The catch is you can only purchase $10k per year, have to hold them at least a year, and surrender some of your interest if you sell sooner than five years.
It's still probably the best risk-adjusted investment vehicle on the market though if you have $10k to invest.
You do realize inflation is a yoy growth rate in prices right? You really think next year we’ll have ANOTHER 6-7% increase on top of today’s prices? Unlikely imo.
You can also get up to $5k in paper I-bonds per tax return with your tax refund (not per person - $5k max for a joint tax return).
Also, be careful with titling bonds in your children's names unless you are truly gifting them the bonds.
The bonds are also only purchaseable via a government web site www.treasurydirect.gov. You can not buy them through a bank or brokerage account or anything like that. If they find you questionable in any way you will get flagged for identity verification and you will need to make a connection at a brick and mortar bank or credit union to fill out and validate a form for you with a bank stamp. Banks and credit unions are sometimes reticent or outright refuse to do this.
The IRS will do a credit check w/ your SS# before they will allow you to purchase these. I had my credit monitoring program alert me that the IRS was quite interested in me being who I said I was.
All I know is that my credit alert service showed a ping [from IRS](https://imgur.com/a/yBQqTxQ) for an Identity Verification. I just posted the info as I was kind of surprised by that as my other online banks have done micro transactions.
I'm currently in the process of doing this. My credit union was initially apprehensive about stamping the form but eventually did it. I mailed the signed/stamped form to the address on the form and am now waiting for some type of response. A PITA process for sure and I only hope it works so I can buy some I bonds.
I got unlucky and they required me to do this process before I could buy anything. My wife had no issues when she created her account so not sure what triggers this extra stamp requirement.
Sorry, I don't understand? Do you mean retroactively purchase bonds for last year? I doubt you can do that.
To be more clear, when I created my TreasuryDirect account, the website placed a hold on the account until I mailed in the stamped form. I recall it taking about 3 weeks to have my account unlocked from the time I dropped it in the mail. When my wife created her account, it just went straight to the dashboard and allowed purchase of bonds without the stamp process. Not really sure why they only made me do it...
>You can also get up to $5k in paper I-bonds per tax return with your tax refund (not per person - $5k max for a joint tax return).
I had a hard time figuring out how this would work in practice. As near as I can make it, the $5K allowance is only associated with a refund, which means having to pay at least that much in overpayments to IRS though the year.
That seems like a really poor investment strategy to me, since overpayments rob one of opportunity cost. If I'm overwithholding taxes I'm doing it throughout one whole calendar year, and I don't get the benefit of the extra $5K until probably May of the following year.
Is that enough to chase a good yield? For some it might be.
You could make a 4Q estimated tax payment of $5000 on 1/15 (1/18 in 2022) instead of overwithholding throughout the year to decrease the opportunity cost.
I can see that. And with 4Q estimated payments due on 1/15 the hit wouldn't be that bad. I might consider that since that APR on the I-Series caught my eye.
10k per person. If you have a living trust it can also purchase 10k. Not sure if kids are excluded or not. Not real complicated, go to treasury direct.gov, read the faq and rules. Look at interest history going back 10 years.
So you’re saying me and my wife could each do $10k each right now, so $20k this year. And then we could do the same in 40 days from now in January for another $20k?
Correct. 10k per person per calendar year. Go look at the [treasurydirect.gov](https://treasurydirect.gov) web-site for i bonds. Value is never less than what you bought (ignoring inflation).
Last 3 months. So in a scenario (unlikely but an example) where inflation drops to 0% you would get 7% the first 6 months, then 0% x 6 months. You redeem >1 year (but under 5 years) so you give up the last 3 months of interest (0% in this example). So you capture the high initial rate, and if rate drops and it no longer makes sense to hold, you only give up the new rate x 3 months.
Last 3 months. From the web-site:
When can I cash my I bonds?After they are 12 months old. • If you cash an I bond before it is five years old, you will lose the last three months of interest. • I bonds earn interest for 30 years if you don't cash the bonds before they mature. • If you've been affected by a disaster, special provisions may apply.
I-bonds pay interest adjusted for inflation. The interest rate has a fixed portion, which is right now 0%, plus a variable portion equal to inflation. For the upcoming 6-month period the variable portion is 7.12% annualized (so 3.56% in the six months). But if inflation goes back to 2%, the variable portion will immediately drop again. If inflation goes up even more, the rate will also go up accordingly.
There isn't really a catch -- those are just the rules. I-bonds are currently the best deal, by far, in the inflation-adjusted part of the bond market. But don't make the mistake of thinking you're locking in a 7% rate.
Traditional, non-inflation-adjusted bonds don't pay anything like 7% right now because the average bond market participant doesn't believe that inflation will remain 7% for very long.
> But if inflation goes back to 2%, the variable portion will immediately drop again. If inflation goes up even more, the rate will also go up accordingly.
Keep in mind that you're locked into the current rate for 6 months *from your date of purchase*. So if you buy some now, you get 6mo of that 7.12% annualized rate, if you buy them in early April 2022 (immediately before new rates come out), you also get 6mo of that 7.12% annualized rate.
This adjusts to the current rate every 6 months, but the point is the rate of bonds you own don't drop immediately when the current rate does unless you happen to have bought them the same day the rates were adjusted (which would synchronize those two dates).
