Is anyone buying CDs now instead of I bonds?

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Happy2BeFree

Is anyone buying CDs now instead of I bonds?

Post by Happy2BeFree »

I'm trying to decide whether to buy I bonds this year. I have a good amount of FI in 3-4% CDs, most of which are coming due late this year and early next. Since interest rates will continue to increase (according to the Fed) over the next couple years, I wonder if CDs make more sense in this environment. I'm also thinking of exchanging the 47k I have in I bonds for CDs. They've done poorly over the time I've had them (since 2013), and the TD website is a pain; plus I'm trying to simplify my financial life, consolidating where I can.

But I'd like to hear from anyone who wants to chime in. Are you buying CDs now instead of I bonds? And if so, why (or if not, why not)?
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indexfundfan
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Re: Is anyone buying CDs now instead of I bonds?

Post by indexfundfan »

You can defer interest on the I Bonds for up to 30 years. You cannot do that with CDs.

Interest on I Bonds can potentially be tax-free if you use the proceeds for education and you meet the income limits.
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Noobvestor
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Re: Is anyone buying CDs now instead of I bonds?

Post by Noobvestor »

Yeah, per the previous post: be sure to do tax-equivalent calculations. Also consider your own future - will you have a few years after working but before RMDs kick in, during which time you could cash in the I Bonds and pay less (or no) tax? Something to consider.

Also, why did you buy I Bonds? I bought them for reasons mentioned above, but also to hedge inflation. Inflation has been low, so their returns have been low. That's the nature of the game. If it goes up, they'll do their job. All part of a bigger-picture portfolio.

I don't get the people who find TD a pain TBH. I use it once a year and that's it. Sure, it's clunky, but it's once a year.
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SmileyFace
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Re: Is anyone buying CDs now instead of I bonds?

Post by SmileyFace »

Whenever CDs and iBonds are compared it seems to me people are comparing apples to oranges. I buy iBonds as part of my inflation-protected bond allocation and also to extend my tax deferred space. CDs would accomplish neither of these things.
I suppose if you view Fixed Income as one space it might make sense to compare - to me it doesn't.
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Re: Is anyone buying CDs now instead of I bonds?

Post by Call_Me_Op »

My only concern with IBonds is that (as I understand it) Treasury Direct offers no reimbursement if your bonds are stolen. In contrast, federal law protects bank accounts as long as the fraud is reported within 60 days.
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Re: Is anyone buying CDs now instead of I bonds?

Post by digit8 »

You can't really know what the optimal choice is until after the fact. But I've gone from being a die-hard I Bond advocate to thinking it's not worth the hemming and hawing about the difference between the two. Sure, inflation could go crazy high, but it could also continue to be unexpectedly low- and if you're investing for the long term you're likely to see periods of each.

Honestly, I think 95 out of 100 people would be just fine if they tossed a coin to pick between these two and then focused their internal debating on virtually any other choice in their financial lives.
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Darth Xanadu
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Re: Is anyone buying CDs now instead of I bonds?

Post by Darth Xanadu »

Call_Me_Op wrote: Tue Mar 27, 2018 7:02 am My only concern with IBonds is that (as I understand it) Treasury Direct offers no reimbursement if your bonds are stolen. In contrast, federal law protects bank accounts as long as the fraud is reported within 60 days.
Interesting, I hadn't considered this. But my question is how would one steal I-Bonds (assuming electronic versions)? Is the fear that someone accesses your TD account, liquidates the bonds and transfers the money to a bank account not owned by you?
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Re: Is anyone buying CDs now instead of I bonds?

Post by TravelGeek »

Darth Xanadu wrote: Tue Mar 27, 2018 9:21 am Interesting, I hadn't considered this. But my question is how would one steal I-Bonds (assuming electronic versions)? Is the fear that someone accesses your TD account, liquidates the bonds and transfers the money to a bank account not owned by you?
Perhaps this thread is useful: viewtopic.php?t=225415

(as I recall, it mostly focuses on the reimbursement coverage and less on the “mechanics” of getting one’s account stolen/breached, but check it out for yourself)
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Darth Xanadu
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Re: Is anyone buying CDs now instead of I bonds?

Post by Darth Xanadu »

Thank you for sharing, I found that thread interesting, and enlightening.

I am still considering I-Bonds as part of my portfolio. Now I need to decide between a) no I-bond purchases, b) $10k TD purchase knowing possible risks, or c) $5k paper purchase via tax refund, giving up use of the money throughout the year.
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Re: Is anyone buying CDs now instead of I bonds?

Post by indexfundfan »

I just purchased $5k of Ibonds through the refund method. My god, they sent me a stack of 12 envelopes -- for a total of 12 Ibonds.
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anoop
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Re: Is anyone buying CDs now instead of I bonds?

