest is deferred and state-exempted, 3.54% is attractive. The annual limit does make it less useful.

But according to https://www.bogleheads.org/wiki/I_savin ... #529_Plans it could be federal-tax exempted if used for qualified educational expenses, including rolling into a 529. That opens up another possibility, hold it for 5 years and if we don't need it, use it to seed a 529. Do this for a few years and this can be a pretty nice 529 for a future grandkid.
My understanding is that the tax exemption applies only to your own kids, not to grandkids (unless they are your dependents.) If you have an authoritative source that shows otherwise, I would be most happy to see it. I have a bunch of the old 3.4% fixed rate I-Bonds and a granddaughter graduating from high school on Sunday. Her parents and I would be very happy if I could get the exemption.
You are right, a rollover in a non-dependent grandkid's 529 may not work. An option is to roll it into my 529, to pay for the classes I've always wanted to take in retirement. If there's leftover in the 529, change beneficiary when a grandkid is born & keep an eye on the GST.
So far as a parent using I-bonds for education, there is a max income limit to be able to get the tax exemption. Not sure what the income cut-off is, but I know there is one.

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

Post by Candor »

Broken Man 1999 wrote: Fri Jun 04, 2021 5:25 pm
kacang wrote: Fri Jun 04, 2021 5:07 pm
friar1610 wrote: Fri Jun 04, 2021 3:00 pm
kacang wrote: Thu Jun 03, 2021 12:35 am Our AA says we should be getting more bonds, so we're looking into this as well. Considering that tax on interest is deferred and state-exempted, 3.54% is attractive. The annual limit does make it less useful.

But according to https://www.bogleheads.org/wiki/I_savin ... #529_Plans it could be federal-tax exempted if used for qualified educational expenses, including rolling into a 529. That opens up another possibility, hold it for 5 years and if we don't need it, use it to seed a 529. Do this for a few years and this can be a pretty nice 529 for a future grandkid.
My understanding is that the tax exemption applies only to your own kids, not to grandkids (unless they are your dependents.) If you have an authoritative source that shows otherwise, I would be most happy to see it. I have a bunch of the old 3.4% fixed rate I-Bonds and a granddaughter graduating from high school on Sunday. Her parents and I would be very happy if I could get the exemption.
You are right, a rollover in a non-dependent grandkid's 529 may not work. An option is to roll it into my 529, to pay for the classes I've always wanted to take in retirement. If there's leftover in the 529, change beneficiary when a grandkid is born & keep an eye on the GST.
So far as a parent using I-bonds for education, there is a max income limit to be able to get the tax exemption. Not sure what the income cut-off is, but I know there is one.

Broken Man 1999
Looks like MAGI of $97,350 single; $153,550 joint.

https://www.irs.gov/pub/irs-pdf/f8815.pdf
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Mel Lindauer
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

livesoft wrote: Fri Jun 04, 2021 8:40 am
Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
Agree that contributions to traditional retirement plans should come first and I stated so on another current thread. While risk-free I Bonds offer tax deferral and other benefits (and don't require RMDs), traditional retirement plans offer both tax-deferral AND a tax deduction. So fill your retirement plans first (especially if you are getting a company match) and then buy I Bonds and enjoy their benefits if you still have money you'd like to invest.
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Re: What's the catch with I Bonds?

Post by kate1234 »

When I look at my TreasuryDirect account I see iBonds I bought January 2013 and TD says their interest rate is 1.68%. Is there somewhere I can look up the fixed versus the adjustable parts that make up that rate? I didn't make a note when I bought them.
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Re: What's the catch with I Bonds?

Post by RubyTuesday »

kate1234 wrote: Sat Jun 05, 2021 6:32 am When I look at my TreasuryDirect account I see iBonds I bought January 2013 and TD says their interest rate is 1.68%. Is there somewhere I can look up the fixed versus the adjustable parts that make up that rate? I didn't make a note when I bought them.
Treasury Direct has the info
https://www.treasurydirect.gov/indiv/re ... dterms.htm

As does this site made by BH member cruncher
http://eyebonds.info/ibonds/rates.html

Note a bond purchased in Jan has its fixed rate based on the fixed rate from previous Nov and it’s initial inflation rate based on previous Nov inflation rate. It’s fixed is fixed… it’s inflation changes semiannually on Jan and July based on previous Nov and May rates respectively.
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Re: What's the catch with I Bonds?

