What's the catch with I Bonds?

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

Post by beyou »

livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I am at 7-8% range. This after years of buying and a long hiatus (post 30k limit) of not buying. The key is the reduction from 30k to 10k annual limit. I certainly could have hit 10% had I done all the 10k purchases that I decided were “not worthwhile”. Sorry I skipped them.

For those starting now under 5% might be the long term cap unless you have a small portfolio and risk averse (no equities).
phantom0308
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Re: What's the catch with I Bonds?

Post by phantom0308 »

MishkaWorries wrote: Thu Jun 03, 2021 11:10 am
UpperNwGuy wrote: Thu Jun 03, 2021 8:01 am
nisiprius wrote: Thu Jun 03, 2021 6:54 am So I am going to present an hypothesis. If government debt is truly a serious problem, I would predict that there will be a renaissance of the savings bond program, with the purchase limits being increased the government again promoting the program in advertising... and that the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government.
There's the catch: current rates are favorable to the purchaser and not favorable to the government. Sooner or later, that will change.
I'm lost.

The current fixed rate for an I-bond is 0% plus the official government inflation rate. How can it get more favorable for the government? Unless the fudge the inflation numbers or discontinue I-bonds. Maybe you guys are just talking about government bonds other than I-bonds.
Maybe you’re unaware. Developed countries around the world have had near zero interest in their treasuries and negative real yields for some time. Some even have negative yields. There’s nothing strange going on. The market has determined that losing money on bonds in real terms is better than the alternative, losing more money in cash or taking more risk. The 0% rate on I bonds is better than other treasuries which have rates below current inflation.
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#Cruncher
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Re: What's the catch with I Bonds?

Post by #Cruncher »

anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... 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?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

   As of   Value  Gain   TD Shows  $25 bond 
May 2021  10,000          May-Aug     25.00 
Jun 2021  10,028    28   Sep 2021     25.07 = round(25 * 1.0177 ^ (1 / 6), 2)
Jul 2021  10,060    32   Oct 2021     25.15 = round(25 * 1.0177 ^ (2 / 6), 2)
Aug 2021  10,088    28   Nov 2021     25.22 = round(25 * 1.0177 ^ (3 / 6), 2)
Sep 2021  10,116    28   Dec 2021     25.29 = round(25 * 1.0177 ^ (4 / 6), 2)
Oct 2021  10,148    32   Jan 2022     25.37 = round(25 * 1.0177 ^ (5 / 6), 2)
Nov 2021  10,176    28   Feb 2022     25.44 = round(25 * 1.0177, 2)
To explain why the monthly gains jump back and forth from $28 to $32, I've included the values for a $25 I Bond. It's monthly values are rounded to the nearest penny, and the values of all larger denominations are multiples. E.g., 10,028 = 400 X 25.07.
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... 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?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

   As of   Value  Gain   TD Shows  $25 bond 
May 2021  10,000          May-Aug     25.00 
Jun 2021  10,028    28   Sep 2021     25.07 = round(25 * 1.0177 ^ (1 / 6), 2)
Jul 2021  10,060    32   Oct 2021     25.15 = round(25 * 1.0177 ^ (2 / 6), 2)
Aug 2021  10,088    28   Nov 2021     25.22 = round(25 * 1.0177 ^ (3 / 6), 2)
Sep 2021  10,116    28   Dec 2021     25.29 = round(25 * 1.0177 ^ (4 / 6), 2)
Oct 2021  10,148    32   Jan 2022     25.37 = round(25 * 1.0177 ^ (5 / 6), 2)
Nov 2021  10,176    28   Feb 2022     25.44 = round(25 * 1.0177, 2)
To explain why the monthly gains jump back and forth from $28 to $32, I've included the values for a $25 I Bond. It's monthly values are rounded to the nearest penny, and the values of all larger denominations are multiples. E.g., 10,028 = 400 X 25.07.
So for the 6 months on $10k, you only get $176 worth of interest, not $177 (3.54%/2)?
BrokerageZelda
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

anon_investor wrote: Mon Jun 07, 2021 11:31 am
#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... 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?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

   As of   Value  Gain   TD Shows  $25 bond 
May 2021  10,000          May-Aug     25.00 
Jun 2021  10,028    28   Sep 2021     25.07 = round(25 * 1.0177 ^ (1 / 6), 2)
Jul 2021  10,060    32   Oct 2021     25.15 = round(25 * 1.0177 ^ (2 / 6), 2)
Aug 2021  10,088    28   Nov 2021     25.22 = round(25 * 1.0177 ^ (3 / 6), 2)
Sep 2021  10,116    28   Dec 2021     25.29 = round(25 * 1.0177 ^ (4 / 6), 2)
Oct 2021  10,148    32   Jan 2022     25.37 = round(25 * 1.0177 ^ (5 / 6), 2)
Nov 2021  10,176    28   Feb 2022     25.44 = round(25 * 1.0177, 2)
To explain why the monthly gains jump back and forth from $28 to $32, I've included the values for a $25 I Bond. It's monthly values are rounded to the nearest penny, and the values of all larger denominations are multiples. E.g., 10,028 = 400 X 25.07.
So for the 6 months on $10k, you only get $176 worth of interest, not $177 (3.54%/2)?
Because bond values are based on multiples of a $25 base value, the $25 base value becomes 25.4425, which rounds down to 25.44. That extra 0.0025 per $25 is worth exactly $1 (the difference you see) when expanded to the value of a $10000 bond.
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

