I Bonds are a screaming buy - Tipswatch

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oneleaf
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Re: I Bonds are a screaming buy - Tipswatch

Post by oneleaf » Mon Apr 27, 2020 7:10 pm

SnowBog wrote:
Mon Apr 27, 2020 3:01 pm
oneleaf wrote:
Mon Apr 27, 2020 1:38 pm
I considered having my wife and I buy extra as gifts for each other (hold them in the gift box and deliver them in future years, since they count towards your annual limit on the year they are delivered), but then I'd have too many EE-Bonds hit the 20 year market on the same year, creating a huge tax bill.
Wait... Say again...

If I'm following, this only works if you can "deliver" the shares in a year they aren't otherwise buying.

So hypothetically I could buy $40k/year (direct + gifts x2 for me/spouses) for 10 years. "Deliver" 1 year of bonds each year from 11-20. And then redeem all $40k/year as they double ($80k) over the following 10 years (as they hit their 20 year mark).

Is that really possible?

That would be really appealing to me... Ignoring the years I've missed, I'm looking at funding about 10 years of early retirement with an income floor using EE Bonds. 2x EE limits would be pretty close to our needs... For my particular needs, I'd sacrifice the following 10 years for 2x in the first 10 years...
I read that pretty thoroughly and there have been confirmations from others that this is possible. You are indeed correct that you wouldn't be able to purchase anymore EE Bonds if you have been delivered gifts up to your annual allotment. It's a way to frontload your purchases, but in the long run, you can't actually buy more than the $10K per year.

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Re: I Bonds are a screaming buy - Tipswatch

Post by MisterMister » Wed Apr 29, 2020 2:26 pm

Think this is the last day to get a purchase in for I-Bonds on the April rate. My purchase today shows an issue date of 4/30.

The rate, while paltry historically, is still better than most current one-year CD rates if that's an alternative someone is considering. That's true even after deducting the 3-month penalty.

Of course there is NO withdrawal before 12 months.

EDITED: After penalty-return estimate removed. The inflation component of the I-Bond will change in October for bonds purchased in April. Note that April 30th, despite being the last day of the month, is probably too late to buy an April bond since the issue date is generally one day later. The fixed component will undoubtedly move to 0% from .2% for the next round.
Last edited by MisterMister on Thu Apr 30, 2020 12:15 pm, edited 1 time in total.

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VictoriaF
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Re: I Bonds are a screaming buy - Tipswatch

Post by VictoriaF » Wed Apr 29, 2020 7:19 pm

I have prepared $10k to buy I Bonds but changed my mind. My logic is as follows:
- Let's say I Bonds will provide me with 2% advantage over CDs. 2% of $10k is $200/year. This is a relatively minor amount, it's less than the cost of taking a class.
- On the other hand, during COVID-19, there could be unanticipated needs for cash. I may get ill. I may get quarantined in an expensive place. For example, when I was in New York City in early March, there were reports about Amtrak reducing its service and I was wondering how expensive it would be to stay there for several weeks if I could not get out.
- I want to have easy cash in a taxable account rather than tapping into my tax-deferred assets, selling a fund, or breaking a CD.

I will not buy I bonds. I hope that I will not need these $10k. My analysis will help me to avoid any regret.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: I Bonds are a screaming buy - Tipswatch

Post by feh » Wed Apr 29, 2020 7:54 pm

VictoriaF wrote:
Wed Apr 29, 2020 7:19 pm
I have prepared $10k to buy I Bonds but changed my mind. My logic is as follows:
- Let's say I Bonds will provide me with 2% advantage over CDs. 2% of $10k is $200/year. This is a relatively minor amount, it's less than the cost of taking a class.
- On the other hand, during COVID-19, there could be unanticipated needs for cash. I may get ill. I may get quarantined in an expensive place. For example, when I was in New York City in early March, there were reports about Amtrak reducing its service and I was wondering how expensive it would be to stay there for several weeks if I could not get out.
- I want to have easy cash in a taxable account rather than tapping into my tax-deferred assets, selling a fund, or breaking a CD.

I will not buy I bonds. I hope that I will not need these $10k. My analysis will help me to avoid any regret.

Victoria
No emergency fund?

LK2012
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Re: I Bonds are a screaming buy - Tipswatch

Post by LK2012 » Wed Apr 29, 2020 7:55 pm

MisterMister wrote:
Wed Apr 29, 2020 2:26 pm
Think this is the last day to get a purchase in for I-Bonds on the April rate. My purchase today shows an issue date of 4/30.