Post by kate1234 »

And while I'm focusing on iBonds, I just learned from Harry Sit that while an individual is limited to a $10,000 purchase, one can have the registration list both spouses - it is just that in Spouse1's account it lists #1 first and #2 second, and in Spouse2"s account it lists #2 first and #1 second. It fits in with our family philosophy that these should be jointly owned and it looks like TreasuryDirect will allow me to change the registration on the previously-purchased bonds. I plan to switch unless I'm missing something.

And also while I'm at it, although I was thinking about changing the registration from one spouse to two, any reason one couldn't change the registration to gift it to one's child.
Last edited by kate1234 on Sat Jun 05, 2021 8:25 am, edited 1 time in total.
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Re: What's the catch with I Bonds?

Post by Arby »

samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Even if the rate reverts to 0% for the next two periods, if one cashed in after 15 months, you'd get around 2.8% before taxes.

But I haven't pulled the trigger yet because of website issues. I live overseas and it could be years before I am back in the States and am worried about being cut off from my money. For example if they imposed a medallion signature rule to get your money out which I can't do overseas. So for me, the return is fantastic but maybe not worth introducing possible problems to my life.
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Re: What's the catch with I Bonds?

Post by Angst »

Noobvestor wrote: Fri Jun 04, 2021 3:52 pm
samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
A zero percent real fixed rate is better than most TIPS offer or Treasuries are likely to return. It may 'sound' low (no one likes the sound of 'zero') but it's a great deal in the realm of safe fixed-income. Better way to to think about it: your return will align with inflation - if inflation goes up, you get a higher nominal return. If it stays low, well, so it goes.
Exactly. People seem to have a lot of difficulty grasping the implications of the real yield curve vis-à-vis nominal bonds.

The only "catch" with I Bonds today is that eventually, the real yield curve will become decidedly positive again and there will no longer exist any rate benefit derived from the I Bond's 0.0% fixed rate floor. But that's no problem, it's simple to sell one's I Bonds anytime you like.

I Bond's presently yield more than any TIPS or nominal US govt bills, notes or bonds (or govt bond index funds) that you can buy.
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

kate1234 wrote: Sat Jun 05, 2021 7:00 am And while I'm focusing on iBonds, I just learned from Harry Sit that while an individual is limited to a $10,000 purchase, one can have the registration list both spouses - it is just that in Spouse1's account it lists #1 first and #2 second, and in Spouse2"s account it lists #2 first and #1 second. It fits in with our family philosophy that these should be jointly owned and it looks like TreasuryDirect will allow me to change the registration on the previously-purchased bonds. I plan to switch unless I'm missing something.

And also while I'm at it, although I was thinking about changing the registration from one spouse to two, any reason one couldn't change the registration to gift it to one's child.
You can change the registration at any time while you are alive, so if you wanted to change the registration from Primary/Secondary 'WITH your spouse' to Primary/Beneficiary 'POD your child', or even to yourself as the sole owner, you can do it online as often as you want.

If you register a bond as Primary/Secondary WITH and then assign View/Transact rights to the other spouse, you can get most of the functionality of a paper joint-owned 'OR' paper bond, but not all. The Primary Owner of a WITH bond will get the 1099 for the interest no matter who redeems the bond (unlike an OR bond where the 1099 is issued to whichever co-owner presents the bond for redemption).

This means that if the Primary Owner dies, a Secondary (WITH) owner may potentially be in the same boat as a POD beneficiary, and may still need to contact TreasuryDirect to provide proof of death and reissue the bond as 'theirs' before it can be redeemed. The TreasuryDirect instructions have no detailed guidance on this process, only saying that customers should contact TD customer service for information specific to their situation.
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Re: What's the catch with I Bonds?

Post by anon_investor »

BrokerageZelda wrote: Sat Jun 05, 2021 10:00 am
kate1234 wrote: Sat Jun 05, 2021 7:00 am And while I'm focusing on iBonds, I just learned from Harry Sit that while an individual is limited to a $10,000 purchase, one can have the registration list both spouses - it is just that in Spouse1's account it lists #1 first and #2 second, and in Spouse2"s account it lists #2 first and #1 second. It fits in with our family philosophy that these should be jointly owned and it looks like TreasuryDirect will allow me to change the registration on the previously-purchased bonds. I plan to switch unless I'm missing something.