BrokerageZelda wrote: Mon Jun 07, 2021 11:37 am
anon_investor wrote: Mon Jun 07, 2021 11:31 am
#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... 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?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

   As of   Value  Gain   TD Shows  $25 bond 
May 2021  10,000          May-Aug     25.00 
Jun 2021  10,028    28   Sep 2021     25.07 = round(25 * 1.0177 ^ (1 / 6), 2)
Jul 2021  10,060    32   Oct 2021     25.15 = round(25 * 1.0177 ^ (2 / 6), 2)
Aug 2021  10,088    28   Nov 2021     25.22 = round(25 * 1.0177 ^ (3 / 6), 2)
Sep 2021  10,116    28   Dec 2021     25.29 = round(25 * 1.0177 ^ (4 / 6), 2)
Oct 2021  10,148    32   Jan 2022     25.37 = round(25 * 1.0177 ^ (5 / 6), 2)
Nov 2021  10,176    28   Feb 2022     25.44 = round(25 * 1.0177, 2)
To explain why the monthly gains jump back and forth from $28 to $32, I've included the values for a $25 I Bond. It's monthly values are rounded to the nearest penny, and the values of all larger denominations are multiples. E.g., 10,028 = 400 X 25.07.
So for the 6 months on $10k, you only get $176 worth of interest, not $177 (3.54%/2)?
Because bond values are based on multiples of a $25 base value, the $25 base value becomes 25.4425, which rounds down to 25.44. That extra 0.0025 per $25 is worth exactly $1 (the difference you see) when expanded to the value of a $10000 bond.
Interesting, I did not know that.
kate1234
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Re: What's the catch with I Bonds?

Post by kate1234 »

You folks have convinced me that iBonds are a good spot for one's emergency fund so I thought I would help my young-adult son set up a TreasuryDirect account then start funding it annually. I remember the medallion thing was mentioned earlier on this thread and remember getting a medallion signature myself for something-or-other a decade ago. But when I look at the instructions on how to set up a TD account I'm not seeing anything regarding a medallion signature. Is this something that possibly is not required to open a TD account?
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Richard1580
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Re: What's the catch with I Bonds?

Post by Richard1580 »

kate1234 wrote: Thu Jun 10, 2021 3:34 pm You folks have convinced me that iBonds are a good spot for one's emergency fund so I thought I would help my young-adult son set up a TreasuryDirect account then start funding it annually. I remember the medallion thing was mentioned earlier on this thread and remember getting a medallion signature myself for something-or-other a decade ago. But when I look at the instructions on how to set up a TD account I'm not seeing anything regarding a medallion signature. Is this something that possibly is not required to open a TD account?
It is not required to open an account. It only comes up if TD suspects that shenanigans are afoot. :-) I just opened accounts for my wife and myself a few days ago, and it all went smoothly. <fingers crossed>
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MishkaWorries
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

kate1234 wrote: Thu Jun 10, 2021 3:34 pm You folks have convinced me that iBonds are a good spot for one's emergency fund so I thought I would help my young-adult son set up a TreasuryDirect account then start funding it annually. I remember the medallion thing was mentioned earlier on this thread and remember getting a medallion signature myself for something-or-other a decade ago. But when I look at the instructions on how to set up a TD account I'm not seeing anything regarding a medallion signature. Is this something that possibly is not required to open a TD account?
It is not required to open an TD account unless TD requires it. :confused

I opened my TD account no problem and linked our joint banking account no problem.

I then opened an TD account for my wife and linked the same joint banking account. TD required a signature guarantee before they allowed her to access her new TD account.

The only thing I can think of was the bank account was opened by me many years ago before we were married. After we married I added my wife as joint owner. This was years ago. Maybe Treasury didn't get the owner update info from our bank?

Anyway it was easy to get the signature guarantee even during Covid. We made an appointment with the bank manager and we were in and out in about 10 minutes.
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mindboggling
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Re: What's the catch with I Bonds?

Post by mindboggling »

Some years ago I purchased some individual T notes on Treasury Direct. Later I decided I wanted to sell them before they matured. There is no way to do this on TD. I had to transfer them to a brokerage and then sell them. The transfer required a medallion signature guarantee.
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Northern Flicker
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Re: What's the catch with I Bonds?

Post by Northern Flicker »

Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm
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.
That makes sense. However, for someone in their accumulation phase with 30+ years to retirement, it seems to me that over 10 years one could build a quite substantial position in these bonds. However, another factor that I didn't mention in my original post is the tailwind that most bonds have received from falling interest rates the past 40 years. Since these do not trade on the secondary market, perhaps that makes them less appealing over the full market cycle, as there is only one real source of return, as opposed to two? Just thinking out loud here.
The only problem with ibonds in that regard is they become a less desirable source of liquidity if rates fall after purchase-- if the real yield is zero today, you won't want to redeem an ibond with a 1% real yield.