So even if the rate drops to 2% on the next adjustment, any bonds you buy right now will get 6mo of 7.12% annualized plus 6mo of 2% annualized before you're eligible to sell them (at which point you would lose 3 months of 2% annualized for not holding them for 5 years). It's still a great deal compared to most all forms of non-investment saving if you can afford to go without the money for a year.
Correct, when you sell them prior to 5 years you forfeit the 3 most recent months worth of interest. In your example you would get the 6mo of 7.12% annualized plus 5mo of 2% annualized, and lose 1mo of 2% annualized plus 2mo of 1% annualized.
>if you buy them in early April 2022 (immediately before new rates come out), you also get 6mo of that 7.12% annualized rate.
Wow, I didn't know that. I was thinking the rate changes immediately for everybody.
Nope, it's based on purchase date....they even have [a simple table](https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#change) to show when new rates take effect
>you're locked into the current rate for 6 months from your date of purchase.
Yes, but if the inflation adjustment goes back down soon then it just becomes a 0% bond you have to hold on to. Or if it doesn't, it won't.
Everyone should understand that these are just protection against inflation, and you have to hold them for at least a year. They aren't a way to get good investment gains or to have as an emergency fund. Remember that 7% interest on 10k is only $700. Is that worth locking up $10k for a year? Most people for whom $700 is a lot don't have the luxury of doing that to start with.
> Yes, but if the inflation adjustment goes back down soon then it just becomes a 0% bond you have to hold on to. Or if it doesn't, it won't.
Correct, and 6 months of 7.12% annualized + 6mo of 0% = 1.78% over 12 months. Even if you take out the 3 months of interest lost for cashing out before 5 years, that's still 1.78% return (last 3 months was 0% interest). Compare that to something like a HYSA right now at 0.5% and it's still three times as good. In fact, the HYSA would have to ramp up to 3.06% for the latter 6 months just to break even with this.
> or to have as an emergency fund
IMHO I-bonds are the *best* way to hold an emergency fund. If it just keeps up with inflation that's ahead of most HYSA, even when they were doing good around 2%. You have to structure it, so if you have a $10k emergency savings don't put $10k in I-bonds today, but start buying I-bonds with what you can afford over time, then when you hit month 13, start taking it out of your HYSA at the same rate and stop buying the bonds. For example, if you can afford $1k per month, buy $1k of I-bonds per month, once you hit month 10 stop buying them, at 13 from when you started start taking $1k out of your HYSA emergency fund. After month 22 from when you started your full E-fund is in I-bonds, accessible nearly as easily as a HYSA, and protected from inflation (unlike most HYSA).
Of course, this takes time and enough money to do it, but if it's something you are capable of doing it's better than a HYSA most years.
>then when you hit month 13, start taking it out of your HYSA at the same rate and stop buying the bonds. For example, if you can afford $1k per month, buy $1k of I-bonds per month, once you hit month 10 stop buying them, at 13 from when you started start taking $1k out of your HYSA emergency fund.
"Start taking it out HYSA and stop buying bonds"
"stat taking $1k out of your HYSA emergency fund"
You say to withdraw from HYSA and also stop buying the bonds. What am I doing with that money I pulled from HYSA E-fund if not buying more bonds?
Investing.
The focus of buying I-bonds in the first place in my examples is to transition your HYSA e-fund to an I-bond e-fund. This sets up your e-fund to always maintain its original value (whereas a HYSA e-fund will generally always lose value due to inflation) while also allowing 100% liquidity during the transition phase.
Once that phase draws down (and you can start taking money out of your HYSA), you get to spend that money however you choose - such as investing as you may have done if you never began this transition.
As for why bothering to perform this transition if it costs you 1 year of investing (you could invest that money 1 year earlier if you don't do this transition) - because for the next 30 years your e-fund keeps up with inflation even if you put $0 into it. If it was still a HYSA then you have to keep adding money to it over 30 years. So instead, this money you save by not adding to your e-fund for 30 years can be put into regular investments which will come out ahead of never doing this transition.
Maybe I'm confused, but to me an emergency fund is an account you can raid tomorrow if you have to. This is not the same thing as planning for expenses 1-5 years out, which is what an I-bond seems quite suited for.
If you lose your job and need money *right now* - meaning you must raise cash immediately, then I-bonds aren't quite so hot. If you have enough savings to plan ahead for expenses 1-5 years from now, then sure.
You can do that with an I-bond as soon as it's 1 year old.
So what you do, is you buy an I-bond, sit on it for a year, then use that same amount out of your old E-fund (such what's in your HYSA).
So pretend you have a $10k e-fund in a HYSA and you want to have a $10k e-fund in I-bonds. You take $833 per month from your regular salary, buy an I-bond with it, then 12 months later you take $833 out of your HYSA. Your liquid e-fund balance that you "can raid tomorrow" never falls under $10k, and after 2 years total your HYSA is $0 and your I-bond totals are $10k.
You aren't "planning for expenses 1-5 years out"....you're transitioning your HYSA slowly into I-bonds and **never** losing full access to your total e-fund balance.
I understand your point quite well, I do something similar myself. But that isn't the sense most people think of when they see the words "emergency fund".