And also while I'm at it, although I was thinking about changing the registration from one spouse to two, any reason one couldn't change the registration to gift it to one's child.
You can change the registration at any time while you are alive, so if you wanted to change the registration from Primary/Secondary 'WITH your spouse' to Primary/Beneficiary 'POD your child', or even to yourself as the sole owner, you can do it online as often as you want.

If you register a bond as Primary/Secondary WITH and then assign View/Transact rights to the other spouse, you can get most of the functionality of a paper joint-owned 'OR' paper bond, but not all. The Primary Owner of a WITH bond will get the 1099 for the interest no matter who redeems the bond (unlike an OR bond where the 1099 is issued to whichever co-owner presents the bond for redemption).

This means that if the Primary Owner dies, a Secondary (WITH) owner may potentially be in the same boat as a POD beneficiary, and may still need to contact TreasuryDirect to provide proof of death and reissue the bond as 'theirs' before it can be redeemed. The TreasuryDirect instructions have no detailed guidance on this process, only saying that customers should contact TD customer service for information specific to their situation.
If the primary owner dies, the secondary (with) owner IS in the same situation as a POD beneficiary.

The benefit of naming a secondary (with) owner, is that the primary owner can grant the secondary owner transaction rights via their TD account, so the secondary owner can freely redeem through their own account while the primary owner is alive. This may be helpful if the primary owner loses access temporarily to their TD account or is incapacitated.
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Re: What's the catch with I Bonds?

Post by HueyLD »

anon_investor wrote: Sat Jun 05, 2021 10:18 am If the primary owner dies, the secondary (with) owner IS in the same situation as a POD beneficiary.

The benefit of naming a secondary (with) owner, is that the primary owner can grant the secondary owner transaction rights via their TD account, so the secondary owner can freely redeem through their own account while the primary owner is alive. This may be helpful if the primary owner loses access temporarily to their TD account or is incapacitated.
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Re: What's the catch with I Bonds?

Post by RubyTuesday »

kate1234 wrote: Sat Jun 05, 2021 7:00 am And while I'm focusing on iBonds, I just learned from Harry Sit that while an individual is limited to a $10,000 purchase, one can have the registration list both spouses - it is just that in Spouse1's account it lists #1 first and #2 second, and in Spouse2"s account it lists #2 first and #1 second. It fits in with our family philosophy that these should be jointly owned and it looks like TreasuryDirect will allow me to change the registration on the previously-purchased bonds. I plan to switch unless I'm missing something.

And also while I'm at it, although I was thinking about changing the registration from one spouse to two, any reason one couldn't change the registration to gift it to one's child.
Not absolutely sure, but I don’t think you could change registration to make it a gift to your child. You could however add WITH your child as second owner or WITH your child as beneficiary. You can buy gift bonds, but you need to designate it as gift when purchasing.
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Re: What's the catch with I Bonds?

Post by uslee2004 »

HueyLD wrote: Sat Jun 05, 2021 10:32 am
anon_investor wrote: Sat Jun 05, 2021 10:18 am If the primary owner dies, the secondary (with) owner IS in the same situation as a POD beneficiary.

The benefit of naming a secondary (with) owner, is that the primary owner can grant the secondary owner transaction rights via their TD account, so the secondary owner can freely redeem through their own account while the primary owner is alive. This may be helpful if the primary owner loses access temporarily to their TD account or is incapacitated.
+1!
Thanks for sharing this feature--learning every day.
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Re: What's the catch with I Bonds?

Post by AlmstRtrd »

Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
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Re: What's the catch with I Bonds?

Post by anon_investor »

AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
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Re: What's the catch with I Bonds?

Post by AlmstRtrd »

anon_investor wrote: Sun Jun 06, 2021 7:26 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
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Re: What's the catch with I Bonds?

Post by anon_investor »

AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am
anon_investor wrote: Sun Jun 06, 2021 7:26 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Well you guys will see some interest starting after the end of the 4th month. So if you bought in May, you will see the earned August interest on September 1.
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Re: What's the catch with I Bonds?

Post by HueyLD »

AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am
anon_investor wrote: Sun Jun 06, 2021 7:26 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Even though the TD website is a bit “old fashioned,” the way they manage interest credit is actually very efficient.