There is a compelling argument to be made that holding a mix of ibonds, E bonds, TIPS, and treasuries provides a desirable source of liquidity for each of the four outcome combinations of inflation and interest rates.
Last edited by Northern Flicker on Thu Jun 10, 2021 7:09 pm, edited 1 time in total.
rockstar
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Re: What's the catch with I Bonds?

Post by rockstar »

I'm not sure if anyone has mentioned this yet. I haven't read the whole thread. But you're basically yield chasing. Yields on I Bonds are high now because inflation is high this year. Inflation is high this year because inflation was low last year. What happens next year if inflation is transitory?

The good news here is that if you chase yield, you have a limit for how many dollars you can chase it with due to buy limits.

Last year, everyone here was talking about CDs and CD ladders. Now, it's all about I Bonds and TIPS.

I wonder what will be the flavor of the day next year.
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Re: What's the catch with I Bonds?

Post by mbasherp »

rockstar wrote: Thu Jun 10, 2021 7:04 pm I'm not sure if anyone has mentioned this yet. I haven't read the whole thread. But you're basically yield chasing. Yields on I Bonds are high now because inflation is high this year. Inflation is high this year because inflation was low last year. What happens next year if inflation is transitory?

The good news here is that if you chase yield, you have a limit for how many dollars you can chase it with due to buy limits.

Last year, everyone here was talking about CDs and CD ladders. Now, it's all about I Bonds and TIPS.

I wonder what will be the flavor of the day next year.
I bonds have been the ultimate place for an emergency fund for years now. Although there may be more interest lately due to yield chasing by those concerned about their broader bond allocations, it doesn’t take away from the uniqueness of the vehicle for those who want inflation proof cash.
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Re: What's the catch with I Bonds?

Post by TxFrog »

rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
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Re: What's the catch with I Bonds?

Post by rockstar »

TxFrog wrote: Thu Jun 10, 2021 8:06 pm
rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

rockstar wrote: Thu Jun 10, 2021 8:11 pm
TxFrog wrote: Thu Jun 10, 2021 8:06 pm
rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
People get it - this is how I believe they are evaluating it: high yield savings accounts pay 0.40%, if rates in the markets move there is typically a lag between what happens in the markets and what the bank offers you. I read recently that JPM will wait unti market rates rise 1.50 percent before they start to think about an increase for account holder.
You buy an I bond today, the minimum rate for 12 months is 1.77 percent with upside if rates move higher again in the following 6 month period. If you cash out after 12 months - you lose last 3 months interest but the rate earned will still beat the banks on both high yield and out to 2 -5 year CDs. Long term holders of I bonds are holding it for unexpected inflation protection for up to 30 years.
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rockstar
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Re: What's the catch with I Bonds?

Post by rockstar »

Grt2bOutdoors wrote: Thu Jun 10, 2021 8:49 pm
rockstar wrote: Thu Jun 10, 2021 8:11 pm
TxFrog wrote: Thu Jun 10, 2021 8:06 pm
rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
People get it - this is how I believe they are evaluating it: high yield savings accounts pay 0.40%, if rates in the markets move there is typically a lag between what happens in the markets and what the bank offers you. I read recently that JPM will wait unti market rates rise 1.50 percent before they start to think about an increase for account holder.
You buy an I bond today, the minimum rate for 12 months is 1.77 percent with upside if rates move higher again in the following 6 month period. If you cash out after 12 months - you lose last 3 months interest but the rate earned will still beat the banks on both high yield and out to 2 -5 year CDs. Long term holders of I bonds are holding it for unexpected inflation protection for up to 30 years.
Compared to a savings account, I Bonds are a steal. Compared to treasuries, they're a lot better now.

The challenge I have is that it's not really a place you can hold your emergency fund because it's a one year minimum maturity. It's not liquid like a short term treasury bill. So you are giving up some liquidity over a transfer from a savings account into a checking account. The limits on buying make it hard as a bond replacement for larger portfolios.

I struggle to find a case unless you overgrow your emergency fund to give you that one year maturity date buffer.
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Re: What's the catch with I Bonds?

Post by SnowBog »

Northern Flicker wrote: Thu Jun 10, 2021 4:17 pm The only problem with ibonds in that regard is they become a less desirable source of liquidity if rates fall after purchase-- if the real yield is zero today, you won't want to redeem an ibond with a 1% real yield.
I don't follow...

If the real yield is zero, then presumably at the next 6 month inflation rate adjustment, I Bonds will have a zero rate as well... So there may be a 6 month delayed reaction, but the twice a year rate adjustments are intended to track (roughly) the inflation rate. That's kinda the point (at I see it anyway)...
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Re: What's the catch with I Bonds?

Post by anon_investor »

SnowBog wrote: Thu Jun 10, 2021 9:52 pm
Northern Flicker wrote: Thu Jun 10, 2021 4:17 pm The only problem with ibonds in that regard is they become a less desirable source of liquidity if rates fall after purchase-- if the real yield is zero today, you won't want to redeem an ibond with a 1% real yield.
I don't follow...

If the real yield is zero, then presumably at the next 6 month inflation rate adjustment, I Bonds will have a zero rate as well... So there may be a 6 month delayed reaction, but the twice a year rate adjustments are intended to track (roughly) the inflation rate. That's kinda the point (at I see it anyway)...
Plus if the composite rate is 0%, you can redeem with no lost interest after 3 months of 0% interest. (If redeeming before 5 years)
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Re: What's the catch with I Bonds?