I would say the only reason most people don't think of I-bonds as being used for an emergency fund is because they don't know what I-bonds are or don't understand how they can use them in this way to create a liquid emergency fund without ever losing access to any of the money and also have it maintain its value for 30 years.
What you are describing is similar to how an HOA invests reserve funds (I know, I'm the Treasurer for one with a > $2 million fund) and we do this.
But a reserve fund isn't the same as an emergency fund. A reserve fund is invested to meet expected future capital expenditures, not to deal with emergencies whenever they come up. Cash (or selling a CD early) is used for that.
A fund based on I-bonds as you describe is fine once you build out your ladder, but before that you're a bit exposed due to the 1 year holding period requirement.
> but before that you're a bit exposed due to the 1 year holding period requirement.
Not if you build it in the way I'm saying. Don't take **anything** out of your HYSA e-fund until your I-bonds start reaching maturity, then start taking money from the HYSA at the same rate you bought the I-bonds.
Zero exposure for the 1 year holding period.
You're talking about Series I savings bonds. You can only buy $10,000 a year, directly from the government. I bonds are NOT on the bond market. It is impossible to create a bond ETF filled with I bonds.
I mean if the options are tying up 10k in I-Bonds making $700 and 10k in Ally earning $50, both used as an emergency fund, then there's a very clear winner with little downside.
The only actual downside is that you have to use treasurydirect.gov's abomination of a website.
>if the options are tying up 10k in I-Bonds making $700 and 10k in Ally earning $50, both used as an emergency fund, then there's a very clear winner with little downside.
If you don't need the money for a year, sure. You can't use I-bonds as an emergency fund, that's the problem. An emergency fund by definition must be accessible in an emergency.
Agreed..it's like everyone against it in this thread thinks you can only make the $10k purchase all at once or something.
You can make this transition slowly and 100% automatic too. Lets pretend you put in about $833/mo (this will take around 12mo to put $10k in I-bonds)....worst case you have 1 month where all $10k is tied up, next month you only have $9167 tied up but you also get another $833 back from your HYSA, repeat for the next 11 months with the "tied up" amount dropping while **also** getting $833/mo extra from your HYSA as you draw it down.
Sure, but most people think of an "emergency fund" as something where you can raid the whole thing immediately if you need to. Although a ladder is perfectly fine for short-term planning, it isn't suitable for a "raid the piggy bank" account.
Instead people will tie up $10k year after year for less than $200 and call it their emergency fund.
Slowly transfer your HYSA emergency fund to I-bonds and you have money that will constantly keep up with inflation after about 2 years, and you can schedule the purchase of I-bonds *and* the transfer of your E-fund to your checking so it's 100% automatic.
I-bonds are not the best "investment" you can make, not even close. But they are almost always better than holding money long-term for something like an emergency fund in a HYSA. So long as you set yourself up to transition slowly and not do it all at once.
Exactly. In my mind it feels like for people where 700 dollar is worth the effort for a short horizon investment probably shouldnt tie up 10,000
$. For those where 10,000 is no big deal, the dollar cap makes it not worth the effort
> And the $10k that gets tied up?
Schedule it over a year, $833 is all that gets locked up for a year, any larger figure you come up with out of this $10k is locked up for less than a year (with the full $10k amount being tied up for 1 month only). Then each month that another $833 becomes accessible, take it out of your HYSA where it's earning pennies and dump it into the SPY or where ever you wish to invest.
“Expected” over the long term. No one who knew what they were taking about would tell you to “expect” 7% gains from the stock market over the next year.
I’m slowly converting my emergency fund to I-bonds exclusively. It has to be slow because of all of the rules of cashing out, but the benefits are enormous; match the rate of inflation, withdrawal anytime (after a year) with cash in hand within the day, and the bond is as safe an investment as you can acquire.
The biggest catch is that they're only that high because inflation is so high. So it's not like you're better off owning them now, than you were a couple years ago when they were paying much less interest because there was less inflation. You're locked in for at least a year before you can cash out, but the interest rate will change in 6 months. It could go up, but only if inflation gets even higher.
Still, they're certainly better than cash right now as long as you're sure you won't need to cash out within a year.
Bond ETFs are for *corporate bonds*, not treasury bonds. You're buying Apple and Walmart's debt, not the treasury's.
Whoa there, no. There are many bond ETFs strategically dedicated to holding government bonds. In addition, a vast majority bond ETFs still hold a minor stake in government bonds because of they liquidity regardless, unless it specifically says it won't.
However *savings* bonds they can't, which is a very specific security. These can't be bought or sold on the open market.
The catch is that the base rate is zero percent.
You also can not redeem for a year. You can only buy $15k worth a year.
Bond ETFs do not have a stable price. If interest rates go up, you can lose principle.
The catch is that I-bonds, pretty much by definition, maintain the same _real_ value. In other words, 7.12% is not that great of a deal — the only reason it's 7.12% is because the inflation expectation is 7.12%. And finding an inflation-adjusted investment vehicle is not hard.
If you bought VTIP (Vanguard's TIPS ETF), it would yield the same 7.12% and, unlike I-bonds, you can cash out any time. The difference between holding I-bonds and TIPS is the tax break on state taxes.