Post by anoop »

Happy2BeFree wrote: Mon Mar 26, 2018 10:21 pm I'm trying to decide whether to buy I bonds this year. I have a good amount of FI in 3-4% CDs, most of which are coming due late this year and early next. Since interest rates will continue to increase (according to the Fed) over the next couple years, I wonder if CDs make more sense in this environment. I'm also thinking of exchanging the 47k I have in I bonds for CDs. They've done poorly over the time I've had them (since 2013), and the TD website is a pain; plus I'm trying to simplify my financial life, consolidating where I can.

But I'd like to hear from anyone who wants to chime in. Are you buying CDs now instead of I bonds? And if so, why (or if not, why not)?
I started a thread a few days ago because I was thinking of actually liquidating all my I-Bonds and closing my TD account just for simplicity--one less account to manage and also easier for an estate to deal with. I-Bonds and E-Bonds do not seem to be the great investments they once were.
viewtopic.php?t=244237

In my case, based on that thread, I will be closing my TD account later this year. I am unable to sell I and E bonds that I bought last year until November so I will have to wait until then to close the account.

I plan to invest the money in T-bills and T-notes to avoid state tax (I'm in CA).
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Re: Is anyone buying CDs now instead of I bonds?

Post by gundlached »

DaftInvestor wrote: Tue Mar 27, 2018 6:21 am Whenever CDs and iBonds are compared it seems to me people are comparing apples to oranges. I buy iBonds as part of my inflation-protected bond allocation and also to extend my tax deferred space. CDs would accomplish neither of these things.
I suppose if you view Fixed Income as one space it might make sense to compare - to me it doesn't.
Both are places for an emergency fund
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Re: Is anyone buying CDs now instead of I bonds?

Post by Darth Xanadu »

indexfundfan wrote: Tue Mar 27, 2018 11:36 am I just purchased $5k of Ibonds through the refund method. My god, they sent me a stack of 12 envelopes -- for a total of 12 Ibonds.
Why 12? Why not just $1000 x 5?
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Re: Is anyone buying CDs now instead of I bonds?

Post by indexfundfan »

Darth Xanadu wrote: Tue Mar 27, 2018 12:23 pm
indexfundfan wrote: Tue Mar 27, 2018 11:36 am I just purchased $5k of Ibonds through the refund method. My god, they sent me a stack of 12 envelopes -- for a total of 12 Ibonds.
Why 12? Why not just $1000 x 5?
You have no say what are sent to you.

Here's how it goes: 4 x $1000, 1 x $500, 1 x $200, 6 x $50. Frankly, I'm amazed the USPS did not lose any of them. I will probably bundle them up every two years and convert them to electronic form.
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Leif
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Re: Is anyone buying CDs now instead of I bonds?

Post by Leif »

I bought some I-Bonds as tax return refunds. Not much inflation, so they've not done much. I have much more in CDs. Recently I've been purchasing broker CDs. Their rates are higher, and its easier to manage then CDs at several on-line banks. I expect to be doing some CD rollovers to broker CDs. I'll also be buying more TIPS. As a guess, I think inflation may pick up.
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Re: Is anyone buying CDs now instead of I bonds?

Post by anoop »

Leif wrote: Tue Mar 27, 2018 12:37 pmI'll also be buying more TIPS.
In a taxable account? So far I have stayed away from TIPS in taxable.
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Re: Is anyone buying CDs now instead of I bonds?

Post by asif408 »

I still personally prefer I-bonds over CDs, and haven't had issues with the TD website that others have had. In fact, I've found it very simple to purchase and redeem I-bonds the few times I have. I like the automatic adjustments to the interest rates every 6 months and don't want to have to be playing the game of moving around looking for higher CD rates every few months or years. I also like the tax deferred status relative to CDs. I've been earning 2-2.5% or so for the last year and a half, which seems pretty competitive with any other safe investment over that time frame. 2013 through early 2016 was about the lowest rates I-bonds have ever payed out (there were a couple of 6 month periods paying out almost or exactly 0%), so I wouldn't expect returns that low going forward, though they may not increase dramatically.

I admit it is a personal preference and I don't foresee either one being a dramatically better investment than the other over time. Honestly, I see I-bonds as having unique benefits vs any other investment, and generally compare CDs to MMFs and high yield savings accounts more often. From a financial life simplification standpoint I see I-bonds as simpler to manage that CDs, because I don't have to be rolling over purchases every few years, and can earn interest up to 30 years.
Topic Author
Happy2BeFree

Re: Is anyone buying CDs now instead of I bonds?

Post by Happy2BeFree »

Great posts and thoughts to ponder, so thanks, all, for contributing.