Post by ivk5 »

anon_investor wrote: Thu Jun 10, 2021 9:58 pm
SnowBog wrote: Thu Jun 10, 2021 9:52 pm
Northern Flicker wrote: Thu Jun 10, 2021 4:17 pm The only problem with ibonds in that regard is they become a less desirable source of liquidity if rates fall after purchase-- if the real yield is zero today, you won't want to redeem an ibond with a 1% real yield.
I don't follow...

If the real yield is zero, then presumably at the next 6 month inflation rate adjustment, I Bonds will have a zero rate as well... So there may be a 6 month delayed reaction, but the twice a year rate adjustments are intended to track (roughly) the inflation rate. That's kinda the point (at I see it anyway)...
Plus if the composite rate is 0%, you can redeem with no lost interest after 3 months of 0% interest. (If redeeming before 5 years)
I think the point was that redeeming an I Bond is irreversible: once redeemed, you cannot recover the old fixed rate or annual allocation; you can only buy back at the then-current rate and only within current purchase limits. This makes it a sub-optimal vehicle for covering a temporary cash need.
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

ivk5 wrote: Fri Jun 11, 2021 9:06 am I think the point was that redeeming an I Bond is irreversible: once redeemed, you cannot recover the old fixed rate or annual allocation; you can only buy back at the then-current rate and only within current purchase limits. This makes it a sub-optimal vehicle for covering a temporary cash need.
I agree with this in principle - people who bought in at a fixed rate of 3+% over inflation in the late 90s will struggle to part with a Treasury security yielding as much as Wellesley. But with the fixed rate at 0% over inflation, the fixed rate problem mostly disappears because there is little to no risk of having to buy in at a lower fixed rate to replace these I Bonds if you need to sell them in the future.
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

BrokerageZelda wrote: Fri Jun 11, 2021 9:28 am
ivk5 wrote: Fri Jun 11, 2021 9:06 am I think the point was that redeeming an I Bond is irreversible: once redeemed, you cannot recover the old fixed rate or annual allocation; you can only buy back at the then-current rate and only within current purchase limits. This makes it a sub-optimal vehicle for covering a temporary cash need.
I agree with this in principle - people who bought in at a fixed rate of 3+% over inflation in the late 90s will struggle to part with a Treasury security yielding as much as Wellesley. But with the fixed rate at 0% over inflation, the fixed rate problem mostly disappears because there is little to no risk of having to buy in at a lower fixed rate to replace these I Bonds if you need to sell them in the future.
Exactly. Since I Bonds currently cannot have a fixed rate below 0%, if you redeem a 0% fixed rate I Bond, any future I Bonds you purchase are going to no worse in terms of fixed rate. Also since redeeming I Bonds is not all or nothing, and you can choose the dollar amount you want to redeem (minimum of $25), you only need to redeem as much as you need. Obviously if a HYSA offered yield anywhere close to what I Bonds currently offer, then that would be a better choice for an emergency fund, and that was pretty much the case back in 2019.
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Re: What's the catch with I Bonds?

Post by ivk5 »

Even without the issue of losing attractive historical fixed rates when you redeem for a short term cash need, there’s the issue of losing the “space” if you’re maxing each year.

I’m an I Bond fan and buyer. But I agree with Northern Flicker’s point, as I understood it, that they are not ideal place to park funds you have a reasonable expectation of needing for short term cash flow mgmt.
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Re: What's the catch with I Bonds?

Post by rockstar »

Grt2bOutdoors wrote: Thu Jun 10, 2021 8:49 pm
rockstar wrote: Thu Jun 10, 2021 8:11 pm
TxFrog wrote: Thu Jun 10, 2021 8:06 pm
rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
People get it - this is how I believe they are evaluating it: high yield savings accounts pay 0.40%, if rates in the markets move there is typically a lag between what happens in the markets and what the bank offers you. I read recently that JPM will wait unti market rates rise 1.50 percent before they start to think about an increase for account holder.
You buy an I bond today, the minimum rate for 12 months is 1.77 percent with upside if rates move higher again in the following 6 month period. If you cash out after 12 months - you lose last 3 months interest but the rate earned will still beat the banks on both high yield and out to 2 -5 year CDs. Long term holders of I bonds are holding it for unexpected inflation protection for up to 30 years.
I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
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Re: What's the catch with I Bonds?

Post by anon_investor »

ivk5 wrote: Sat Jun 12, 2021 10:53 am Even without the issue of losing attractive historical fixed rates when you redeem for a short term cash need, there’s the issue of losing the “space” if you’re maxing each year.

I’m an I Bond fan and buyer. But I agree with Northern Flicker’s point, as I understood it, that they are not ideal place to park funds you have a reasonable expectation of needing for short term cash flow mgmt.
But once you get past the 1 year mark, isn't that what makes I Bonds great for an EF? You hope to never need to redeem them, but theyre available if needed.
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Re: What's the catch with I Bonds?