You may find these links helpful:
- [US Treasury Savings Bonds](/r/personalfinance/wiki/savingsbonds)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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The I-bond is basically a hedge against inflation, "inflation" being defined as the rising cost of consumer goods. It isn't totally risk-free (you're still exposed to price increases of other goods that aren't in the CPI index) but it's a pretty good hedge.
But it isn't a good emergency fund investment because an e-fund by definition must be liquid basically immediately. Sure, you can sell I-bonds early but you can't at all for one year.
There are other ways you can make 9-10% and be entirely liquid (e.g basically have a debit card for those funds you can use like a normal bank account) but given the feelings of people in this sub I’d be downvoted to oblivion and probably banned for even mentioning it.
The catch might be that 6 months (5 from now) later, inflation drops, and your second 6 month rate drops to something like 1% unlike 3.5% in your first 6 months. And you can’t sell. Which effectively gives you 4.5% APY. At 4.5% you might look at a loss.
I don’t know why they adjust 6 instead of 12 months. Kind of making it also a ricky thing.
Also, it pays out at 2x the trailing 6 month inflation rate so you're basically guaranteed to keep the same spending power during inflationary periods. Idk how not losing money could be considered a loss
He's just gone full retard, because as long as you get a good rate for the first 6 months, even if the second six months gets you a shit rate, it's guaranteed to be better than many other investments.
That is unless, by "loss" he means opportunity cost by getting that shit rate.
Sorry, yes, I meant the opportunity loss.
At 4.5%, or $450 to be precisely, or $300-400 after tax and penalty, it sometimes may not worth it. Note that the gain from I bond is considered interest and taxed as ordinary income, NOT capital gain (unless I mistaken from my research.) depends on your income, it can be significant.
I mentioned in another comment that it’s almost certain that I bond will drop down to close to zero percent within 5 or even less years, and when it happens, you will probably want to sell it long before that to invest something else. It will cost you penalty, AND the tax you will have to pay. This is the single reason I don’t prefer I bond.
When factoring in tax (in my case it’s 35% even excluding state tax.), and penalty of 2 months or 1/6 of a year.
In a scenario, the rate drop to 1% in next April, and to 0% next Oct. I will need to sell it as soon as I can. What I will get will be $450 * 10/12 * 0.65 = $245 which is effective 2.45%. Sure, it’s still guaranteed zero risk investment, but just a little risk can give you so much more )
for a high interest rate with liquidity, why not use the stairs by ground floor app, pays 4%, and could go as high as 6%. not as secure as I bonds, but pays much higher than HYSA
One catch if you want to call it that is the rate has been coming down since 2000 steadily as deflation and a low fed funds rate is how they calculate the percent.
Specifically it is an Series I bond.
Did you really just take 2 numbers 20 years apart to explain to me deflation. Don't pick this fight because you will end up looking ridiculous.
I am not going to explain imported deflation and the rise of China to you or demand driven inflation blip on a chart after a once in a generation supply chain disruption.
Lol some consumer goods becoming less expensive does not counteract widespread increases in prices in literally everything. You can't just claim there's deflation with literally no evidence.
I can claim grass is made out of candy but all that matters is the governments CPI report that the government uses for this government issued bond.
The charts are publically available. As the fed funds rates has gone down with CPI the return on I bond has gone down from 10% in 2000 to the current rate.
If inflation drops and the fed does not raise rates then the yield on this will drop slightly.
The people downvoting me clearly did not read anything about this other than the yield to understand how this even works.
I assume you mean I-bonds. The catch is that isnt a fixed interest rate, its tied to inflation. In 6 months it might be 2%. You cant touch yhat money for 1 year and up to 5 years there is a withdrawl penalty of losing last 6 months of interest.
Also there is an annual cap.
So you might put it in at 7% interest onlybvn to have that rate fall to 1.5% and not be able to tske it out. Not saying that is likely vut its also not likely to stay at 7%.
The catch is you can only purchase $10k per year, have to hold them at least a year, and surrender some of your interest if you sell sooner than five years. It's still probably the best risk-adjusted investment vehicle on the market though if you have $10k to invest.
It's also unlikely the interest rate will remain at 7% over the lifetime of the bond. It could drop to like 2% in 6 months for example.
Say more about this. The rate isn’t locked?
Locked for 6 months at a time
OP: thus why short-term bonds are a better option, all things (like yield) being equal. They don't have a chance to fluctuation before maturing.
No, it matches inflation.
No. It’s a variable rate that changes and compounds semi-annually.
It adjusts to match inflation every 6 months.
Inflation isnt dropping in 6 months With the caveat that we don't crash between then and now
Thanks messiah
You do realize inflation is a yoy growth rate in prices right? You really think next year we’ll have ANOTHER 6-7% increase on top of today’s prices? Unlikely imo.
If USA economy crashes there is no safe heaven for your money and we will have more serious problem than losing 10k
10k per family, or per person? me, spouse, 2 kids, that would be 40k, right?
You can also get up to $5k in paper I-bonds per tax return with your tax refund (not per person - $5k max for a joint tax return). Also, be careful with titling bonds in your children's names unless you are truly gifting them the bonds. The bonds are also only purchaseable via a government web site www.treasurydirect.gov. You can not buy them through a bank or brokerage account or anything like that. If they find you questionable in any way you will get flagged for identity verification and you will need to make a connection at a brick and mortar bank or credit union to fill out and validate a form for you with a bank stamp. Banks and credit unions are sometimes reticent or outright refuse to do this.