Unlike a bank CD where an early withdrawal penalty has to be deducted from your balance, the I bond value shown is the redemption value with no additional math needed. Of course I bonds cannot be redeemed within the first year.
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Re: What's the catch with I Bonds?

Post by AlmstRtrd »

Interesting
anon_investor wrote: Sun Jun 06, 2021 7:51 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am
anon_investor wrote: Sun Jun 06, 2021 7:26 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Well you guys will see some interest starting after the end of the 4th month. So if you bought in May, you will see the earned August interest on September 1.
That is certainly helpful. So, at that point, we should see a new, slightly higher, total on the first of each month starting September 1st, right? Or will we only see it bump up quarterly?
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

AlmstRtrd wrote: Sun Jun 06, 2021 7:55 am Interesting
anon_investor wrote: Sun Jun 06, 2021 7:51 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am
anon_investor wrote: Sun Jun 06, 2021 7:26 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am Just dropping into this discussion to ask a quick question. I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?

All the other EE-Bonds and I-Bonds I own are paper bonds so the TD route is new for me. Thanks in advance for any help!!!
None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Well you guys will see some interest starting after the end of the 4th month. So if you bought in May, you will see the earned August interest on September 1.
That is certainly helpful. So, at that point, we should see a new, slightly higher, total on the first of each month starting September 1st, right? Or will we only see it bump up quarterly?
For you, Sept 1 and onward it will update monthly on the first of the month.
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Re: What's the catch with I Bonds?

Post by SnowBog »

anon_investor wrote: Sun Jun 06, 2021 8:24 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:55 am Interesting
anon_investor wrote: Sun Jun 06, 2021 7:51 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am
anon_investor wrote: Sun Jun 06, 2021 7:26 am

None will show up for the first 3 months, that represents the early redemption penalty (if redeemed before 5 years). After 5 years the missing 3 months interest will show up. TD is essentially only showing you the interest that has "vested" (my word not TD's).
Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Well you guys will see some interest starting after the end of the 4th month. So if you bought in May, you will see the earned August interest on September 1.
That is certainly helpful. So, at that point, we should see a new, slightly higher, total on the first of each month starting September 1st, right? Or will we only see it bump up quarterly?
For you, Sept 1 and onward it will update monthly on the first of the month.
Think of it this way, for the first 5 years, you are seeing a 3 month delayed interest - but there isn't a "penalty" - what you see is what you'll get (after you pass the one year mark). So if you bought in May, you'll see May's interest show up in August, June's show up in September, etc.

When you reach 5 years, and the penalty goes away, you'll see an update of 4 months interest (the current months interest plus the 3 months previously delayed). After that point, the monthly interest posted is for the current month.

As HueyLD pointed out, this is much simpler than showing you a balance and making YOU figure out the 3 month interest penalty for the first 5 years if you sell early. The balance includes the penalty - until it no longer applies.
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Re: What's the catch with I Bonds?

Post by anon_investor »

SnowBog wrote: Sun Jun 06, 2021 10:26 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:55 am Interesting
anon_investor wrote: Sun Jun 06, 2021 7:51 am
AlmstRtrd wrote: Sun Jun 06, 2021 7:45 am

Ah, got it. That is super clear. Many thanks, anon-investor! Now I just have to explain this to my wife! (Honey, we'll see that bond interest in May of 2026.)
Well you guys will see some interest starting after the end of the 4th month. So if you bought in May, you will see the earned August interest on September 1.
That is certainly helpful. So, at that point, we should see a new, slightly higher, total on the first of each month starting September 1st, right? Or will we only see it bump up quarterly?
For you, Sept 1 and onward it will update monthly on the first of the month.
Think of it this way, for the first 5 years, you are seeing a 3 month delayed interest - but there isn't a "penalty" - what you see is what you'll get (after you pass the one year mark). So if you bought in May, you'll see May's interest show up in August, June's show up in September, etc.

When you reach 5 years, and the penalty goes away, you'll see an update of 4 months interest (the current months interest plus the 3 months previously delayed). After that point, the monthly interest posted is for the current month.

