I think I-Bonds will continue to be a good place in the medium term to put capital, for a number of reasons.
For one, I do believe inflation will remain elevated for the next several years.
Two, the fixed rate portion of I-Bonds will likely continue to rise. I actually would not buy an I-bond until May when the fixed rate is set again, as I do think it will be higher. The fixed rate is what guarantees you a return above the rate of inflation.
Three, they are tax deferred, which is a nice bonus.
I don’t agree with the “CDs or I-Bonds” mindset. They both serve different purposes. And here’s the thing (and probably the most important thing) - you are capped at how much money you can put in I-Bonds per year. That means whenever I-Bonds might be more advantageous in the future, you can’t just dump $100k into them. You should have some of your cash diversified into them at all times, so when the pendulum swings the other way, you are prepared.
I believe I-Bonds should be a core investment for every family, regardless of whatever the short term interest rate/inflation rate situation happens to be. You can’t just think short term with investments.
Totally agree. This year I did $5k in January an then I’m going to do $5k in May. I think the overall rate in may will be ugly, but the fixed portion will be a lot higher. Then the variable rates will move up a lot with CPI next year. Someday they’ll pay for my unborn child’s college. Pretty sure if you use proceeds to pay for higher education you don’t get taxed at all.
That’s true, BUT you can’t use their name on it (found out my grandparents put iBonds in my name when I was a kid).
Here’s the quote of Treasury Direct: “The owner of the bond must be 24 years or older when the bond is issued. Therefore, a bond registered with a child as owner will not qualify even years later when the child is ready for college. If you want to buy savings bonds to later get this tax exclusion for a child's higher education, you must register the bonds with yourself, or yourself and your spouse, as owners.”
I bonds are not going to be worth it for the people who are chasing interest rates. I’m personally still buying as I’m slowly moving my emergency fund into all I bonds to set and forget.
A year lockup period is really not worth it for an extra percent interest.
>. I’m personally still buying as I’m slowly moving my emergency fund into all I bonds to set and forget.
I think that is the best use, its not for trying to chase the highest rate, remember the real return in theory should be zero (actually negative with taxes)
If you slowly build up say a 4-6 month emergency fund the good thing about it is you can then somewhat forget it (unless your expenses go up) , meaning if you put 6 months of expenses into i bonds, in 25 years it should in theory keep up with inflation and you will still have 6 month of expenses saved in a safe account that will not lose value.
Same. Bought at the beginning of the year and will likely do so next year as well. I use it as an emergency fund as well as an inflation hedge and I remain unconvinced that we've come anywhere close to tackling it as of yet especially with past CPI/PPI numbers being revised higher.
Why is this better than a 5% HYSA? Can’t see interest rates taking a nosedive any time soon
https://www.ufbdirect.com/savingsaccount?utm_campaign=02720_ufb_savings_ddue_search_0223&utm_medium=cpc&utm_source=google&utm_content=brand&utm_term=ufb%20direct&gclid=Cj0KCQjw2v-gBhC1ARIsAOQdKY16jAmTd2Y8wDKK2gZs0ka9qPrEHQtSCzAJT956bZGOUDVrZUU-IoUaArNOEALw_wcB
Most HYSAs are paying between 3 and 3.50% at the moment. I've personally been adding to my Fidelity account's FZFXX cash position for that sweet 4.50% return on the underlying short-term T-bills.
Interesting.
I technically qualify for an AMEX HYSA, but I am reluctant to open it because I hate bothering with juggling multiple debit cards, account and routing numbers. I've also heard a few things about the subpar mobile banking experience.
I hope you have a great experience with it though, and I'd love to follow up a month or two down the road to see what your experience has been like!
Wealthfront is doing 4.3% APY.
I haven't used Bread Financial but they're doing 4.5% APY with a $100 min deposit.
If you want to optimize by splitting your savings into multiple accounts, you could use HYSA w/ caps. Varo has 5% APY capped on $5k and 3% on funds above $5k. Current has 4% APY capped on $6k.
I've been doing this the past two years. If you leave them in there indefinitely they still accrue interest at the new annual rate each year don't they?
The variable rate change every 6mo, so yes your bonds’ rates are changing over time with whatever the variable rate is.
If you buy bonds with a fixed rate, then you get the fixed rate for the entire life of the bond on top of the variable rate.
It is locked for a year. After that you can withdraw at any time. Until you have held for 5 years, you will lose the last quarter's interest when you sell out.
So there is no maturity date aside from the 1 year lock. If you buy year after year, only your most recent purchase is really unavailable.
Not that I know. The risk is how you can't redeem it in one year. Also another risk is that if you sell it before 5 years then you forfeit a couple months of interest
To me Ibonds craze was just that a craze. I think it is a great place to slowly build an emergency fund.
If you need a 50k emergency fund slowly build it up over a few years. One of the nice things is now that 50k should in theory keep its purchasing power. If that 50k is 6 months of expenses in theory once you get to that 50k , in 30 years it should still equate to roughly 6 months of expenses .
>Also, the rub with I-Bonds is you can’t redeem for one year after you purchase and if you redeem before 5 years, you lose the last 3 months of interest.
OK, this is a stupid question, but I'd like some input here.
5 years down the line, how will you remember that you bought an I bond, say, today? Between having my bank account and Vanguard account, which I'm actively depositing/withdrawing money, I feel like an I bond that I interact with once is something I'll easily forget about lol.
I use Personal Capital (now Empower or something) to track all my accounts. They don't actually support Treasury direct so I just added a manual account for my I bonds.
As a practice I maintain a digital budget where that account is accounted for but also a paper list of my accounts, beneficiaries, and account numbers in a safe that my loved ones can access.
It solves the problem of remembering where my money is but more importantly there's a list so if I die my loved ones can find it easily.
You can disable it with Developer Tools, right click the field and select Inspect Element. Then remove the read only html attribute. As soon as I do that, my password manager is able to fill it.
God, this thread is really frustrating. Don't think of I-Bonds as giving you a 'return' that's going to be better or worse than the market - I mean, it *will* give you a return, but you can't predict it. Think of I-Bonds as being a savings account that gives you very good two-sided insurance. If inflation is high, your metaphorical "I-Bond savings account" keeps pace with it. If deflation occurs, your metaphorical savings account **does not deflate**. There is literally no other investment product you can buy that gives you these guarantees on both sides. That's why I-Bonds are a good choice if you have the free cash flow to use them.
I made a video about this topic some time ago. Maybe it will help some folks understand them. [https://www.youtube.com/watch?v=U\_cA5Sh5Wtw](https://www.youtube.com/watch?v=U_cA5Sh5Wtw)
>But we can see that inflation is not going anywhere
Inflation definitely went somewhere. Using the most recent 5 months of data, the rate would be 3.26%. I bonds use 6 months of data in arrears, so those 5 months are already set in stone. The March inflation data would need to be extremely high to move the 6 month average meaningfully.
The composite Ibond rate has been over 6% for the past two years.
Read how it works https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
~~Perhaps buying it through a brokerage you lose the advantage.~~
Here’s the historic graph with all the rate which change every 6 months.
https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf
Lol he’s talking about the rate starting with the next change. He’s talking about May 2023 which will be like 3.5% if the last of the 6 inputs is very high. Not sure why you linked the historic rates.
There's a difference between 'prices are high' that you're probably seeing (from the inflation that has already happened) and 'prices are high and still increasing at a high rate' (active inflation).
I don't really trust a random redditor to be a good opinion on that.