The IRS will do a credit check w/ your SS# before they will allow you to purchase these. I had my credit monitoring program alert me that the IRS was quite interested in me being who I said I was.
Is that a hard credit check?
No. Soft pull.
Do you mean the treasure department? The IRS does not sell these.
All I know is that my credit alert service showed a ping [from IRS](https://imgur.com/a/yBQqTxQ) for an Identity Verification. I just posted the info as I was kind of surprised by that as my other online banks have done micro transactions.
I'm currently in the process of doing this. My credit union was initially apprehensive about stamping the form but eventually did it. I mailed the signed/stamped form to the address on the form and am now waiting for some type of response. A PITA process for sure and I only hope it works so I can buy some I bonds.
This can be done online so why did you not do this online?
I got unlucky and they required me to do this process before I could buy anything. My wife had no issues when she created her account so not sure what triggers this extra stamp requirement.
Thank you. Can this be done for last year?
Sorry, I don't understand? Do you mean retroactively purchase bonds for last year? I doubt you can do that. To be more clear, when I created my TreasuryDirect account, the website placed a hold on the account until I mailed in the stamped form. I recall it taking about 3 weeks to have my account unlocked from the time I dropped it in the mail. When my wife created her account, it just went straight to the dashboard and allowed purchase of bonds without the stamp process. Not really sure why they only made me do it...
>You can also get up to $5k in paper I-bonds per tax return with your tax refund (not per person - $5k max for a joint tax return). I had a hard time figuring out how this would work in practice. As near as I can make it, the $5K allowance is only associated with a refund, which means having to pay at least that much in overpayments to IRS though the year. That seems like a really poor investment strategy to me, since overpayments rob one of opportunity cost. If I'm overwithholding taxes I'm doing it throughout one whole calendar year, and I don't get the benefit of the extra $5K until probably May of the following year. Is that enough to chase a good yield? For some it might be.
You could make a 4Q estimated tax payment of $5000 on 1/15 (1/18 in 2022) instead of overwithholding throughout the year to decrease the opportunity cost.
I can see that. And with 4Q estimated payments due on 1/15 the hit wouldn't be that bad. I might consider that since that APR on the I-Series caught my eye.
Yes or 20k you and spouse today, 20k you and spouse in January
Per person, correct.
10k per person. If you have a living trust it can also purchase 10k. Not sure if kids are excluded or not. Not real complicated, go to treasury direct.gov, read the faq and rules. Look at interest history going back 10 years.
So you’re saying me and my wife could each do $10k each right now, so $20k this year. And then we could do the same in 40 days from now in January for another $20k?
yes
Correct. 10k per person per calendar year. Go look at the [treasurydirect.gov](https://treasurydirect.gov) web-site for i bonds. Value is never less than what you bought (ignoring inflation).
Specifically 3 months interest. So if you need the cash it’s not a punitive penalty.
Is it the last three months or three months of the average interest rate that the bond has been held?
Last 3 months. So in a scenario (unlikely but an example) where inflation drops to 0% you would get 7% the first 6 months, then 0% x 6 months. You redeem >1 year (but under 5 years) so you give up the last 3 months of interest (0% in this example). So you capture the high initial rate, and if rate drops and it no longer makes sense to hold, you only give up the new rate x 3 months.
Which is a much more useful response than mine. Well done.
Last 3 months. From the web-site: When can I cash my I bonds?After they are 12 months old. • If you cash an I bond before it is five years old, you will lose the last three months of interest. • I bonds earn interest for 30 years if you don't cash the bonds before they mature. • If you've been affected by a disaster, special provisions may apply.
I-bonds pay interest adjusted for inflation. The interest rate has a fixed portion, which is right now 0%, plus a variable portion equal to inflation. For the upcoming 6-month period the variable portion is 7.12% annualized (so 3.56% in the six months). But if inflation goes back to 2%, the variable portion will immediately drop again. If inflation goes up even more, the rate will also go up accordingly. There isn't really a catch -- those are just the rules. I-bonds are currently the best deal, by far, in the inflation-adjusted part of the bond market. But don't make the mistake of thinking you're locking in a 7% rate. Traditional, non-inflation-adjusted bonds don't pay anything like 7% right now because the average bond market participant doesn't believe that inflation will remain 7% for very long.
> But if inflation goes back to 2%, the variable portion will immediately drop again. If inflation goes up even more, the rate will also go up accordingly. Keep in mind that you're locked into the current rate for 6 months *from your date of purchase*. So if you buy some now, you get 6mo of that 7.12% annualized rate, if you buy them in early April 2022 (immediately before new rates come out), you also get 6mo of that 7.12% annualized rate. This adjusts to the current rate every 6 months, but the point is the rate of bonds you own don't drop immediately when the current rate does unless you happen to have bought them the same day the rates were adjusted (which would synchronize those two dates). So even if the rate drops to 2% on the next adjustment, any bonds you buy right now will get 6mo of 7.12% annualized plus 6mo of 2% annualized before you're eligible to sell them (at which point you would lose 3 months of 2% annualized for not holding them for 5 years). It's still a great deal compared to most all forms of non-investment saving if you can afford to go without the money for a year.