As HueyLD pointed out, this is much simpler than showing you a balance and making YOU figure out the 3 month interest penalty for the first 5 years if you sell early. The balance includes the penalty - until it no longer applies.
To add, TD does not show the 3 most recent months worth of earned interest. So after 9 months, the full 6 months of 3.54% interest will show and the 3 months of interest at the new variable rate will not.
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Re: What's the catch with I Bonds?

Post by framus »

Please sir, when may I have some more?

Is the $10k per account per year based on the calendar year? This seems to be what the TD www site says.

If I bought $10k worth of I-bonds in May of 2021 can I purchase more in Jan of 2022 or must I wait until May of 2022?
-Framus
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Re: What's the catch with I Bonds?

Post by HueyLD »

It is by calendar year.
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Re: What's the catch with I Bonds?

Post by Charon »

anon_investor wrote: Fri Jun 04, 2021 1:11 pm They are great for an EF (after the required 1 year holding period) right now. Although I remember a couple of years ago, CD rates were high enough that I Bonds were not all that attractive, especially if you did not already have a TD account.
This is key. I had a 3% CD, and I bonds were yielding around 1.7% IIRC. Why would I buy I bonds? Now I bonds are at 3.5% - temporarily - and might seem more attractive than that 3% CD that I can still add money to... but for how long? Inflation is unlikely to stay at 3.5%. This is the highest CPI-U has been since 2008, and the highest PCE ex food and energy has been since 1992. ( https://fred.stlouisfed.org/series/PCEPILFE , https://fred.stlouisfed.org/series/CPIAUCSL#0 ).

How happy are you going to be when I-bonds are yielding 1%? 0%?

I think I-bonds can be a sensible part of a portfolio, and have held them myself in the past, but don't right now. We agonize a lot over things that change our projected wealth by hundreds (maybe thousands) of dollars. And probably shouldn't so much.
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Re: What's the catch with I Bonds?

Post by Charon »

Arby wrote: Sat Jun 05, 2021 8:24 am Even if the rate reverts to 0% for the next two periods, if one cashed in after 15 months, you'd get around 2.8% before taxes.
1.4%. I think you doubled this estimate somehow? Earning 3.54% for 6 months, then nothing for the next 9 months, gives you an effective annual rate of 1.4% over the 15 months.

Do remember that the 3.54% is an annual rate, not what you'd earn in those 6 months. It's just that you earn that annual rate for 6 months.
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Re: What's the catch with I Bonds?

Post by anon_investor »

Charon wrote: Sun Jun 06, 2021 7:03 pm
anon_investor wrote: Fri Jun 04, 2021 1:11 pm They are great for an EF (after the required 1 year holding period) right now. Although I remember a couple of years ago, CD rates were high enough that I Bonds were not all that attractive, especially if you did not already have a TD account.
This is key. I had a 3% CD, and I bonds were yielding around 1.7% IIRC. Why would I buy I bonds? Now I bonds are at 3.5% - temporarily - and might seem more attractive than that 3% CD that I can still add money to... but for how long? Inflation is unlikely to stay at 3.5%. This is the highest CPI-U has been since 2008, and the highest PCE ex food and energy has been since 1992. ( https://fred.stlouisfed.org/series/PCEPILFE , https://fred.stlouisfed.org/series/CPIAUCSL#0 ).

How happy are you going to be when I-bonds are yielding 1%? 0%?

I think I-bonds can be a sensible part of a portfolio, and have held them myself in the past, but don't right now. We agonize a lot over things that change our projected wealth by hundreds (maybe thousands) of dollars. And probably shouldn't so much.
I Bonds don't lock you in more than 1 year. Since I always buy at the end of a month and would sell at the beginning of the month, the interest rate penalty is effectively only 2 months. So I can always sell them if it makes sense. But I Bonds at 3.54% today vs. 0.5% for a 1 year CD, no brainer.

But I Bonds are set it and forget it for up 30 years if you want. What is more BH than that?
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Re: What's the catch with I Bonds?

Post by anon_investor »

Charon wrote: Sun Jun 06, 2021 7:07 pm
Arby wrote: Sat Jun 05, 2021 8:24 am Even if the rate reverts to 0% for the next two periods, if one cashed in after 15 months, you'd get around 2.8% before taxes.
1.4%. I think you doubled this estimate somehow? Earning 3.54% for 6 months, then nothing for the next 9 months, gives you an effective annual rate of 1.4% over the 15 months.