The rate, while paltry historically, is still better than current one-year CD rates if that's an alternative someone is considering. That's true even after deducting the 3-month penalty (I come up with 1.64% after one year, ignoring a modest boost from having no state tax).

Of course there is NO withdrawal before 12 months.
Thank you for the timely reminder. For some crazy reason, I forgot April has only 30 days (!) and thought I had another day. I got my order in today though, after seeing this!

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Re: I Bonds are a screaming buy - Tipswatch

Post by VictoriaF » Wed Apr 29, 2020 8:05 pm

feh wrote:
Wed Apr 29, 2020 7:54 pm
VictoriaF wrote:
Wed Apr 29, 2020 7:19 pm
I have prepared $10k to buy I Bonds but changed my mind. My logic is as follows:
- Let's say I Bonds will provide me with 2% advantage over CDs. 2% of $10k is $200/year. This is a relatively minor amount, it's less than the cost of taking a class.
- On the other hand, during COVID-19, there could be unanticipated needs for cash. I may get ill. I may get quarantined in an expensive place. For example, when I was in New York City in early March, there were reports about Amtrak reducing its service and I was wondering how expensive it would be to stay there for several weeks if I could not get out.
- I want to have easy cash in a taxable account rather than tapping into my tax-deferred assets, selling a fund, or breaking a CD.

I will not buy I bonds. I hope that I will not need these $10k. My analysis will help me to avoid any regret.

Victoria
No emergency fund?
I don't have a block of money called "emergency fund:"
- I am retired and can't lose a job.
- I rent and can't have emergency home repairs.
- I have a comprehensive health insurance and can't have emergency medical expenses.

I have sufficient assets to live the life I want to live. And I have assets that I can sell if needed. I am well covered for likely personal emergencies.

BUT COVID-19 is not my personal emergency. It affects the society at large. It's not just a medical emergency, but also a financial emergency and a critical personnel emergency. If critical personnel is weakened so will parts of the critical infrastructure. If I need cash, I don't want to start selling assets, breaking CDs, or trying to figure out which financial institutions are reachable.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

feh
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Re: I Bonds are a screaming buy - Tipswatch

Post by feh » Wed Apr 29, 2020 8:55 pm

VictoriaF wrote:
Wed Apr 29, 2020 8:05 pm
feh wrote:
Wed Apr 29, 2020 7:54 pm
VictoriaF wrote:
Wed Apr 29, 2020 7:19 pm
I have prepared $10k to buy I Bonds but changed my mind. My logic is as follows:
- Let's say I Bonds will provide me with 2% advantage over CDs. 2% of $10k is $200/year. This is a relatively minor amount, it's less than the cost of taking a class.
- On the other hand, during COVID-19, there could be unanticipated needs for cash. I may get ill. I may get quarantined in an expensive place. For example, when I was in New York City in early March, there were reports about Amtrak reducing its service and I was wondering how expensive it would be to stay there for several weeks if I could not get out.
- I want to have easy cash in a taxable account rather than tapping into my tax-deferred assets, selling a fund, or breaking a CD.

I will not buy I bonds. I hope that I will not need these $10k. My analysis will help me to avoid any regret.

Victoria
No emergency fund?
I don't have a block of money called "emergency fund:"
- I am retired and can't lose a job.
- I rent and can't have emergency home repairs.
- I have a comprehensive health insurance and can't have emergency medical expenses.
Even so, I'm surprised you wouldn't have $10K sitting somewhere liquid for emergency car repairs or similar large, infrequent expenses.

jgalt133
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Re: I Bonds are a screaming buy - Tipswatch

Post by jgalt133 » Wed Apr 29, 2020 11:07 pm

How do I bonds compare with the TSP G fund?

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nps
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Re: I Bonds are a screaming buy - Tipswatch

Post by nps » Thu Apr 30, 2020 6:07 am

jgalt133 wrote:
Wed Apr 29, 2020 11:07 pm
How do I bonds compare with the TSP G fund?
"The G Fund's investment objective is to produce a rate of return that is higher than inflation while avoiding exposure to credit (default) risk and market price fluctuations."

"The G Fund is subject to inflation risk, or the possibility that your G Fund investment will not grow enough to offset the reduction in purchasing power that results from inflation."

Source: https://www.tsp.gov/InvestmentFunds/Fun ... nce_G.html

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Re: I Bonds are a screaming buy - Tipswatch

Post by jgalt133 » Thu Apr 30, 2020 9:05 am

So, it sounds very similar to the I Bond except for the unexpected inflation part?

justsomeguy2018
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Re: I Bonds are a screaming buy - Tipswatch

Post by justsomeguy2018 » Thu Apr 30, 2020 9:15 am

MisterMister wrote:
Wed Apr 29, 2020 2:26 pm
Think this is the last day to get a purchase in for I-Bonds on the April rate. My purchase today shows an issue date of 4/30.