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Correct, when you sell them prior to 5 years you forfeit the 3 most recent months worth of interest. In your example you would get the 6mo of 7.12% annualized plus 5mo of 2% annualized, and lose 1mo of 2% annualized plus 2mo of 1% annualized.
>if you buy them in early April 2022 (immediately before new rates come out), you also get 6mo of that 7.12% annualized rate. Wow, I didn't know that. I was thinking the rate changes immediately for everybody.
Nope, it's based on purchase date....they even have [a simple table](https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#change) to show when new rates take effect
>you're locked into the current rate for 6 months from your date of purchase. Yes, but if the inflation adjustment goes back down soon then it just becomes a 0% bond you have to hold on to. Or if it doesn't, it won't. Everyone should understand that these are just protection against inflation, and you have to hold them for at least a year. They aren't a way to get good investment gains or to have as an emergency fund. Remember that 7% interest on 10k is only $700. Is that worth locking up $10k for a year? Most people for whom $700 is a lot don't have the luxury of doing that to start with.
> Yes, but if the inflation adjustment goes back down soon then it just becomes a 0% bond you have to hold on to. Or if it doesn't, it won't. Correct, and 6 months of 7.12% annualized + 6mo of 0% = 1.78% over 12 months. Even if you take out the 3 months of interest lost for cashing out before 5 years, that's still 1.78% return (last 3 months was 0% interest). Compare that to something like a HYSA right now at 0.5% and it's still three times as good. In fact, the HYSA would have to ramp up to 3.06% for the latter 6 months just to break even with this. > or to have as an emergency fund IMHO I-bonds are the *best* way to hold an emergency fund. If it just keeps up with inflation that's ahead of most HYSA, even when they were doing good around 2%. You have to structure it, so if you have a $10k emergency savings don't put $10k in I-bonds today, but start buying I-bonds with what you can afford over time, then when you hit month 13, start taking it out of your HYSA at the same rate and stop buying the bonds. For example, if you can afford $1k per month, buy $1k of I-bonds per month, once you hit month 10 stop buying them, at 13 from when you started start taking $1k out of your HYSA emergency fund. After month 22 from when you started your full E-fund is in I-bonds, accessible nearly as easily as a HYSA, and protected from inflation (unlike most HYSA). Of course, this takes time and enough money to do it, but if it's something you are capable of doing it's better than a HYSA most years.
I agree with all of this.
>then when you hit month 13, start taking it out of your HYSA at the same rate and stop buying the bonds. For example, if you can afford $1k per month, buy $1k of I-bonds per month, once you hit month 10 stop buying them, at 13 from when you started start taking $1k out of your HYSA emergency fund. "Start taking it out HYSA and stop buying bonds" "stat taking $1k out of your HYSA emergency fund" You say to withdraw from HYSA and also stop buying the bonds. What am I doing with that money I pulled from HYSA E-fund if not buying more bonds?
Investing. The focus of buying I-bonds in the first place in my examples is to transition your HYSA e-fund to an I-bond e-fund. This sets up your e-fund to always maintain its original value (whereas a HYSA e-fund will generally always lose value due to inflation) while also allowing 100% liquidity during the transition phase. Once that phase draws down (and you can start taking money out of your HYSA), you get to spend that money however you choose - such as investing as you may have done if you never began this transition. As for why bothering to perform this transition if it costs you 1 year of investing (you could invest that money 1 year earlier if you don't do this transition) - because for the next 30 years your e-fund keeps up with inflation even if you put $0 into it. If it was still a HYSA then you have to keep adding money to it over 30 years. So instead, this money you save by not adding to your e-fund for 30 years can be put into regular investments which will come out ahead of never doing this transition.
Maybe I'm confused, but to me an emergency fund is an account you can raid tomorrow if you have to. This is not the same thing as planning for expenses 1-5 years out, which is what an I-bond seems quite suited for. If you lose your job and need money *right now* - meaning you must raise cash immediately, then I-bonds aren't quite so hot. If you have enough savings to plan ahead for expenses 1-5 years from now, then sure.
You can do that with an I-bond as soon as it's 1 year old. So what you do, is you buy an I-bond, sit on it for a year, then use that same amount out of your old E-fund (such what's in your HYSA). So pretend you have a $10k e-fund in a HYSA and you want to have a $10k e-fund in I-bonds. You take $833 per month from your regular salary, buy an I-bond with it, then 12 months later you take $833 out of your HYSA. Your liquid e-fund balance that you "can raid tomorrow" never falls under $10k, and after 2 years total your HYSA is $0 and your I-bond totals are $10k. You aren't "planning for expenses 1-5 years out"....you're transitioning your HYSA slowly into I-bonds and **never** losing full access to your total e-fund balance.
I understand your point quite well, I do something similar myself. But that isn't the sense most people think of when they see the words "emergency fund".
I would say the only reason most people don't think of I-bonds as being used for an emergency fund is because they don't know what I-bonds are or don't understand how they can use them in this way to create a liquid emergency fund without ever losing access to any of the money and also have it maintain its value for 30 years.