Do remember that the 3.54% is an annual rate, not what you'd earn in those 6 months. It's just that you earn that annual rate for 6 months.
1.416%, still kills any rate you can get on a CD for 15 months, and beats the current 30 SEC yield of VBTLX.
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Re: What's the catch with I Bonds?

Post by Charon »

anon_investor wrote: Sun Jun 06, 2021 7:11 pm But I Bonds are set it and forget it for up 30 years if you want. What is more BH than that?
So's a savings account. "Set and forget" is a good feature, but not a sufficient one. And you know this thread only exists because I bonds are currently yielding 3.5%, and say yourself literally in the paragraph above that you monitor the yields and sell if they become unattractive relative to alternatives.

Of course someone should buy I bonds instead of a 1-year CD at 0.5%, but nobody was proposing doing the latter.
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Re: What's the catch with I Bonds?

Post by Charon »

anon_investor wrote: Sun Jun 06, 2021 7:18 pm 1.416%, still kills any rate you can get on a CD for 15 months, and beats the current 30 SEC yield of VBTLX.
I don't understand what exactly you think you're arguing here. I was correcting a math error, and you're arguing that I should buy I-bonds over getting a 15-month CD (which no one has proposed doing).
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

Charon wrote: Sun Jun 06, 2021 7:07 pm
Arby wrote: Sat Jun 05, 2021 8:24 am Even if the rate reverts to 0% for the next two periods, if one cashed in after 15 months, you'd get around 2.8% before taxes.
1.4%. I think you doubled this estimate somehow? Earning 3.54% for 6 months, then nothing for the next 9 months, gives you an effective annual rate of 1.4% over the 15 months.

Do remember that the 3.54% is an annual rate, not what you'd earn in those 6 months. It's just that you earn that annual rate for 6 months.
We already know the November rate will not be zero. I think the number released in May was 4.2 and the June estimate is 3.4.
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Re: What's the catch with I Bonds?

Post by GrowthObsessed »

This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
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Re: What's the catch with I Bonds?

Post by anon_investor »

Charon wrote: Sun Jun 06, 2021 7:19 pm
anon_investor wrote: Sun Jun 06, 2021 7:11 pm But I Bonds are set it and forget it for up 30 years if you want. What is more BH than that?
So's a savings account. "Set and forget" is a good feature, but not a sufficient one. And you know this thread only exists because I bonds are currently yielding 3.5%, and say yourself literally in the paragraph above that you monitor the yields and sell if they become unattractive relative to alternatives.

Of course someone should buy I bonds instead of a 1-year CD at 0.5%, but nobody was proposing doing the latter.
I admit I started buying I Bonds in April 2020, because I had a large no penalty CD expiring and I Bonds with a composite rate of 2.22% at the time looked more attractive to me than any no penalty or 1 year CD available.

Just because it is possible to sell I Bonds after 1 year does not mean I personally will. I was pointing out that people are not locked into I Bonds for more than 1 year.

Personally, I will likely not sell any existing I Bonds to chase yield, but I probably would not buy more I Bonds if a similarly safe fixed income investment with higher yield was available.
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
I bought our first I-bonds with money that came from a matured CD. We had our Emergency Fund in a HYSA but it's paying something like .6% or something. So this year the HYSA remains our EF since I-bonds have a one year lockup. Next year will do the same. Soon all our EF will be in I-bonds.

If HYSAs starting paying more than I-bonds well go back. I don't believe in "staying the course" with cash equivalents.
We plan. G-d laughs.
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Re: What's the catch with I Bonds?

Post by anon_investor »

Charon wrote: Sun Jun 06, 2021 7:21 pm
anon_investor wrote: Sun Jun 06, 2021 7:18 pm 1.416%, still kills any rate you can get on a CD for 15 months, and beats the current 30 SEC yield of VBTLX.
I don't understand what exactly you think you're arguing here. I was correcting a math error, and you're arguing that I should buy I-bonds over getting a 15-month CD (which no one has proposed doing).
Too many posts. At some point someone was posting about whether to use I Bonds for money that was not needed for 15 months. Hence I was pointing out I Bonds are better than any 15 month CD.
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Re: What's the catch with I Bonds?