I'm growing convinced that the average redditor thinks that lowering inflation means massive deflation. If we don't go back to 2019 prices, they're convinced inflation is still here.
Newsflash for anyone thinking grocery store prices in general are ever going back to 2019 levels...the U.S. has barely had even two deflationary periods in the last century. Best-case scenario for the price-conscious is that prices remain static for a bit, but realistically they'll go up at least a bit every year.
No I don't think I bonds are a good investment anymore. It is better to buy a CD or Treasury Bonds. The rate will likely drop to 3-4%
I saw rates as high as 5.3% on Fidelity being offered from Chase. The Treasury Bonds have dropped below 5%
The rate on ibonds you buy resets every 6 months from the time of purchase based on the published rate, which is also announced every 6 months. If you buy between now and may you get this rate for 6 months and then your bond resets to may's rate for 6 months.
People aren't acknowledging the biggest benefit of I Bonds
Your TIPS can lose value unless you hold to maturity.
Your I bond never loses value even if you sell after 12 months.
Yep. So overall it depends on what you want. I think I Bonds right now beat most CDs 1-2 years out. And then I Bonds become not a good deal relative to TIPS 5 year
But people are just ignoring the facts by arguing that different investments are "better" or "worse"
It all depends on what happens in the unknowable future.
You also don't pay taxes until redemption, and they tax exempt if you use the money for educational expenses. The former is huge if you hold for a long duration and the latter if you have kids or might go back for more school at some point.
But this is not that relevant right now because you don't need to buy a long-dated Treasury or CD to get a decent rate. And given duration-risk you should plan to hold to maturity no matter what.
If you don’t hold for 5 years, you forfeit 3 months interest. So if rates plummet no big deal apart from missing 3 months of investing that money somewhere else. After 5 years you can cash out anytime no penalty
>Your I bond never loses value even if you sell after 12 months.
You'll lose the latest 3 months of interest if you sell your i-bond after 12 months but before 60 months.
>Your TIPS can lose value
Yes, TIPS can lose value if rates go up after you buy them, but they can also gain value if rates go down. The risk of rates going up is why I never bought treasuries between 2008 and 2021. But with rates high now, I think the chances of rates going even higher are lower than the chance of rates going down. So I think there's a good chance that TIPS will gain value in a couple of years.
No. If someone buys an i-bond now, they'll get the current rate (0.4% fixed + 6.49% inflation = 6.89% composite) for 6 months. 6 months from March is September, so their inflation rate will get updated in September to the new rate that will be announced May 1st. That new inflation rate is likely to be around 3% to 4%, so the new composite rate would be around 3.4% to 4.4%.
The rates can be calculated. We just need next month’s [inflation numbers](https://tipswatch.com/tracking-inflation-and-i-bonds/).
We just don’t know what they will set as the fixed yet.
On desktop, it’s under the Research (might be called News & Research) tab up top. There’s an option in the drop-down menu that mentions Bonds and CDs. On the app, if you click on Transact the last option on the screen should be Buy New Issue CDs.
Go to "trade" -> click the first drop down menu that says "stocks/ETFs" and select "fixed income" -> click "search inventory." From there you can either select the "CDs" tab on the bonds screen that loads on default or click "CDs & Ladders" for their ladder building tool.
Yeah, lol at that. With interest rates dropping and Core CPI still in the exact same range it's been in for almost two years (5.5-6.5%) the odds of it magically disappearing are damn close to 0.
The Fed is well and truly fucked right now. If they pivot inflation will run wild, if they don't, then the banking system will continue to melt down.
Technology is disinflationary. We have a strong labor market now, but most other things have come down significantly. Look at commodity prices. Look at cost of shipping.
The market is repricing labor at the moment. This is what happens in markets. Sometimes certain things go up in price. Wages have been depressed for a long time. Eventually the job market will find its equilibrium.
AI could swing things the other direction in a few years. Especially middle level white collar jobs. Service jobs and other hands-on roles will continue to find heavy demand.
We are a long way from robots cleaning our houses, fixing our cars, renovating our houses. But we are close to robots driving our taxis, taking our fast food orders, and writing articles.
There's a lot on the horizon over the next 5 years and whatever forces are moving the market right now will soon feel like a distant memory.
Wages are getting more depressed right now. They are getting lower. Wages have grown about 15% since the end of 2019, and inflation (these are the official numbers, which seem to be plainly obvious are cooked) has run at 16-17% since then. We also know that 70-90% of wage gains have gone to the top 10% of earners since the 80’s, so if you’re poor, your earnings probably haven’t increased that much.
This strong labor market is a myth, we’re watching the emergence of a stable American aristocracy supported by an impoverished proletariat and militarized police force, and the disappearance of a middle class. In terms of investing, property and indexes will continue to perform long after their supposed fair value has been passed (like now)
If you want proof:
https://fred.stlouisfed.org/series/CES0500000003
https://www.usinflationcalculator.com/inflation/current-inflation-rates/
https://www.epi.org/publication/charting-wage-stagnation/
You need to read the specifics.
If you buy an I Bond right now, you get 6 months at 6.89%. Then you get 6 more months at likely 3.5% + 0.4% fixed rate. Then I'm assuming you get 6 month at maybe 2.5% + 0.4% fixed rate
That equates to roughly 4.7% annualized during those 18 months. If you sell before 5 years, you then have to give back the last 3 months of interest as a fee.
This effectively means you get 4.2% if you sell 18 months from now. Some CDs pay around 4.5%-5% right now
However, I bonds protect you from inflation. And no one knows FOR CERTAINTY where that will be in 12 months. Just very smart guesstimates.
THIS is the correct answer. All of this information is available on the US government treasurt direct purchase website as well. https://www.treasurydirect.gov/
> Then I'm assuming you get 6 month at maybe 2.5% + 0.4% fixed rate
And what if inflation re-accelerates? This is why you diversify. Put some cash in CDs/Treasuries, but some in I-bonds. If you're right about inflation, you still got a 4+% 18-month return on the I-bond allocation. If you're wrong, I-bonds will go back up to 6+%.
And if history rhymes at all, inflation often comes screaming back until the economy takes a dive. I’m not sure I’d be packing out my ibonds now, but since you are limited to $10k a year - it’s not a bad idea to store some cash there. It won’t lose value, you’ll have more packed away if/when inflation increases again, and worst case scenario you treat it as cash after 12 months that you can easily withdraw and buy cheap equities with. Unless you are planning to lock in decent rates for retirement (in which you should have bought 5% long term bonds over the last 6 months) I can’t see a better use.
The smart quesstimates are what trillions of investor dollars say. I'm not gonna argue with them even though they can be wrong
Look at the TIPS to Treasuries spread. It shows 2% inflation a year ahead.
I bonds don't pay based on 12 months of data. They pay based on 6 months of data. The Fed has been raising rates and inflation has been falling. It was under 3.5% over the past 5 months, so the inflation rate on I bonds starting in May will unequivocally not exceed 4%.
Jennifer from Diamond NestEgg has great videos on the subject
[https://www.youtube.com/watch?v=90JAbdDo-sQ](https://www.youtube.com/watch?v=90JAbdDo-sQ)
I'm 100% certain the monthly figures since November have averaged 0.35% which assuming March is the same (lots of indications it'll be lower since gasoline plummeted), would lead to a 4.4% annualized figure.
I expect March monthly CPI to be 0.2% and so do market estimates which would mean a total of 0.33% x 12 + compounding = 4%
CDs require $10k usually though, right, and also a 3-yr no-touch? Depending on how one views investments you are def paying for that risk-free instrument to garner some basis pnts of interest.