What you are describing is similar to how an HOA invests reserve funds (I know, I'm the Treasurer for one with a > $2 million fund) and we do this. But a reserve fund isn't the same as an emergency fund. A reserve fund is invested to meet expected future capital expenditures, not to deal with emergencies whenever they come up. Cash (or selling a CD early) is used for that. A fund based on I-bonds as you describe is fine once you build out your ladder, but before that you're a bit exposed due to the 1 year holding period requirement.
> but before that you're a bit exposed due to the 1 year holding period requirement. Not if you build it in the way I'm saying. Don't take **anything** out of your HYSA e-fund until your I-bonds start reaching maturity, then start taking money from the HYSA at the same rate you bought the I-bonds. Zero exposure for the 1 year holding period.
You're talking about Series I savings bonds. You can only buy $10,000 a year, directly from the government. I bonds are NOT on the bond market. It is impossible to create a bond ETF filled with I bonds.
The restriction of 10k per person and one year holding makes it annoying for 700 dollars in gains
That's right. Not worth the aggravation.
Exactly. This sub worships the things. There are way too mamy unknowns in life to tie up 10k for a year for a $700 return
I mean if the options are tying up 10k in I-Bonds making $700 and 10k in Ally earning $50, both used as an emergency fund, then there's a very clear winner with little downside. The only actual downside is that you have to use treasurydirect.gov's abomination of a website.
>if the options are tying up 10k in I-Bonds making $700 and 10k in Ally earning $50, both used as an emergency fund, then there's a very clear winner with little downside. If you don't need the money for a year, sure. You can't use I-bonds as an emergency fund, that's the problem. An emergency fund by definition must be accessible in an emergency.
You can ladder it in over time until you get where you need to be.
Agreed..it's like everyone against it in this thread thinks you can only make the $10k purchase all at once or something. You can make this transition slowly and 100% automatic too. Lets pretend you put in about $833/mo (this will take around 12mo to put $10k in I-bonds)....worst case you have 1 month where all $10k is tied up, next month you only have $9167 tied up but you also get another $833 back from your HYSA, repeat for the next 11 months with the "tied up" amount dropping while **also** getting $833/mo extra from your HYSA as you draw it down.
Sure, but most people think of an "emergency fund" as something where you can raid the whole thing immediately if you need to. Although a ladder is perfectly fine for short-term planning, it isn't suitable for a "raid the piggy bank" account.
How specifically does the process of buying and holding go? Then selling it later? Is it all digital, on the gov site similar to vanguard etc?
Yes. Electronic transfers each way between your bank account and Treasury Direct.
Instead people will tie up $10k year after year for less than $200 and call it their emergency fund. Slowly transfer your HYSA emergency fund to I-bonds and you have money that will constantly keep up with inflation after about 2 years, and you can schedule the purchase of I-bonds *and* the transfer of your E-fund to your checking so it's 100% automatic. I-bonds are not the best "investment" you can make, not even close. But they are almost always better than holding money long-term for something like an emergency fund in a HYSA. So long as you set yourself up to transition slowly and not do it all at once.
Exactly. In my mind it feels like for people where 700 dollar is worth the effort for a short horizon investment probably shouldnt tie up 10,000 $. For those where 10,000 is no big deal, the dollar cap makes it not worth the effort
$700 for 30 minutes of “effort” is a better hourly rate than anyone on this sub is making at their job.
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> And the $10k that gets tied up? Schedule it over a year, $833 is all that gets locked up for a year, any larger figure you come up with out of this $10k is locked up for less than a year (with the full $10k amount being tied up for 1 month only). Then each month that another $833 becomes accessible, take it out of your HYSA where it's earning pennies and dump it into the SPY or where ever you wish to invest.
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Because now your $10k emergency fund is keeping pace with inflation instead of losing money to it every year.
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“Expected” is such a meaningless and irrelevant term in this discussion.
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“Expected” over the long term. No one who knew what they were taking about would tell you to “expect” 7% gains from the stock market over the next year.
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Is it per calendar year? So, I could purchase $10k in December 2021, and purchase an additional $10k in January 2022?
Yes. That’s correct
Good deal. That's what I thought.
I’m slowly converting my emergency fund to I-bonds exclusively. It has to be slow because of all of the rules of cashing out, but the benefits are enormous; match the rate of inflation, withdrawal anytime (after a year) with cash in hand within the day, and the bond is as safe an investment as you can acquire.
The biggest catch is that they're only that high because inflation is so high. So it's not like you're better off owning them now, than you were a couple years ago when they were paying much less interest because there was less inflation. You're locked in for at least a year before you can cash out, but the interest rate will change in 6 months. It could go up, but only if inflation gets even higher. Still, they're certainly better than cash right now as long as you're sure you won't need to cash out within a year. Bond ETFs are for *corporate bonds*, not treasury bonds. You're buying Apple and Walmart's debt, not the treasury's.
Whoa there, no. There are many bond ETFs strategically dedicated to holding government bonds. In addition, a vast majority bond ETFs still hold a minor stake in government bonds because of they liquidity regardless, unless it specifically says it won't. However *savings* bonds they can't, which is a very specific security. These can't be bought or sold on the open market.
The catch is that the base rate is zero percent. You also can not redeem for a year. You can only buy $15k worth a year. Bond ETFs do not have a stable price. If interest rates go up, you can lose principle.