Post by wriley4409 »

I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
I use a tiered system for my emergency funds as well. The first tier is in my checking account, second is in a high yield savings account, and the third is I-Bonds. My goal is to have 12 months of expenses in I-Bonds by the time I retire.
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Re: What's the catch with I Bonds?

Post by rockstar »

wriley4409 wrote: Sat Jun 12, 2021 11:58 am
I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
I use a tiered system for my emergency funds as well. The first tier is in my checking account, second is in a high yield savings account, and the third is I-Bonds. My goal is to have 12 months of expenses in I-Bonds by the time I retire.
I just need to go through the process to gain a comfort level for them, where I'll buy them, redeem some, and see how it goes. It's a learning process.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

rockstar wrote: Sat Jun 12, 2021 11:52 am
Grt2bOutdoors wrote: Thu Jun 10, 2021 8:49 pm
rockstar wrote: Thu Jun 10, 2021 8:11 pm
TxFrog wrote: Thu Jun 10, 2021 8:06 pm
rockstar wrote: Thu Jun 10, 2021 7:04 pm What happens next year if inflation is transitory?
Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
People get it - this is how I believe they are evaluating it: high yield savings accounts pay 0.40%, if rates in the markets move there is typically a lag between what happens in the markets and what the bank offers you. I read recently that JPM will wait unti market rates rise 1.50 percent before they start to think about an increase for account holder.
You buy an I bond today, the minimum rate for 12 months is 1.77 percent with upside if rates move higher again in the following 6 month period. If you cash out after 12 months - you lose last 3 months interest but the rate earned will still beat the banks on both high yield and out to 2 -5 year CDs. Long term holders of I bonds are holding it for unexpected inflation protection for up to 30 years.
I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
Good for you. At least you know you'll be receiving some of your federal tax payments back in the form of an interest coupon. :wink:
At one point I thought the same but with retirement looming in the distance, it's not a bad thing to hold as supplement for future use.
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Re: What's the catch with I Bonds?

Post by rockstar »

Grt2bOutdoors wrote: Sat Jun 12, 2021 2:25 pm
rockstar wrote: Sat Jun 12, 2021 11:52 am
Grt2bOutdoors wrote: Thu Jun 10, 2021 8:49 pm
rockstar wrote: Thu Jun 10, 2021 8:11 pm
TxFrog wrote: Thu Jun 10, 2021 8:06 pm

Then your I Bonds will still retain their purchasing power.

Myself and many others on this thread have purchased I Bonds prior to 2021. Regardless of the fixed rate and/or CPI inflation numbers, they have always been great place to park extra cash you have to retain purchasing power. However, new buyers of I Bonds should understand that the current 3.54% rate is not guaranteed for the life of the I Bond.
That's what I don't think people get. These high yields this year are unlikely to last. And you give up yield by selling soon after you buy them. They can't collect the yield for a year and then dump them without giving up three months of interest within the first five years.
People get it - this is how I believe they are evaluating it: high yield savings accounts pay 0.40%, if rates in the markets move there is typically a lag between what happens in the markets and what the bank offers you. I read recently that JPM will wait unti market rates rise 1.50 percent before they start to think about an increase for account holder.
You buy an I bond today, the minimum rate for 12 months is 1.77 percent with upside if rates move higher again in the following 6 month period. If you cash out after 12 months - you lose last 3 months interest but the rate earned will still beat the banks on both high yield and out to 2 -5 year CDs. Long term holders of I bonds are holding it for unexpected inflation protection for up to 30 years.
I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
Good for you. At least you know you'll be receiving some of your federal tax payments back in the form of an interest coupon. :wink:
At one point I thought the same but with retirement looming in the distance, it's not a bad thing to hold as supplement for future use.
I'm in a favor of making money. I'm okay paying taxes. At today's inflation rates, I can't have 100% of my emergency fund earning 0% in a checking account. And the yield at least for the next six months exceeds my mortgage rate, so I feel good about the purchase.
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Re: What's the catch with I Bonds?

Post by fuseboy »

Edited away a long and largely irrelevant personal question to rephrase and say,

If you are buying them with an entity account, and the entity is dissolved, when you transfer the bonds it might be a taxable event. For some reason (probably my lack of talent in researching) I am having trouble finding clear guidance on this.
Last edited by fuseboy on Sun Jun 13, 2021 2:36 pm, edited 2 times in total.
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Re: What's the catch with I Bonds?

Post by Kevin M »

I'm sure something similar has been mentioned more than once in the replies, but my first I Bond purchases were at similarly high nominal rates compared to alternatives at the time. Inflation subsequently dropped a lot, and my I Bond returns were pretty pitiful compared to the CDs I bought during the same time period.

As I'm sure others also have said, the low annual purchase limits make them relatively insignificant for larger portfolios. I sold all of my I bonds over the last few years, as they hit the 5-year mark (no more 3-month penalty at that point).

Having said that, I Bonds are the best real-yield investment alternative currently available for relatively small amounts of money, considering that TIPS yields are negative out to 30-year maturities.

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

Post by poker27 »

I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
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Re: What's the catch with I Bonds?

Post by wriley4409 »

I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
Consider using Personal Capital to view your investments/holdings. It can give you one consolidated view of things.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

poker27 wrote: Sat Jun 12, 2021 7:50 pm I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
Best Regards - Mel | | Semper Fi
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Re: What's the catch with I Bonds?