I do find the TD website to be clunky and it's a slow process to log in, but mostly I'm just trying to consolidate my holdings to one brokerage and a couple online banks (that hold a number of direct CDs), though as another poster mentioned, I might consider brokered CDs at some point to consolidate further.

Good question, noob, about why I bought in the first place. I Bonds are different from CDs due to the inflation factor, but I bought at the worst time: 0 to minuscule interest and hyper-low inflation. I made almost zilch for a few years, so I've been on a slow burn with them. Recently they've been doing better, yes. I like their features, but not sure if those outweigh the cons.
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Happy2BeFree

Re: Is anyone buying CDs now instead of I bonds?

Post by Happy2BeFree »

indexfundfan wrote: Tue Mar 27, 2018 12:30 pm
Darth Xanadu wrote: Tue Mar 27, 2018 12:23 pm
indexfundfan wrote: Tue Mar 27, 2018 11:36 am I just purchased $5k of Ibonds through the refund method. My god, they sent me a stack of 12 envelopes -- for a total of 12 Ibonds.
Why 12? Why not just $1000 x 5?
You have no say what are sent to you.

Here's how it goes: 4 x $1000, 1 x $500, 1 x $200, 6 x $50. Frankly, I'm amazed the USPS did not lose any of them. I will probably bundle them up every two years and convert them to electronic form.
I just got my stack yesterday...they're cool looking, but I wish they'd just sent 5 x $1000! Anyway, I've read that the conversion process is time consuming, but once done, it's easier to keep track of; but the bonds show up on a different page from your electronic bonds. I think you can combine the two, though I haven't looked that far into it. I would hope that they'd combine them all to equal one $5000 bond, but somehow I don't think that's how it works.
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Re: Is anyone buying CDs now instead of I bonds?

Post by indexfundfan »

Happy2BeFree wrote: Tue Mar 27, 2018 3:18 pm
indexfundfan wrote: Tue Mar 27, 2018 12:30 pm
Darth Xanadu wrote: Tue Mar 27, 2018 12:23 pm
indexfundfan wrote: Tue Mar 27, 2018 11:36 am I just purchased $5k of Ibonds through the refund method. My god, they sent me a stack of 12 envelopes -- for a total of 12 Ibonds.
Why 12? Why not just $1000 x 5?
You have no say what are sent to you.

Here's how it goes: 4 x $1000, 1 x $500, 1 x $200, 6 x $50. Frankly, I'm amazed the USPS did not lose any of them. I will probably bundle them up every two years and convert them to electronic form.
I just got my stack yesterday...they're cool looking, but I wish they'd just sent 5 x $1000! Anyway, I've read that the conversion process is time consuming, but once done, it's easier to keep track of; but the bonds show up on a different page from your electronic bonds. I think you can combine the two, though I haven't looked that far into it. I would hope that they'd combine them all to equal one $5000 bond, but somehow I don't think that's how it works.
I think they want to make it possible for you to make partial redemptions. Oh well...
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Re: Is anyone buying CDs now instead of I bonds?

Post by Leif »

anoop wrote: Tue Mar 27, 2018 12:46 pm
Leif wrote: Tue Mar 27, 2018 12:37 pmI'll also be buying more TIPS.
In a taxable account? So far I have stayed away from TIPS in taxable.
No, for my retirement account.
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Re: Is anyone buying CDs now instead of I bonds?

Post by z3r0c00l »

Happy2BeFree wrote: Mon Mar 26, 2018 10:21 pm They've done poorly over the time I've had them (since 2013), and the TD website is a pain; plus I'm trying to simplify my financial life, consolidating where I can.
This is such a funny thing to say about I bonds. We always know what I bonds will do, and they will do it with great regularity. They will meet inflation and may or may not have a fixed additional interest component, these days they basically don't. An I bond, then, can't really do well or poorly. It can be compared, I suppose, to other investments.

Since I don't know if interest rates will go up or down, or how inflation will vary in the future, I value the I bond promise to just match inflation. In exchange for that certainty and the good liquidity after a year, I am willing to accept lower interest than 5 year CDs, at times. (Although 5 year CDs currently pay a bit less than the I bond.)
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Re: Is anyone buying CDs now instead of I bonds?

Post by dh »

I appreciate the OP's question. I have not done an analysis, yet I have a very clear preference for I-Bonds over CDs. I have been building my I-Bonds for years. Like many, I wish I would have maxed out in those early years when Mel seemed to be the only one recommending them.

My preference for I-Bonds is directly related to how I want to use those monies in the future. While many plan to retire and travel the world, my plan is to head back to school in retirement and keep my mind and interests peaked. My joy of learning will be focused on areas of interest with no intentions of "using" the education in a future career. I plan to take out the I-bonds to cover just my qualified educational expenses tax free.

While this may not be helpful as you choose the best decision for your circumstances, I-bonds work for my plan. Best wishes.
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