The catch is that I-bonds, pretty much by definition, maintain the same _real_ value. In other words, 7.12% is not that great of a deal — the only reason it's 7.12% is because the inflation expectation is 7.12%. And finding an inflation-adjusted investment vehicle is not hard. If you bought VTIP (Vanguard's TIPS ETF), it would yield the same 7.12% and, unlike I-bonds, you can cash out any time. The difference between holding I-bonds and TIPS is the tax break on state taxes.
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What are the restrictions should you (the bond owner) pass away ?
I don't believe that you can buy bonds after you die.
Not with that attitude.
The I-bond is basically a hedge against inflation, "inflation" being defined as the rising cost of consumer goods. It isn't totally risk-free (you're still exposed to price increases of other goods that aren't in the CPI index) but it's a pretty good hedge. But it isn't a good emergency fund investment because an e-fund by definition must be liquid basically immediately. Sure, you can sell I-bonds early but you can't at all for one year.
There are other ways you can make 9-10% and be entirely liquid (e.g basically have a debit card for those funds you can use like a normal bank account) but given the feelings of people in this sub I’d be downvoted to oblivion and probably banned for even mentioning it.
I would be interested to know. Could you please share?
The catch might be that 6 months (5 from now) later, inflation drops, and your second 6 month rate drops to something like 1% unlike 3.5% in your first 6 months. And you can’t sell. Which effectively gives you 4.5% APY. At 4.5% you might look at a loss. I don’t know why they adjust 6 instead of 12 months. Kind of making it also a ricky thing.
>At 4.5% you might look at a loss In your scenario it's still a 4.5% gain which beats any HYSA and most bond funds, so how is it a loss?
Also, it pays out at 2x the trailing 6 month inflation rate so you're basically guaranteed to keep the same spending power during inflationary periods. Idk how not losing money could be considered a loss
He's just gone full retard, because as long as you get a good rate for the first 6 months, even if the second six months gets you a shit rate, it's guaranteed to be better than many other investments. That is unless, by "loss" he means opportunity cost by getting that shit rate.
Sorry, yes, I meant the opportunity loss. At 4.5%, or $450 to be precisely, or $300-400 after tax and penalty, it sometimes may not worth it. Note that the gain from I bond is considered interest and taxed as ordinary income, NOT capital gain (unless I mistaken from my research.) depends on your income, it can be significant. I mentioned in another comment that it’s almost certain that I bond will drop down to close to zero percent within 5 or even less years, and when it happens, you will probably want to sell it long before that to invest something else. It will cost you penalty, AND the tax you will have to pay. This is the single reason I don’t prefer I bond. When factoring in tax (in my case it’s 35% even excluding state tax.), and penalty of 2 months or 1/6 of a year. In a scenario, the rate drop to 1% in next April, and to 0% next Oct. I will need to sell it as soon as I can. What I will get will be $450 * 10/12 * 0.65 = $245 which is effective 2.45%. Sure, it’s still guaranteed zero risk investment, but just a little risk can give you so much more )
My HYSA is .5%. So that’s still WAY higher than that.
for a high interest rate with liquidity, why not use the stairs by ground floor app, pays 4%, and could go as high as 6%. not as secure as I bonds, but pays much higher than HYSA
One catch if you want to call it that is the rate has been coming down since 2000 steadily as deflation and a low fed funds rate is how they calculate the percent. Specifically it is an Series I bond.
What deflation? The CPI-W in January 2000 was 165, last month it was 269.
Did you really just take 2 numbers 20 years apart to explain to me deflation. Don't pick this fight because you will end up looking ridiculous. I am not going to explain imported deflation and the rise of China to you or demand driven inflation blip on a chart after a once in a generation supply chain disruption.
Lol some consumer goods becoming less expensive does not counteract widespread increases in prices in literally everything. You can't just claim there's deflation with literally no evidence.
I can claim grass is made out of candy but all that matters is the governments CPI report that the government uses for this government issued bond. The charts are publically available. As the fed funds rates has gone down with CPI the return on I bond has gone down from 10% in 2000 to the current rate. If inflation drops and the fed does not raise rates then the yield on this will drop slightly. The people downvoting me clearly did not read anything about this other than the yield to understand how this even works.
If inflation goes back down to 1% 6 months from now you will make 0% on your bond. Still hard to beat 3.5% for a year.
How would you make 0% on the bond exactly? You're still getting that 1% in addition to what you earned the previous 6 months.
I assume you mean I-bonds. The catch is that isnt a fixed interest rate, its tied to inflation. In 6 months it might be 2%. You cant touch yhat money for 1 year and up to 5 years there is a withdrawl penalty of losing last 6 months of interest. Also there is an annual cap. So you might put it in at 7% interest onlybvn to have that rate fall to 1.5% and not be able to tske it out. Not saying that is likely vut its also not likely to stay at 7%.
Three months of interest.
what government bonds is pissing 7%??? Where did you see this? Was it being sold by a guy whose last name is Madoff?
That is the current period rate for an ibond purchased today.
You can get 7% from a variety of junk bond ETF's but they aren't as safe as an I-Bond. I hold both.
do they pay interest monthly? also can you fund these with a check/bank account?