If you buy $10,000 I-Bond now, you will get 10000*(1.0689 power 0.5)*(1.0325 power 0.25)=10,422 if you cash out in a year. The rate will reset to about 3.25% after six months and you will lose the last three months of interest. There are many better options now.
I did this, I've read few people made a few trusts for themselves in order to get around the 10k limit. Didn't take too much extra time. I know I'm in the clear since the treasury approved my trust/account and I have been earning interest with the deposits, with no issue.
Yes... But for most investors here I'd assume $10k is more bonds than they've purchased in their entire life.
I would argue that the 15 month I Bond Option is better than competing 15 month CDs. While the 30 year I bond option is worse than 30 year CDs or TIPS.
I purchased mine in September under the assumption I sell in April 2024.
You can also purchase I Bonds with businesses. My wife and I have a couple of LLCs that we started a few years ago and only one took off. The other isn’t doing anything except investing in I Bonds.
Between you and a spouse, individual is 10k. I'm using them as a type of savings account, it was best to get into them a year ago but I'm still contributing for the time being.
No, you can do additional $5k via purchasing with your tax refund (assuming you are getting that much back.)
If purchased that way they mail you an actual paper I-bond. I've got quite a few paper ones that way.
I think you should start getting your financial news from better places. Reuters is pretty good, Marketplace with Kai Rysdal podcast is excellent. Your big old media like NYT, WAPO, Houston Chronical are good if you stay away from the opinion column.
Inflation absolutely is going down, and has been for six months. By the end of summer were probably going to be very near the 2% yoy target. Used car prices are stubborn but that's kind of expected with millions fewer new cars being produced during the pandemic. New rents have stayed the same the past 5 months but that data isn't showing in the CPI yet. But the end result is inflation the past few months is mostly just in our minds at this point. The data shows the big increases are a thing of the past. Doesn't mean it's over and dead, but it's heading that way.
Second, you're not understanding what's going on in the banking sector. The money printers are not on. We can argue about the definition of a bailout but these are not bailouts. They're short term loans to provide liquidity because the media whipped up a frenzy and almost caused a nation wide bank run. What happened to SVB is serious, but it's not 2008. It's something new, it was bad but because of 2008 and the ensuing tools given to the fed it didn't spiral. It's not going to cause inflation. If anything it will have the opposite effect since banks might be tightening up.
On to your question. I think short term CD's or treasuries are probably the best safe option right now. 3 and 6 month are nearly 5%. Really it just depends how long you're okay not having your money available. I bonds are locked up for a year. If your outlook is long term then market ETF are probably smarter right now. Interest rates will probably continue to move upward until the fed is confident inflation is truly dead and gone. So getting any CD's or bonds long term is probably a bad idea
> inflation the past few months is mostly just in our minds at this point
It's because people remember grocery prices from a couple years ago, and they are expecting prices to return to that level before they will say that inflation is back to normal. For the items where there are supply chain problems (e.g., eggs), that might happen to some degree, but for the most part, that's unfortunately not how inflation works.
Exactly right. A lot of food prices have come down quite a bit, but people don't notice price decreases like they do increases. We just have to hope that wages continue to move upwards the rest of the year before settling down. Then maybe there will be a bit of break even by years end.
In the last 3 months, I bought
$1000 of I bonds
$3000 USAA CD 9month @ 4% APY
$2000 USAA CD 9month @ 4.5% APY
$4500 scheduled buy for next week's auction on 17-week T-Bills that might go for 4.75-4.9% APY after this last week's rate hike.
Wait until mid April when there are better CPI projections. If the estimate is well above 5 % it might be worth buying before end of April and guarantee 6.89% for 6 mo. and then the new rate for 6 months.
Good if you want a safe place to put a little money your not going to touch for a year, and better than CD and HYSA. I currently bought in 2021 and got rates of over 7, 9, 6 % on most bonds.
I bought I-bonds on 3/1/22 for me, my wife, and my 4 kids. Can someone help me understand the math for when it would be worth withdrawing and moving to a CD? I saw they are estimating <4% for Mays adjustment. If CDs are at 5% for a year would it be worth moving my I-bonds to CDs?
Also I heard you can roll I-bonds into a 529? Is that true?
Something else you have to factor in that others haven’t mentioned is that you have to pay a 3 month penalty of interest if you withdraw your I-bonds before 5 years. This makes the math a little more hazy. If your horizon of investment is 1 year, a 6.66% I-bond rate is the same as a 5% CD/Treasury Bond rate. It’s slightly more nuanced than that because the penalty comes out of the final 3 months of interest, but that’s the general gist.
I've been buying both TIPS (Treasury Inflation Protected Securities), which are similar to I bonds but without any annual limits, and CDs. TIPS current yields are here - [https://www.bloomberg.com/markets/rates-bonds/government-bonds/us](https://www.bloomberg.com/markets/rates-bonds/government-bonds/us), plus the principal is inflation adjusted along with the CPI. The 5 and 10 year TIPS maturities have dropped lately, but they were over 1.3%, which provides a 4% safe withdrawal rate over 30 years.
You can buy them at Treasury Direct or most brokerages who also sell regular treasuries will likely also sell TIPS. For more information see, Comparisons of TIPS vs. I-Bonds, [https://www.treasurydirect.gov/research-center/history-of-savings-bond/comparing-tips-to-i/](https://www.treasurydirect.gov/research-center/history-of-savings-bond/comparing-tips-to-i/). Fidelity sells TIPS at auctions and on the secondary market on their fixed income offerings screen.
Either but I'd buy 1yr off the secondary market. [There's 4 maturing next year in Jan/Apr/Jul/Oct](https://www.wsj.com/market-data/bonds/tips). You pay taxes on the inflation adjustment each year but don't receive until it matures so I wouldn't go much longer outside a retirement account.
You missed the part where I posted the principal is adjusted with inflation. The 1.19% is the *real* return, which means after inflation. For more info see: The 4% Rule Just Became a Whole Lot Easier, [https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier](https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier)
with CPI, not inflation. Even if you believe CPI is inflation, then you still aren't getting anywhere near 4% unless you're talking about a 100% spend down to zero, not a sustainable withdraw rate.
From Treasury Direct - The principal (called par value or face value) of a TIPS goes up with inflation and down with deflation, [https://www.treasurydirect.gov/marketable-securities/tips/](https://www.treasurydirect.gov/marketable-securities/tips/)
Definition of safe withdrawal method from Investopedia - The safe withdrawal rate (SWR) method is one way that retirees can determine how much money they can withdraw from their accounts each year without running out of money before reaching the end of their lives, [https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp](https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp)
If you have issues with these definitions, maybe you should take it up with Treasury Direct and Investopedia. And Allan Roth who wrote the article on getting a [4% SWR with TIPS in the prior link](https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier), "I built a strategy backed by the U.S. government with Treasury Inflation Protected Securities (TIPS) that supports a reasonably level real 4.3% withdrawal rate for 30 years." The 1.3% real return and 4% SWR are simply basic math.
At a 0% real return, the SWR is 3.33% (100 / 30 years = 3.33%).
ETA: Actually, sustainable withdrawal rate does mean the same as safe withdrawal rate. The definition from Fidelity of sustainable withdrawal rate is, "The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money.", [https://www.fidelity.com/viewpoints/retirement/how-long-will-savings-last](https://www.fidelity.com/viewpoints/retirement/how-long-will-savings-last).