The rate, while paltry historically, is still better than current one-year CD rates if that's an alternative someone is considering. That's true even after deducting the 3-month penalty (I come up with 1.64% after one year, ignoring a modest boost from having no state tax).

Of course there is NO withdrawal before 12 months.
But couldn't the overall rate go to 0% if inflation is muted? If that is the case a 1-year CD would be better, no?

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petercooperjr
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Re: I Bonds are a screaming buy - Tipswatch

Post by petercooperjr » Thu Apr 30, 2020 9:22 am

justsomeguy2018 wrote:
Thu Apr 30, 2020 9:15 am
But couldn't the overall rate go to 0% if inflation is muted? If that is the case a 1-year CD would be better, no?
In the long run, yes.
In the short run, the lag between inflation numbers getting reported and when they affect I-bond rates is long enough that we know the current I-bond rate through April 2021. If you put money in now, at the end of April, and take it out at the start of April 2021, you've basically had a state-tax-free 11-months-plus-a-couple-days CD, at a pretty decent rate that's comparable to current CD rates (even with the 3 mo. penalty, though yes, if you shop around you can probably do slightly better if a CD is really what you're looking for). But then you have the option to hold onto the money at 0.2% + CPI (though again, that CPI measurement lags reality by quite a bit) if that looks like a better option at that time, and able to get out whenever you want once another option looks better.

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Re: I Bonds are a screaming buy - Tipswatch

Post by justsomeguy2018 » Thu Apr 30, 2020 9:38 am

petercooperjr wrote:
Thu Apr 30, 2020 9:22 am
justsomeguy2018 wrote:
Thu Apr 30, 2020 9:15 am
But couldn't the overall rate go to 0% if inflation is muted? If that is the case a 1-year CD would be better, no?
In the long run, yes.
In the short run, the lag between inflation numbers getting reported and when they affect I-bond rates is long enough that we know the current I-bond rate through April 2021. If you put money in now, at the end of April, and take it out at the start of April 2021, you've basically had a state-tax-free 11-months-plus-a-couple-days CD, at a pretty decent rate that's comparable to current CD rates (even with the 3 mo. penalty, though yes, if you shop around you can probably do slightly better if a CD is really what you're looking for). But then you have the option to hold onto the money at 0.2% + CPI (though again, that CPI measurement lags reality by quite a bit) if that looks like a better option at that time, and able to get out whenever you want once another option looks better.
I didn't realize the lag time was there. I thought inflation from Nov to Apr would be applied for the next 6 months, no?

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petercooperjr
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Re: I Bonds are a screaming buy - Tipswatch

Post by petercooperjr » Thu Apr 30, 2020 10:05 am

justsomeguy2018 wrote:
Thu Apr 30, 2020 9:38 am
I didn't realize the lag time was there. I thought inflation from Nov to Apr would be applied for the next 6 months, no?
The inflation from September to March (which is announced in April) will be applied when each I-bond starts its next 6-month period starting in May. So if you buy in May or November (when new rates happen), it applies for that 6 months starting then and has the lowest lag time. If you buy in April or September, you first have the 6 months of interest from the prior period (since it's still using the old rates), and only then get the 6 months of the newer rate.

That is, for a bond bought in April 2020, one first gets 6 months based on the CPI change from March 2019 to September 2019 (1.01%, annualized 2.02%), and then in September 2020 get 6 months based on the CPI change from September 2019 to March 2020 (0.53%, annualized 1.06%). So if you buy in the month before the 6-month-reset, you end up knowing the rate for the entire next year.

For further reading:

Iorek
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Re: I Bonds are a screaming buy - Tipswatch

Post by Iorek » Thu Apr 30, 2020 10:11 am

VictoriaF wrote:
Wed Apr 29, 2020 8:05 pm
feh wrote:
Wed Apr 29, 2020 7:54 pm
VictoriaF wrote:
Wed Apr 29, 2020 7:19 pm
I have prepared $10k to buy I Bonds but changed my mind. My logic is as follows:
- Let's say I Bonds will provide me with 2% advantage over CDs. 2% of $10k is $200/year. This is a relatively minor amount, it's less than the cost of taking a class.
- On the other hand, during COVID-19, there could be unanticipated needs for cash. I may get ill. I may get quarantined in an expensive place. For example, when I was in New York City in early March, there were reports about Amtrak reducing its service and I was wondering how expensive it would be to stay there for several weeks if I could not get out.
- I want to have easy cash in a taxable account rather than tapping into my tax-deferred assets, selling a fund, or breaking a CD.