Post by HueyLD »

GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
“ Entity accounts are not available at this time for unincorporated associations, governmental organizations/officers, or tribal organizations.”

https://www.treasurydirect.gov/indiv/he ... rnmore.htm
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Re: What's the catch with I Bonds?

Post by anon_investor »

MishkaWorries wrote: Sun Jun 06, 2021 7:37 pm
GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
I bought our first I-bonds with money that came from a matured CD. We had our Emergency Fund in a HYSA but it's paying something like .6% or something. So this year the HYSA remains our EF since I-bonds have a one year lockup. Next year will do the same. Soon all our EF will be in I-bonds.

If HYSAs starting paying more than I-bonds well go back. I don't believe in "staying the course" with cash equivalents.
Remember only a couple of years ago when HYSA paid over 2%? I remember when they paid over 5%...
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
My first thought is that it might depend on what structure the HOA itself has. TreasuryDirect has a list of the types of legal entities (or things taxed as legal entities) that are eligible to open TD accounts:

https://www.treasurydirect.gov/indiv/he ... rnmore.htm

Though you may be to open the account online without paperwork, there will likely be paperwork involved to change the person in charge of the account login (the "Entity Account Manager") with a signed and witnessed FS Form 5446, so you might want to decide whether you want to deal with that if and whenever that happens (and if you could trust any successor to feel the same way). I suspect that might be more trouble than it's worth.
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

anon_investor wrote: Sun Jun 06, 2021 7:42 pm
MishkaWorries wrote: Sun Jun 06, 2021 7:37 pm
GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
I bought our first I-bonds with money that came from a matured CD. We had our Emergency Fund in a HYSA but it's paying something like .6% or something. So this year the HYSA remains our EF since I-bonds have a one year lockup. Next year will do the same. Soon all our EF will be in I-bonds.

If HYSAs starting paying more than I-bonds well go back. I don't believe in "staying the course" with cash equivalents.
Remember only a couple of years ago when HYSA paid over 2%? I remember when they paid over 5%...
That must have been pre-2008. Then our emergency fund was credit cards :shock:
We plan. G-d laughs.
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Re: What's the catch with I Bonds?

Post by smectym »

UpperNwGuy wrote: Wed Jun 02, 2021 8:25 pm Because of the limit on purchases, I Bonds seem to be most attractive to investors with smaller portfolios. Once your portfolio is large, the I Bonds have little impact.
UpperNwGuy is right about the purchase limits, but if you’re in a household, each SSN can purchase up to the $10,000 limit separately. If the household purchases $20,000 per year, after 10, not to mention 20 years, you have a pretty impressive safe inflation-adjusted, tax-deferred, state-tax free portfolio core.

We were backing up the proverbial truck on I bonds back when the limits were much higher, and we have that solid buffer today, underlying a traditional equity/bond portfolio. I suggest considering the approach of thinking long term and to buy I bonds annually.
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Re: What's the catch with I Bonds?

Post by anon_investor »

MishkaWorries wrote: Sun Jun 06, 2021 7:54 pm
anon_investor wrote: Sun Jun 06, 2021 7:42 pm
MishkaWorries wrote: Sun Jun 06, 2021 7:37 pm
GrowthObsessed wrote: Sun Jun 06, 2021 7:28 pm This may be a little off topic but it seems as though there are a lot of knowledgeable people in this thread already.. would i bonds or some other treasury offering be suitable (a better choice) when it comes time to either renew or cash out CDs, when the best posted right right now for CDs is around .50%?

If it matters this would be for the reserve CDs of an HOA. I've been looking a little bit at how to maximize interest when it comes time to renew CDs at the end of the year. Obviously a fiduciary responsibility it attached to the funds and there's not a lot of high interest paying options out there right now.
I bought our first I-bonds with money that came from a matured CD. We had our Emergency Fund in a HYSA but it's paying something like .6% or something. So this year the HYSA remains our EF since I-bonds have a one year lockup. Next year will do the same. Soon all our EF will be in I-bonds.

If HYSAs starting paying more than I-bonds well go back. I don't believe in "staying the course" with cash equivalents.
Remember only a couple of years ago when HYSA paid over 2%? I remember when they paid over 5%...
That must have been pre-2008. Then our emergency fund was credit cards :shock:
Oh yeah, definitely before 2008,. I had an Electric Orange online savings account. I think I may have been getting 6% even.
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