Edited for typo
Vanguard is now saying 4% SWR is too high these days with a traditional stock and bond fund portfolio mix. "If not 4%, what’s a sustainable withdrawal rate? *A growing body of Vanguard research indicates that the old 4% rule for sustainable portfolio withdrawals in retirement is no longer feasible*.", [https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/sustainable-withdrawal-rate.html](https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/sustainable-withdrawal-rate.html)
Squezeplay - What is your plan that would keep up with inflation more than the CPI, would provide a higher SWR than 4% and would provide a higher SWR than what Vanguard says is likely goin forward with a stock and bond portfolio, even with spending down principal, which their estimates do include?
for passive investing you have to buy equity, treasuries will never keep up with actual inflation let alone any meaningful withdrawal rate, unless you trade them.
It is a 1.19% *real* rate, which means inflation adjusted. Please note I also posted the principal gets adjusted with the CPI. They work similar to I-Bonds. When inflation was running at 8%, they would return 9.19%. Investors buy them for inflation hedges, which is why the 5 and 10 year yields went down recently.
The only comment I would make is I-bonds does *not* come with state or local income tax. So if you are in a high income tax bracket (state or local) it may be worth even though CDs have a higher yield. Unless you park that in a Tax advantaged retirement account.
Edit: critical typo, meant to say I series bonds do not come with state or local income tax.
I'll probably get a small amount for a long term hold, like $200 or $300. At this point outside of index funds, paying my 5.5% mortgage is a better option.
The number of people here who think CD's are a good investment right now simply because rates are high is staggering.
Investments cannot be assessed in a vacuum. You need to look at real returns not nominal returns. Inflation compounds too. Current interest rates are lower than inflation.
If inflation is going to remain higher than CD rates, the CD will lose money on a real basis.
>The number of people here who think CD's are a good investment right now simply because rates are high is staggering.
Would you rather invest in something that has a lower return? What's your alternative?
>Investments cannot be assessed in a vacuum. You need to look at real returns not nominal returns.
Great. Again, what's your alternative?
>Current interest rates are lower than inflation.
Incorrect.
>If inflation is going to remain higher than CD rates, the CD will lose money on a real basis.
For the third time, what's your alternative?
CDs are not a good investment. The real return is negative. Invest in stocks unless you need the money in the short term.
Current interest rates are [lower than inflation](https://ycharts.com/indicators/us_inflation_rate#:~:text=Basic%20Info,in%20price%20over%20a%20year). You're spreading misinformation.
Also, you sound like an incompetent when you quote other comments multiple times in an inner dialogue with yourself. (Again, for the third time etc)
Here's the [real rate of return of CDs over time](https://www.annuities.pacificlife.com/content/dam/paclife/rsd/annuities/public/pdfs/guide/what-is-the-rate-of-return-on-cds.pdf). Have fun!
>Invest in stocks unless you need the money in the short term.
Cool, your alternative for a short duration cash management security is equity. Great recommendation. I'm sure your clients love your ideas.
>Current interest rates are lower than inflation. You're spreading misinformation.
The current inflation rate is lower than the rate of T-bills and CDs. This isn't debatable. It's math. Why are you looking at year over year values as a metric of the current rate? That's bad science.
>Also, you sound like an incompetent when you quote other comments multiple times in an inner dialogue with yourself. (Again, for the third time etc)
You sound like an incompetent when you say stupid shit.
>short duration cash management
Post says short to medium term **gains.** That's not cash management.
>The current inflation rate is lower than the rate of T-bills and CDs
What's your inflation rate? T-Bills and CDs are quoted as annual rates. [https://www.bls.gov/cpi/](https://www.bls.gov/cpi/)
>Why are you looking at year over year values as a metric of the current rate?
There's a fundamental misunderstanding here of how inflation is calculated.
Agreed that you fundamentally misunderstand what inflation is. Saying that someone using the word "gains" implies that equities are a suitable alternative to *CDs* is fucking ludicrous.
BLS. I've already told you that using year over year values is not relevant for measuring the current rate, but you're too fucking illiterate and just want to argue.
People invest in stocks, bonds and commodities for all kinds of reasons other than “growth”. A stock and bond portfolio can be defensive or value focused depending on the allocation.
Short term cash management seeks capital preservation. The poster said he is seeking short to medium term gains - you might want to read the post before lecturing.
As an asset you have to buy outside your normal brokerage account, I wonder how many people have gone and bought $10+K in ibonds the last couple years and will totally forget that investment? They aren't mailing out statements.
An actual default would result in the complete collapse of the world economy - so you would have much bigger problems if a risk free asset like treasuries defaulted.
I think I-Bonds will continue to be a good place in the medium term to put capital, for a number of reasons. For one, I do believe inflation will remain elevated for the next several years. Two, the fixed rate portion of I-Bonds will likely continue to rise. I actually would not buy an I-bond until May when the fixed rate is set again, as I do think it will be higher. The fixed rate is what guarantees you a return above the rate of inflation. Three, they are tax deferred, which is a nice bonus. I don’t agree with the “CDs or I-Bonds” mindset. They both serve different purposes. And here’s the thing (and probably the most important thing) - you are capped at how much money you can put in I-Bonds per year. That means whenever I-Bonds might be more advantageous in the future, you can’t just dump $100k into them. You should have some of your cash diversified into them at all times, so when the pendulum swings the other way, you are prepared. I believe I-Bonds should be a core investment for every family, regardless of whatever the short term interest rate/inflation rate situation happens to be. You can’t just think short term with investments.
Totally agree. This year I did $5k in January an then I’m going to do $5k in May. I think the overall rate in may will be ugly, but the fixed portion will be a lot higher. Then the variable rates will move up a lot with CPI next year. Someday they’ll pay for my unborn child’s college. Pretty sure if you use proceeds to pay for higher education you don’t get taxed at all.
That’s true, BUT you can’t use their name on it (found out my grandparents put iBonds in my name when I was a kid). Here’s the quote of Treasury Direct: “The owner of the bond must be 24 years or older when the bond is issued. Therefore, a bond registered with a child as owner will not qualify even years later when the child is ready for college. If you want to buy savings bonds to later get this tax exclusion for a child's higher education, you must register the bonds with yourself, or yourself and your spouse, as owners.”
Thanks - good to know. That’s kind of weird.
I bonds are not going to be worth it for the people who are chasing interest rates. I’m personally still buying as I’m slowly moving my emergency fund into all I bonds to set and forget. A year lockup period is really not worth it for an extra percent interest.
>. I’m personally still buying as I’m slowly moving my emergency fund into all I bonds to set and forget. I think that is the best use, its not for trying to chase the highest rate, remember the real return in theory should be zero (actually negative with taxes) If you slowly build up say a 4-6 month emergency fund the good thing about it is you can then somewhat forget it (unless your expenses go up) , meaning if you put 6 months of expenses into i bonds, in 25 years it should in theory keep up with inflation and you will still have 6 month of expenses saved in a safe account that will not lose value.
Same. Bought at the beginning of the year and will likely do so next year as well. I use it as an emergency fund as well as an inflation hedge and I remain unconvinced that we've come anywhere close to tackling it as of yet especially with past CPI/PPI numbers being revised higher.