Post by Broken Man 1999 »

Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm
poker27 wrote: Sat Jun 12, 2021 7:50 pm I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
Easily done!

I have two trackingc entries for our stash of I-bonds:

1. All our paper bonds purchased in 2000 and 2001.
2. All our "new bonds" purchased this year at Treasury Direct.

All the new bonds are POD to the grandchildren. $10,000 with DW POD to grandchildren, $10,000 for me POD to the grandchildren.

Hopefully over the next ten years DW and I can move $200,000 to the grandchildren. If DW and I need them,, we can use them. If not, the grandchildren will each have $50,000 (plus accrued interesr) each in I-bonds.

It is possible I might no longer buy all our additions to our bond holdings in our TIRAs. Instead I can partially rebalance things using I-bonds if I want to do so. No RMDs for I-bonds.

I-bonds give us a great deal of flexibility, always a good thing, having options.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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Re: What's the catch with I Bonds?

Post by dorster »

Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
I'm considering purchasing Series I Savings Bonds and use Vanguard's Portfolio Watch to see everything in one place.

How do you enter I Bonds under outside investments? Just holding type:bond and name:I Bond and then update the marketable value semi-regularly?

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

Post by Mel Lindauer »

dorster wrote: Sun Jun 13, 2021 7:06 pm
Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
I'm considering purchasing Series I Savings Bonds and use Vanguard's Portfolio Watch to see everything in one place.

How do you enter I Bonds under outside investments? Just holding type:bond and name:I Bond and then update the marketable value semi-regularly?

Thanks
Yes, the I Bond value increases monthly, so you'd just manually update the value on Vanguard once a month. And don't forget to classify them as "bonds" so they'll be included in your bond allocation when you do an asset allocation breakdown using Vanguard's tool.
Best Regards - Mel | | Semper Fi
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Re: What's the catch with I Bonds?

Post by SnowBog »

Mel Lindauer wrote: Sun Jun 13, 2021 8:33 pm
dorster wrote: Sun Jun 13, 2021 7:06 pm
Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
I'm considering purchasing Series I Savings Bonds and use Vanguard's Portfolio Watch to see everything in one place.

How do you enter I Bonds under outside investments? Just holding type:bond and name:I Bond and then update the marketable value semi-regularly?

Thanks
Yes, the I Bond value increases monthly, so you'd just manually update the value on Vanguard once a month. And don't forget to classify them as "bonds" so they'll be included in your bond allocation when you do an asset allocation breakdown using Vanguard's tool.
For what it's worth, Fidelity's "Full View" (powered by eMoney) let's you connect to your various other accounts - including TD. So you can see all of your balances - even non-Fidelity balances - in the same place.
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Re: What's the catch with I Bonds?

Post by dcabler »

Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm
poker27 wrote: Sat Jun 12, 2021 7:50 pm I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
And FYI - also available at Fidelity via Full View and, if you're so inclined, you can directly link to your TD account there.
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Re: What's the catch with I Bonds?

Post by poker27 »

Mel Lindauer wrote: Sun Jun 13, 2021 2:55 pm
poker27 wrote: Sat Jun 12, 2021 7:50 pm I moved my EF over to IBonds over a few years. Haven’t touched it, and am happy with the decision. I never thought I would buy more IBonds, however I’m considering buying now, compared to buying bonds in my taxable.

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
If your investments are at Vanguard, you can manually enter your I Bonds under "Outside Investments" and they'll be included in your totals.
I had no idea! Just added them, and a small single stock I hold, thanks!
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Re: What's the catch with I Bonds?

Post by redwhitenblues »

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?...
Because rates are not set in a competitive marketplace of profit-making enterprises.

But I haven't a clue as to what leads to their being favorable.

My assumption, just an assumption, is that they have also been perceived as a kind of social welfare program and a "thrift" incentive, like the Postal Savings Banks that existed from 1911-1967.

I have long wondered just what are the motivations that guide issuance of savings bonds.

This is just personal maundering but during World War II the sale of "war bonds" was important to the government as a source of funds to fight the war, and they were very heavily advertised, and surrounded by an aura of patriotism. After the war, in the fifties and sixties, I don't know if they were important to the government, but there was still an atmosphere of patriotism surrounding them. There was a widespread advertising campaign to sell them. As a kid, series EE savings bonds were a common gift e.g. from grandparents and I remember staring at the redemption table printed on the back. Into at least the seventies, they promoted a "payroll savings plan" involving the automatic purchase of (series EE) savings bonds out of your wages.

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.

[ I deleted a paragraph here, that had touched off some misunderstandings].
An answer for nisiprius’ question asking why paper US savings bonds sales ended but you can still buy paper I-bonds with your IRS tax refund may be found in the July 2015 GAO Report 15-563. It is suggestively entitled “U.S. Savings Bonds: Future of Offering Paper Savings Bonds at Tax Time Is Uncertain, and Lower-Income Households Continue to Face Savings Challenges”:

1.The GAO report explicitly states that sales of paper savings bonds were eliminated by the US Treasury as a cost saving measure. It was part of a larger plan to completely digitize Treasury Department’s sale of all of its securities to the general public. Further impetus was provided by the launching of the TreasuryDirect website, which came online in 2012.