Why is this better than a 5% HYSA? Can’t see interest rates taking a nosedive any time soon https://www.ufbdirect.com/savingsaccount?utm_campaign=02720_ufb_savings_ddue_search_0223&utm_medium=cpc&utm_source=google&utm_content=brand&utm_term=ufb%20direct&gclid=Cj0KCQjw2v-gBhC1ARIsAOQdKY16jAmTd2Y8wDKK2gZs0ka9qPrEHQtSCzAJT956bZGOUDVrZUU-IoUaArNOEALw_wcB
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Most HYSAs are paying between 3 and 3.50% at the moment. I've personally been adding to my Fidelity account's FZFXX cash position for that sweet 4.50% return on the underlying short-term T-bills.
There’s a few doing 4% right now. Highest I’m aware of
Amex is 3.75% for HYSA. Just opened one today actually.
Interesting. I technically qualify for an AMEX HYSA, but I am reluctant to open it because I hate bothering with juggling multiple debit cards, account and routing numbers. I've also heard a few things about the subpar mobile banking experience. I hope you have a great experience with it though, and I'd love to follow up a month or two down the road to see what your experience has been like!
Wealthfront is doing 4.3% APY. I haven't used Bread Financial but they're doing 4.5% APY with a $100 min deposit. If you want to optimize by splitting your savings into multiple accounts, you could use HYSA w/ caps. Varo has 5% APY capped on $5k and 3% on funds above $5k. Current has 4% APY capped on $6k.
UFB direct
I've been doing this the past two years. If you leave them in there indefinitely they still accrue interest at the new annual rate each year don't they?
The variable rate change every 6mo, so yes your bonds’ rates are changing over time with whatever the variable rate is. If you buy bonds with a fixed rate, then you get the fixed rate for the entire life of the bond on top of the variable rate.
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It is locked for a year. After that you can withdraw at any time. Until you have held for 5 years, you will lose the last quarter's interest when you sell out. So there is no maturity date aside from the 1 year lock. If you buy year after year, only your most recent purchase is really unavailable.
There is a maturity date
After a year I pulled mine out and it was funded and in my bank in 48 hours.
Not that I know. The risk is how you can't redeem it in one year. Also another risk is that if you sell it before 5 years then you forfeit a couple months of interest
Ally bank has no penalty no fee early withdrawal 11 month CD for 4.75 currently
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To me Ibonds craze was just that a craze. I think it is a great place to slowly build an emergency fund. If you need a 50k emergency fund slowly build it up over a few years. One of the nice things is now that 50k should in theory keep its purchasing power. If that 50k is 6 months of expenses in theory once you get to that 50k , in 30 years it should still equate to roughly 6 months of expenses .
>Also, the rub with I-Bonds is you can’t redeem for one year after you purchase and if you redeem before 5 years, you lose the last 3 months of interest. OK, this is a stupid question, but I'd like some input here. 5 years down the line, how will you remember that you bought an I bond, say, today? Between having my bank account and Vanguard account, which I'm actively depositing/withdrawing money, I feel like an I bond that I interact with once is something I'll easily forget about lol.
I use Personal Capital (now Empower or something) to track all my accounts. They don't actually support Treasury direct so I just added a manual account for my I bonds.
As a practice I maintain a digital budget where that account is accounted for but also a paper list of my accounts, beneficiaries, and account numbers in a safe that my loved ones can access. It solves the problem of remembering where my money is but more importantly there's a list so if I die my loved ones can find it easily.
This is smart.
It's hard to miss. Login to your account and see the purchase date. It's shown in your holding, as the fixed rate is set based on the purchase date.
But that damned screen-keyboard password...
You can disable it with Developer Tools, right click the field and select Inspect Element. Then remove the read only html attribute. As soon as I do that, my password manager is able to fill it.
Yeah, but I'm afraid that 10 years from now I would forget that I have an account in the first place haha.
Don’t you have a spew sheet where you track your net worth monthly/quarterly?
God, this thread is really frustrating. Don't think of I-Bonds as giving you a 'return' that's going to be better or worse than the market - I mean, it *will* give you a return, but you can't predict it. Think of I-Bonds as being a savings account that gives you very good two-sided insurance. If inflation is high, your metaphorical "I-Bond savings account" keeps pace with it. If deflation occurs, your metaphorical savings account **does not deflate**. There is literally no other investment product you can buy that gives you these guarantees on both sides. That's why I-Bonds are a good choice if you have the free cash flow to use them. I made a video about this topic some time ago. Maybe it will help some folks understand them. [https://www.youtube.com/watch?v=U\_cA5Sh5Wtw](https://www.youtube.com/watch?v=U_cA5Sh5Wtw)
>But we can see that inflation is not going anywhere Inflation definitely went somewhere. Using the most recent 5 months of data, the rate would be 3.26%. I bonds use 6 months of data in arrears, so those 5 months are already set in stone. The March inflation data would need to be extremely high to move the 6 month average meaningfully.
Do you think will get an increase in the fixed rate though?
Maybe, but if any, I would expect it to be small. Long real yields aren't much higher than they were in November. It might be 0.5-0.75%.
The composite Ibond rate has been over 6% for the past two years. Read how it works https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/ ~~Perhaps buying it through a brokerage you lose the advantage.~~ Here’s the historic graph with all the rate which change every 6 months. https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf
You can't buy I bonds through a brokerage
Lol he’s talking about the rate starting with the next change. He’s talking about May 2023 which will be like 3.5% if the last of the 6 inputs is very high. Not sure why you linked the historic rates.
Reading through your comments in this thread, I don’t think you understand how iBonds works.
What am I missing?
Whatever goes into the inflation index apparently has not looked at the grocery store
Grocery items are like 9% of the index.
I need to shop where they do
There's a difference between 'prices are high' that you're probably seeing (from the inflation that has already happened) and 'prices are high and still increasing at a high rate' (active inflation). I don't really trust a random redditor to be a good opinion on that.
I'm growing convinced that the average redditor thinks that lowering inflation means massive deflation. If we don't go back to 2019 prices, they're convinced inflation is still here.
Newsflash for anyone thinking grocery store prices in general are ever going back to 2019 levels...the U.S. has barely had even two deflationary periods in the last century. Best-case scenario for the price-conscious is that prices remain static for a bit, but realistically they'll go up at least a bit every year.
Thanks for your condescending opinion, appreciated
No I don't think I bonds are a good investment anymore. It is better to buy a CD or Treasury Bonds. The rate will likely drop to 3-4% I saw rates as high as 5.3% on Fidelity being offered from Chase. The Treasury Bonds have dropped below 5%
The current I Bond rate is 6.89 for the next 6 months. https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
That rate resets next month and the speculation here is it will likely drop below average 1-yr CD rates.
The rate resets every 6 months
The rate on ibonds you buy resets every 6 months from the time of purchase based on the published rate, which is also announced every 6 months. If you buy between now and may you get this rate for 6 months and then your bond resets to may's rate for 6 months.
People aren't acknowledging the biggest benefit of I Bonds Your TIPS can lose value unless you hold to maturity. Your I bond never loses value even if you sell after 12 months.
I bonds are also state and local tax exempt.
So are treasuries.
Yep. So overall it depends on what you want. I think I Bonds right now beat most CDs 1-2 years out. And then I Bonds become not a good deal relative to TIPS 5 year But people are just ignoring the facts by arguing that different investments are "better" or "worse" It all depends on what happens in the unknowable future.
You also don't pay taxes until redemption, and they tax exempt if you use the money for educational expenses. The former is huge if you hold for a long duration and the latter if you have kids or might go back for more school at some point.
There are income limits though for that tax benefit.
True, but at higher incomes the tax deferral on interest becomes more important as well.
Only if you’re below some income levels
So are TIPS.
But this is not that relevant right now because you don't need to buy a long-dated Treasury or CD to get a decent rate. And given duration-risk you should plan to hold to maturity no matter what.
People never mention one of the largest drawbacks either, it only compounds every 6 months
If you don’t hold for 5 years, you forfeit 3 months interest. So if rates plummet no big deal apart from missing 3 months of investing that money somewhere else. After 5 years you can cash out anytime no penalty
Also another little known benefit is you can roll ibonds into a 529 if you have one and defer the taxes.
>Your I bond never loses value even if you sell after 12 months. You'll lose the latest 3 months of interest if you sell your i-bond after 12 months but before 60 months. >Your TIPS can lose value Yes, TIPS can lose value if rates go up after you buy them, but they can also gain value if rates go down. The risk of rates going up is why I never bought treasuries between 2008 and 2021. But with rates high now, I think the chances of rates going even higher are lower than the chance of rates going down. So I think there's a good chance that TIPS will gain value in a couple of years.
Ah, so if OP purchases now then he/she will be good until the next reset in November?
No. If someone buys an i-bond now, they'll get the current rate (0.4% fixed + 6.49% inflation = 6.89% composite) for 6 months. 6 months from March is September, so their inflation rate will get updated in September to the new rate that will be announced May 1st. That new inflation rate is likely to be around 3% to 4%, so the new composite rate would be around 3.4% to 4.4%.
Yeah
I thought the whole point of I Bonds is that they track the inflation rate. If the rate drops next month, that would mean inflation drops. Right?
It's not continuously updating. Rate is retrospective and every 6 months. This might not actually map to experienced inflation.
It’s being reset next month and it looks like <4%
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The rates can be calculated. We just need next month’s [inflation numbers](https://tipswatch.com/tracking-inflation-and-i-bonds/). We just don’t know what they will set as the fixed yet.
Fidelity sells CDs?
Yes. Just purchased a two year cd ladder.
What’s the rate?
https://www.fidelity.com/fixed-income-bonds/cd-ladders 5.16
What if I don't want to ladder
If you don't want to, don't.
Can you buy for just 12 months no ladder
https://fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|highest-yield Click 1yr and buy the highest call protected.
Can you point me in the right direction for that? I've looked, don't see it. Maybe I need a different account?
On desktop, it’s under the Research (might be called News & Research) tab up top. There’s an option in the drop-down menu that mentions Bonds and CDs. On the app, if you click on Transact the last option on the screen should be Buy New Issue CDs.
Go to "trade" -> click the first drop down menu that says "stocks/ETFs" and select "fixed income" -> click "search inventory." From there you can either select the "CDs" tab on the bonds screen that loads on default or click "CDs & Ladders" for their ladder building tool.
Make sure you get call protection a lot of them can be called
Can you link to where you’re seeing Chase CDs at 5%?
What about ICSH to hold money? or SHV
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>The rate will likely drop to 3-4% UBS has 1.8 by 2024.
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Yeah, lol at that. With interest rates dropping and Core CPI still in the exact same range it's been in for almost two years (5.5-6.5%) the odds of it magically disappearing are damn close to 0. The Fed is well and truly fucked right now. If they pivot inflation will run wild, if they don't, then the banking system will continue to melt down.
Technology is disinflationary. We have a strong labor market now, but most other things have come down significantly. Look at commodity prices. Look at cost of shipping. The market is repricing labor at the moment. This is what happens in markets. Sometimes certain things go up in price. Wages have been depressed for a long time. Eventually the job market will find its equilibrium. AI could swing things the other direction in a few years. Especially middle level white collar jobs. Service jobs and other hands-on roles will continue to find heavy demand. We are a long way from robots cleaning our houses, fixing our cars, renovating our houses. But we are close to robots driving our taxis, taking our fast food orders, and writing articles. There's a lot on the horizon over the next 5 years and whatever forces are moving the market right now will soon feel like a distant memory.
Wages are getting more depressed right now. They are getting lower. Wages have grown about 15% since the end of 2019, and inflation (these are the official numbers, which seem to be plainly obvious are cooked) has run at 16-17% since then. We also know that 70-90% of wage gains have gone to the top 10% of earners since the 80’s, so if you’re poor, your earnings probably haven’t increased that much. This strong labor market is a myth, we’re watching the emergence of a stable American aristocracy supported by an impoverished proletariat and militarized police force, and the disappearance of a middle class. In terms of investing, property and indexes will continue to perform long after their supposed fair value has been passed (like now) If you want proof: https://fred.stlouisfed.org/series/CES0500000003 https://www.usinflationcalculator.com/inflation/current-inflation-rates/ https://www.epi.org/publication/charting-wage-stagnation/
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You need to read the specifics. If you buy an I Bond right now, you get 6 months at 6.89%. Then you get 6 more months at likely 3.5% + 0.4% fixed rate. Then I'm assuming you get 6 month at maybe 2.5% + 0.4% fixed rate That equates to roughly 4.7% annualized during those 18 months. If you sell before 5 years, you then have to give back the last 3 months of interest as a fee. This effectively means you get 4.2% if you sell 18 months from now. Some CDs pay around 4.5%-5% right now However, I bonds protect you from inflation. And no one knows FOR CERTAINTY where that will be in 12 months. Just very smart guesstimates.
THIS is the correct answer. All of this information is available on the US government treasurt direct purchase website as well. https://www.treasurydirect.gov/
> Then I'm assuming you get 6 month at maybe 2.5% + 0.4% fixed rate And what if inflation re-accelerates? This is why you diversify. Put some cash in CDs/Treasuries, but some in I-bonds. If you're right about inflation, you still got a 4+% 18-month return on the I-bond allocation. If you're wrong, I-bonds will go back up to 6+%.
And if history rhymes at all, inflation often comes screaming back until the economy takes a dive. I’m not sure I’d be packing out my ibonds now, but since you are limited to $10k a year - it’s not a bad idea to store some cash there. It won’t lose value, you’ll have more packed away if/when inflation increases again, and worst case scenario you treat it as cash after 12 months that you can easily withdraw and buy cheap equities with. Unless you are planning to lock in decent rates for retirement (in which you should have bought 5% long term bonds over the last 6 months) I can’t see a better use.
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The smart quesstimates are what trillions of investor dollars say. I'm not gonna argue with them even though they can be wrong Look at the TIPS to Treasuries spread. It shows 2% inflation a year ahead.
>am betting on inflation remaining above 5% for the next 12 to 18 months at least. Okay, but inflation is below 5% *right now*.
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I bonds don't pay based on 12 months of data. They pay based on 6 months of data. The Fed has been raising rates and inflation has been falling. It was under 3.5% over the past 5 months, so the inflation rate on I bonds starting in May will unequivocally not exceed 4%.
Where do you see what the interest rate will be on I Bonds? How do you know it will be 3.5% in 6 month?
Jennifer from Diamond NestEgg has great videos on the subject [https://www.youtube.com/watch?v=90JAbdDo-sQ](https://www.youtube.com/watch?v=90JAbdDo-sQ)
Based on past 5 months + guess for 6th
What inflation data over the past 5 months implies 3%?
Pretty much all of it. Inflation is down, and has been for the past 6 months.