2. The GAO report also explains that, subsequent to the creation of Treasury Direct, members of Congress expressed concern that using TreasuryDirect would now require users to have both internet access and a bank account. Studies cited within the report explain that lower income households disproportionately have neither. The Tax Time program, which issues paper I bonds via tax filers’ IRS tax returns, was promoted as an alternative to expand access to paper I-bonds for lower income households that might not have either internet access or access to a bank account.

-The report notes that under 1% of tax filers request I-bonds as part of their tax refund.

-The report also notes that the percentage of US households holding savings bonds and the amount they hold has similarly declined in the past decade.

-The report (Figure 1) shows that purchases of US savings bonds declined in the ten years following the launch of TreasuryDirect.

-There is no mystery why Series I bonds were created. In a statement on 4/30/1987 announcing his intention to sell Series I bonds, then-Secretary of the Treasury Robert Rubin noted that the US savings rate was the lowest of any of the G-7 nations. He argued that this low savings rate was a drag on investment and productivity for the nation as a whole, as well as the financial health of American families. Obviously, he thought that the sale of I bonds were a win-win proposition.
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

redwhitenblues wrote: Tue Jun 15, 2021 1:42 pm
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?...
Because rates are not set in a competitive marketplace of profit-making enterprises.

But I haven't a clue as to what leads to their being favorable.

My assumption, just an assumption, is that they have also been perceived as a kind of social welfare program and a "thrift" incentive, like the Postal Savings Banks that existed from 1911-1967.

I have long wondered just what are the motivations that guide issuance of savings bonds.

This is just personal maundering but during World War II the sale of "war bonds" was important to the government as a source of funds to fight the war, and they were very heavily advertised, and surrounded by an aura of patriotism. After the war, in the fifties and sixties, I don't know if they were important to the government, but there was still an atmosphere of patriotism surrounding them. There was a widespread advertising campaign to sell them. As a kid, series EE savings bonds were a common gift e.g. from grandparents and I remember staring at the redemption table printed on the back. Into at least the seventies, they promoted a "payroll savings plan" involving the automatic purchase of (series EE) savings bonds out of your wages.

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.

[ I deleted a paragraph here, that had touched off some misunderstandings].
An answer for nisiprius’ question asking why paper US savings bonds sales ended but you can still buy paper I-bonds with your IRS tax refund may be found in the July 2015 GAO Report 15-563. It is suggestively entitled “U.S. Savings Bonds: Future of Offering Paper Savings Bonds at Tax Time Is Uncertain, and Lower-Income Households Continue to Face Savings Challenges”:

1.The GAO report explicitly states that sales of paper savings bonds were eliminated by the US Treasury as a cost saving measure. It was part of a larger plan to completely digitize Treasury Department’s sale of all of its securities to the general public. Further impetus was provided by the launching of the TreasuryDirect website, which came online in 2012.

2. The GAO report also explains that, subsequent to the creation of Treasury Direct, members of Congress expressed concern that using TreasuryDirect would now require users to have both internet access and a bank account. Studies cited within the report explain that lower income households disproportionately have neither. The Tax Time program, which issues paper I bonds via tax filers’ IRS tax returns, was promoted as an alternative to expand access to paper I-bonds for lower income households that might not have either internet access or access to a bank account.

-The report notes that under 1% of tax filers request I-bonds as part of their tax refund.

-The report also notes that the percentage of US households holding savings bonds and the amount they hold has similarly declined in the past decade.

-The report (Figure 1) shows that purchases of US savings bonds declined in the ten years following the launch of TreasuryDirect.

-There is no mystery why Series I bonds were created. In a statement on 4/30/1987 announcing his intention to sell Series I bonds, then-Secretary of the Treasury Robert Rubin noted that the US savings rate was the lowest of any of the G-7 nations. He argued that this low savings rate was a drag on investment and productivity for the nation as a whole, as well as the financial health of American families. Obviously, he thought that the sale of I bonds were a win-win proposition.
He was an astute individual. Let’s hope they continue with the program.
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Re: What's the catch with I Bonds?

Post by Cheez-It Guy »

This is probably a dumb question, and may well have been answered in previous pages or a similar thread (I did not read it all), but when considering the forfeiture of the previous 3 months of interest IF redeemed before 5 years, is it correct to assume that when the 1099 form is generated, there will be no tax owed on that forfeit interest? In other words, the interest is simply revoked, and that alone is the penalty (i.e. no tax is due on the interest that would have otherwise been received but was instead forfeit)? Not a big deal in any case, but I would like to understand it all the same, as redemption prior to 5 years is certainly a possibility in my case.
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Re: What's the catch with I Bonds?

Post by HueyLD »

Cheez-It Guy wrote: Wed Jul 07, 2021 4:38 pm This is probably a dumb question, and may well have been answered in previous pages or a similar thread (I did not read it all), but when considering the forfeiture of the previous 3 months of interest IF redeemed before 5 years, is it correct to assume that when the 1099 form is generated, there will be no tax owed on that forfeit interest? In other words, the interest is simply revoked, and that alone is the penalty (i.e. no tax is due on the interest that would have otherwise been received but was instead forfeit)? Not a big deal in any case, but I would like to understand it all the same, as redemption prior to 5 years is certainly a possibility in my case.
Your 1099 from TD will only show the actual amount of interest received upon redemption. The three month EWP will not be included in the amount received.
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Re: What's the catch with I Bonds?