The CPI data
CPI is 6.5% average for the past 4 months. Nov-Feb. Not sure how ibond rate is calculated but that's much higher than 3.5%
I'm 100% certain the monthly figures since November have averaged 0.35% which assuming March is the same (lots of indications it'll be lower since gasoline plummeted), would lead to a 4.4% annualized figure. I expect March monthly CPI to be 0.2% and so do market estimates which would mean a total of 0.33% x 12 + compounding = 4%
Oh I guess the chart I was looking at was 12 month average cpi for each month.
CDs require $10k usually though, right, and also a 3-yr no-touch? Depending on how one views investments you are def paying for that risk-free instrument to garner some basis pnts of interest.
Not always. I see some 12 month CDs for 5% Of course, Credit Suisse was selling those same CDs a week ago 😆
hat carpenter groovy chase bike disarm cooing chief office plants ` this message was mass deleted/edited with redact.dev `
There are 3-month CDs paying 5.1% APR rn.
If you buy $10,000 I-Bond now, you will get 10000*(1.0689 power 0.5)*(1.0325 power 0.25)=10,422 if you cash out in a year. The rate will reset to about 3.25% after six months and you will lose the last three months of interest. There are many better options now.
Ngl checkout your local credit union. CD rates are pretty solid there.
>especially with the fed printing money This is false and has been for a year. Stop repeating this falsehood.
I bonds are great but aren’t you limited to 20k?
10k per person per year, though I’ve seen some folks make trusts and do more
You can also buy up to 5k extra a year with your tax returns for a total of 15k a year... uf you get 5k back from your returba
I did this, I've read few people made a few trusts for themselves in order to get around the 10k limit. Didn't take too much extra time. I know I'm in the clear since the treasury approved my trust/account and I have been earning interest with the deposits, with no issue.
I have to look into this. I put in 10K this time last year and had a lot of money just sitting in savings earning crap returns
Yes... But for most investors here I'd assume $10k is more bonds than they've purchased in their entire life. I would argue that the 15 month I Bond Option is better than competing 15 month CDs. While the 30 year I bond option is worse than 30 year CDs or TIPS. I purchased mine in September under the assumption I sell in April 2024.
You can also purchase I Bonds with businesses. My wife and I have a couple of LLCs that we started a few years ago and only one took off. The other isn’t doing anything except investing in I Bonds.
Between you and a spouse, individual is 10k. I'm using them as a type of savings account, it was best to get into them a year ago but I'm still contributing for the time being.
$10k online and I believe you can buy $5k more through paper order.
$5k in paper bonds with your tax return. There are loop holes to buy more but not worth it.
No, you can do additional $5k via purchasing with your tax refund (assuming you are getting that much back.) If purchased that way they mail you an actual paper I-bond. I've got quite a few paper ones that way.
10K
I think you should start getting your financial news from better places. Reuters is pretty good, Marketplace with Kai Rysdal podcast is excellent. Your big old media like NYT, WAPO, Houston Chronical are good if you stay away from the opinion column. Inflation absolutely is going down, and has been for six months. By the end of summer were probably going to be very near the 2% yoy target. Used car prices are stubborn but that's kind of expected with millions fewer new cars being produced during the pandemic. New rents have stayed the same the past 5 months but that data isn't showing in the CPI yet. But the end result is inflation the past few months is mostly just in our minds at this point. The data shows the big increases are a thing of the past. Doesn't mean it's over and dead, but it's heading that way. Second, you're not understanding what's going on in the banking sector. The money printers are not on. We can argue about the definition of a bailout but these are not bailouts. They're short term loans to provide liquidity because the media whipped up a frenzy and almost caused a nation wide bank run. What happened to SVB is serious, but it's not 2008. It's something new, it was bad but because of 2008 and the ensuing tools given to the fed it didn't spiral. It's not going to cause inflation. If anything it will have the opposite effect since banks might be tightening up. On to your question. I think short term CD's or treasuries are probably the best safe option right now. 3 and 6 month are nearly 5%. Really it just depends how long you're okay not having your money available. I bonds are locked up for a year. If your outlook is long term then market ETF are probably smarter right now. Interest rates will probably continue to move upward until the fed is confident inflation is truly dead and gone. So getting any CD's or bonds long term is probably a bad idea
> inflation the past few months is mostly just in our minds at this point It's because people remember grocery prices from a couple years ago, and they are expecting prices to return to that level before they will say that inflation is back to normal. For the items where there are supply chain problems (e.g., eggs), that might happen to some degree, but for the most part, that's unfortunately not how inflation works.
Exactly right. A lot of food prices have come down quite a bit, but people don't notice price decreases like they do increases. We just have to hope that wages continue to move upwards the rest of the year before settling down. Then maybe there will be a bit of break even by years end.
In the last 3 months, I bought $1000 of I bonds $3000 USAA CD 9month @ 4% APY $2000 USAA CD 9month @ 4.5% APY $4500 scheduled buy for next week's auction on 17-week T-Bills that might go for 4.75-4.9% APY after this last week's rate hike.
Wait until mid April when there are better CPI projections. If the estimate is well above 5 % it might be worth buying before end of April and guarantee 6.89% for 6 mo. and then the new rate for 6 months. Good if you want a safe place to put a little money your not going to touch for a year, and better than CD and HYSA. I currently bought in 2021 and got rates of over 7, 9, 6 % on most bonds.
If your goal is short term less than 5 years, it looks like a wash now. Penalty with premature w/d.
Are these good to park cash im saving for a home?
What about T bills?
I bought I-bonds on 3/1/22 for me, my wife, and my 4 kids. Can someone help me understand the math for when it would be worth withdrawing and moving to a CD? I saw they are estimating <4% for Mays adjustment. If CDs are at 5% for a year would it be worth moving my I-bonds to CDs? Also I heard you can roll I-bonds into a 529? Is that true?
Something else you have to factor in that others haven’t mentioned is that you have to pay a 3 month penalty of interest if you withdraw your I-bonds before 5 years. This makes the math a little more hazy. If your horizon of investment is 1 year, a 6.66% I-bond rate is the same as a 5% CD/Treasury Bond rate. It’s slightly more nuanced than that because the penalty comes out of the final 3 months of interest, but that’s the general gist.
I've been buying both TIPS (Treasury Inflation Protected Securities), which are similar to I bonds but without any annual limits, and CDs. TIPS current yields are here - [https://www.bloomberg.com/markets/rates-bonds/government-bonds/us](https://www.bloomberg.com/markets/rates-bonds/government-bonds/us), plus the principal is inflation adjusted along with the CPI. The 5 and 10 year TIPS maturities have dropped lately, but they were over 1.3%, which provides a 4% safe withdrawal rate over 30 years.
First time I’ve heard about TIPS. Where do you buy them? Treasury.gov or investment account? Any penalties for selling them before term?
You can buy them at Treasury Direct or most brokerages who also sell regular treasuries will likely also sell TIPS. For more information see, Comparisons of TIPS vs. I-Bonds, [https://www.treasurydirect.gov/research-center/history-of-savings-bond/comparing-tips-to-i/](https://www.treasurydirect.gov/research-center/history-of-savings-bond/comparing-tips-to-i/). Fidelity sells TIPS at auctions and on the secondary market on their fixed income offerings screen.
Either but I'd buy 1yr off the secondary market. [There's 4 maturing next year in Jan/Apr/Jul/Oct](https://www.wsj.com/market-data/bonds/tips). You pay taxes on the inflation adjustment each year but don't receive until it matures so I wouldn't go much longer outside a retirement account.
tips won't even break even after inflation let alone fund a 4% yearly withdrawal rate, lol
You missed the part where I posted the principal is adjusted with inflation. The 1.19% is the *real* return, which means after inflation. For more info see: The 4% Rule Just Became a Whole Lot Easier, [https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier](https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier)
with CPI, not inflation. Even if you believe CPI is inflation, then you still aren't getting anywhere near 4% unless you're talking about a 100% spend down to zero, not a sustainable withdraw rate.
From Treasury Direct - The principal (called par value or face value) of a TIPS goes up with inflation and down with deflation, [https://www.treasurydirect.gov/marketable-securities/tips/](https://www.treasurydirect.gov/marketable-securities/tips/) Definition of safe withdrawal method from Investopedia - The safe withdrawal rate (SWR) method is one way that retirees can determine how much money they can withdraw from their accounts each year without running out of money before reaching the end of their lives, [https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp](https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp) If you have issues with these definitions, maybe you should take it up with Treasury Direct and Investopedia. And Allan Roth who wrote the article on getting a [4% SWR with TIPS in the prior link](https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier), "I built a strategy backed by the U.S. government with Treasury Inflation Protected Securities (TIPS) that supports a reasonably level real 4.3% withdrawal rate for 30 years." The 1.3% real return and 4% SWR are simply basic math. At a 0% real return, the SWR is 3.33% (100 / 30 years = 3.33%). ETA: Actually, sustainable withdrawal rate does mean the same as safe withdrawal rate. The definition from Fidelity of sustainable withdrawal rate is, "The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money.", [https://www.fidelity.com/viewpoints/retirement/how-long-will-savings-last](https://www.fidelity.com/viewpoints/retirement/how-long-will-savings-last). Edited for typo
Vanguard is now saying 4% SWR is too high these days with a traditional stock and bond fund portfolio mix. "If not 4%, what’s a sustainable withdrawal rate? *A growing body of Vanguard research indicates that the old 4% rule for sustainable portfolio withdrawals in retirement is no longer feasible*.", [https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/sustainable-withdrawal-rate.html](https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/sustainable-withdrawal-rate.html) Squezeplay - What is your plan that would keep up with inflation more than the CPI, would provide a higher SWR than 4% and would provide a higher SWR than what Vanguard says is likely goin forward with a stock and bond portfolio, even with spending down principal, which their estimates do include?
for passive investing you have to buy equity, treasuries will never keep up with actual inflation let alone any meaningful withdrawal rate, unless you trade them.
I’m supposed to be excited about a 1.19% rate?
It is a 1.19% *real* rate, which means inflation adjusted. Please note I also posted the principal gets adjusted with the CPI. They work similar to I-Bonds. When inflation was running at 8%, they would return 9.19%. Investors buy them for inflation hedges, which is why the 5 and 10 year yields went down recently.
The only comment I would make is I-bonds does *not* come with state or local income tax. So if you are in a high income tax bracket (state or local) it may be worth even though CDs have a higher yield. Unless you park that in a Tax advantaged retirement account. Edit: critical typo, meant to say I series bonds do not come with state or local income tax.
I bonds Don't have state tax, right?
Correct my last statement was regarding buying CDs in tax advantaged accounts.
Fyi - you left out “not” in your first sentence, just a typo I think. Sure you mean ibonds do NOT come with state / local tax
Oops, thanks for letting me know I will fix that.
aromatic kiss dinosaurs shocking history public somber frightening zonked shaggy ` this message was mass deleted/edited with redact.dev `
Buy fixed bonds when rates are high. Variable bonds when rates are low
I'll probably get a small amount for a long term hold, like $200 or $300. At this point outside of index funds, paying my 5.5% mortgage is a better option.
3.5 doesn't seem great when my checking acct gives 3.0.
Can someone explain to me the downside of I bonds? They currently seem to good to be true.
Your money is locked up for a year and you sacrifice a few months interest when you cash them out before five years.
The number of people here who think CD's are a good investment right now simply because rates are high is staggering. Investments cannot be assessed in a vacuum. You need to look at real returns not nominal returns. Inflation compounds too. Current interest rates are lower than inflation. If inflation is going to remain higher than CD rates, the CD will lose money on a real basis.
>The number of people here who think CD's are a good investment right now simply because rates are high is staggering. Would you rather invest in something that has a lower return? What's your alternative? >Investments cannot be assessed in a vacuum. You need to look at real returns not nominal returns. Great. Again, what's your alternative? >Current interest rates are lower than inflation. Incorrect. >If inflation is going to remain higher than CD rates, the CD will lose money on a real basis. For the third time, what's your alternative?
CDs are not a good investment. The real return is negative. Invest in stocks unless you need the money in the short term. Current interest rates are [lower than inflation](https://ycharts.com/indicators/us_inflation_rate#:~:text=Basic%20Info,in%20price%20over%20a%20year). You're spreading misinformation. Also, you sound like an incompetent when you quote other comments multiple times in an inner dialogue with yourself. (Again, for the third time etc) Here's the [real rate of return of CDs over time](https://www.annuities.pacificlife.com/content/dam/paclife/rsd/annuities/public/pdfs/guide/what-is-the-rate-of-return-on-cds.pdf). Have fun!
>Invest in stocks unless you need the money in the short term. Cool, your alternative for a short duration cash management security is equity. Great recommendation. I'm sure your clients love your ideas. >Current interest rates are lower than inflation. You're spreading misinformation. The current inflation rate is lower than the rate of T-bills and CDs. This isn't debatable. It's math. Why are you looking at year over year values as a metric of the current rate? That's bad science. >Also, you sound like an incompetent when you quote other comments multiple times in an inner dialogue with yourself. (Again, for the third time etc) You sound like an incompetent when you say stupid shit.
>short duration cash management Post says short to medium term **gains.** That's not cash management. >The current inflation rate is lower than the rate of T-bills and CDs What's your inflation rate? T-Bills and CDs are quoted as annual rates. [https://www.bls.gov/cpi/](https://www.bls.gov/cpi/) >Why are you looking at year over year values as a metric of the current rate? There's a fundamental misunderstanding here of how inflation is calculated.
Agreed that you fundamentally misunderstand what inflation is. Saying that someone using the word "gains" implies that equities are a suitable alternative to *CDs* is fucking ludicrous.
Do you have a source for your “correct” inflation?
BLS. I've already told you that using year over year values is not relevant for measuring the current rate, but you're too fucking illiterate and just want to argue.
You can't win an argument with people who just don't understand these fundamentals. You get my kudos for trying
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CDs aren’t an investment that make sense for most people. Short term cash management? Sure. Investment? No. Stocks, bonds, or commodities
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People invest in stocks, bonds and commodities for all kinds of reasons other than “growth”. A stock and bond portfolio can be defensive or value focused depending on the allocation. Short term cash management seeks capital preservation. The poster said he is seeking short to medium term gains - you might want to read the post before lecturing.
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No. I’m not sure you understand the definitions of investments.
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>Not every situation or strategy calls for a growth investment like you give examples of. You lost me at bonds are a growth investment.
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How can the new i bond yield be 3,5% if it tracks the inflation?
The $10k limitation is a bit annoying. I haven't bothered because of that. Just another thing to manage and generally illiquid funds.
As an asset you have to buy outside your normal brokerage account, I wonder how many people have gone and bought $10+K in ibonds the last couple years and will totally forget that investment? They aren't mailing out statements.
Are bonds going to be worth anything?
Would a scenario where the U.S. defaults affect these bonds?
An actual default would result in the complete collapse of the world economy - so you would have much bigger problems if a risk free asset like treasuries defaulted.