Post by Cheez-It Guy »

HueyLD wrote: Wed Jul 07, 2021 5:44 pm Your 1099 from TD will only show the actual amount of interest received upon redemption. The three month EWP will not be included in the amount received.
Excellent. Thank you for confirming!
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Re: What's the catch with I Bonds?

Post by Jack56 »

I bonds are not a real yield since they reset every six months & the only thing locked in is the base interest rate, now zero. Your yield for I bonds purchased now is zero for the 30 year life of the bond plus whatever the inflation rate is in any six month period. So you will make about $17 on a 10K investment over the next six months and then the rate will be reset based on whatever the inflation rate is then. You ain't going to become rich making around $34 a year (taxable) on your 10K investment -- assuming that inflation stays at the current level which is possible but most economists and the Fed think otherwise. And remember that a nominal return of inflation is a real return of zero. So in other words your 10K will be worth 10K in real terms whenever you redeem it -- but nothing more. It is possibly better than some other investments -- but it is hardly a good investment.
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Re: What's the catch with I Bonds?

Post by Doc7 »

Jack56 wrote: Thu Jul 08, 2021 7:59 pm I bonds are not a real yield since they reset every six months & the only thing locked in is the base interest rate, now zero. Your yield for I bonds purchased now is zero for the 30 year life of the bond plus whatever the inflation rate is in any six month period. So you will make about $17 on a 10K investment over the next six months and then the rate will be reset based on whatever the inflation rate is then. You ain't going to become rich making around $34 a year (taxable) on your 10K investment -- assuming that inflation stays at the current level which is possible but most economists and the Fed think otherwise. And remember that a nominal return of inflation is a real return of zero. So in other words your 10K will be worth 10K in real terms whenever you redeem it -- but nothing more. It is possibly better than some other investments -- but it is hardly a good investment.
3.54% of $10,000 is $34 since when?

It’s tax deferred.

And after 1 year / 5 years (better) you can always cash and rebuy if the fixed rate is improved.

Nobody is buying I Bonds to “get rich”. They are buying because it is unlikely there is another better risk free investment for the next $10K they have to invest in fixed income in their AA/EF/short term savings this year. Most other sources will have a real value of less than $10K in the same time frame.
MishkaWorries
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

Doc7 wrote: Thu Jul 08, 2021 8:03 pm
Jack56 wrote: Thu Jul 08, 2021 7:59 pm I bonds are not a real yield since they reset every six months & the only thing locked in is the base interest rate, now zero. Your yield for I bonds purchased now is zero for the 30 year life of the bond plus whatever the inflation rate is in any six month period. So you will make about $17 on a 10K investment over the next six months and then the rate will be reset based on whatever the inflation rate is then. You ain't going to become rich making around $34 a year (taxable) on your 10K investment -- assuming that inflation stays at the current level which is possible but most economists and the Fed think otherwise. And remember that a nominal return of inflation is a real return of zero. So in other words your 10K will be worth 10K in real terms whenever you redeem it -- but nothing more. It is possibly better than some other investments -- but it is hardly a good investment.
3.54% of $10,000 is $34 since when?

It’s tax deferred.

And after 1 year / 5 years (better) you can always cash and rebuy if the fixed rate is improved.

Nobody is buying I Bonds to “get rich”. They are buying because it is unlikely there is another better risk free investment for the next $10K they have to invest in fixed income in their AA/EF/short term savings this year. Most other sources will have a real value of less than $10K in the same time frame.
The math is wrong. 6 months will be $177. Next 6 months will be at least 3.54% barring a deflation next 4 months. That ain't much but it sure beats 0.04% the bank is paying.

Every investment has to be compared on its own merits for it's own purpose. No point in brandishing bravado over a cash equivalent investment.
We plan. G-d laughs.
Gadget
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Re: What's the catch with I Bonds?

Post by Gadget »

We have 1.1% in I bonds and 1.1% in EE bonds. We only recently started accumulating though because I didn't want them to be taxed in peak earning years. They might still be, but not if our plans to retire slightly early come through.

I don't know how to predict if we'll get a higher percentage in either category. Likely not, because we're investing in taxable now too. Maybe our I bond and EE bond percentage will increase if one of us loses a job and we go down to one income. But if that happens, we also might not have enough extra to save in I bonds either because I'd prioritize Roth IRAs and 401ks first. I bonds and EE bonds feel like a strange middle ground that only affects mid to high income savers, but isn't worth it for really high income savers due to the caps.
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sapphire96
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Re: What's the catch with I Bonds?

Post by sapphire96 »

June non seasonally adjusted CPI came in at 0.9% MoM, 271.10. Comparing this to Mar 2021’s 264.877, we are up 2.35%. If I Bonds were to “reset” their rate today, it would be annualized to 9.4% (2.3 times 4).
Keep interest as your friend, not your foe. | Use money as a tool for bettering your life, not squandering it. | Stay the course, don’t deviate from it.
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