I will not buy I bonds. I hope that I will not need these $10k. My analysis will help me to avoid any regret.

Victoria
No emergency fund?
I don't have a block of money called "emergency fund:"
- I am retired and can't lose a job.
- I rent and can't have emergency home repairs.
- I have a comprehensive health insurance and can't have emergency medical expenses.

I have sufficient assets to live the life I want to live. And I have assets that I can sell if needed. I am well covered for likely personal emergencies.

BUT COVID-19 is not my personal emergency. It affects the society at large. It's not just a medical emergency, but also a financial emergency and a critical personnel emergency. If critical personnel is weakened so will parts of the critical infrastructure. If I need cash, I don't want to start selling assets, breaking CDs, or trying to figure out which financial institutions are reachable.

Victoria
I agree we are talking about pretty small differences so as a practical matter it doesn’t matter much but an intermediate option, of course, is to buy $5k this year and $5k next year, or even $1k/month.

blackcat allie
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Re: I Bonds are a screaming buy - Tipswatch

Post by blackcat allie » Thu Apr 30, 2020 11:08 am

Is May 1st the change over for rates, on I Bonds?
(ps I have no idea if they're "screaming buy" but something is screaming to me, that I may have missed an opportunity line)
Thanks in advance
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Re: I Bonds are a screaming buy - Tipswatch

Post by GTBuzz » Thu Apr 30, 2020 11:31 am

Yes, May 1st is the changeover for both fixed rate, as well as the 6-month time period for the variable rate. If you already hold I Bonds, the fixed rate never changes and the variable rate changes every six months from the 1st of the month the bond was purchased.

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Re: I Bonds are a screaming buy - Tipswatch

Post by justsomeguy2018 » Thu Apr 30, 2020 11:36 am

petercooperjr wrote:
Thu Apr 30, 2020 10:05 am
justsomeguy2018 wrote:
Thu Apr 30, 2020 9:38 am
I didn't realize the lag time was there. I thought inflation from Nov to Apr would be applied for the next 6 months, no?
The inflation from September to March (which is announced in April) will be applied when each I-bond starts its next 6-month period starting in May. So if you buy in May or November (when new rates happen), it applies for that 6 months starting then and has the lowest lag time. If you buy in April or September, you first have the 6 months of interest from the prior period (since it's still using the old rates), and only then get the 6 months of the newer rate.

That is, for a bond bought in April 2020, one first gets 6 months based on the CPI change from March 2019 to September 2019 (1.01%, annualized 2.02%), and then in September 2020 get 6 months based on the CPI change from September 2019 to March 2020 (0.53%, annualized 1.06%). So if you buy in the month before the 6-month-reset, you end up knowing the rate for the entire next year.

For further reading:
Interesting....so basically for a $10k bond its about $70 more vs a 1.50% no penalty CD. Hmm...probably not worth it....unless inflation jumps in the coming year...

LK2012
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Re: I Bonds are a screaming buy - Tipswatch

Post by LK2012 » Thu Apr 30, 2020 12:20 pm

justsomeguy2018 wrote:
Thu Apr 30, 2020 11:36 am

Interesting....so basically for a $10k bond its about $70 more vs a 1.50% no penalty CD. Hmm...probably not worth it....unless inflation jumps in the coming year...
Well, you also don't pay state/local taxes, can defer taxes if you wish, can use it tax-free for education, and you benefit if inflation jumps any time in the next 30 years.

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Re: I Bonds are a screaming buy - Tipswatch

Post by MisterMister » Thu Apr 30, 2020 12:29 pm

petercooperjr wrote:
Thu Apr 30, 2020 10:05 am
justsomeguy2018 wrote:
Thu Apr 30, 2020 9:38 am
I didn't realize the lag time was there. I thought inflation from Nov to Apr would be applied for the next 6 months, no?
The inflation from September to March (which is announced in April) will be applied when each I-bond starts its next 6-month period starting in May. So if you buy in May or November (when new rates happen), it applies for that 6 months starting then and has the lowest lag time. If you buy in April or September, you first have the 6 months of interest from the prior period (since it's still using the old rates), and only then get the 6 months of the newer rate.

That is, for a bond bought in April 2020, one first gets 6 months based on the CPI change from March 2019 to September 2019 (1.01%, annualized 2.02%), and then in September 2020 get 6 months based on the CPI change from September 2019 to March 2020 (0.53%, annualized 1.06%). So if you buy in the month before the 6-month-reset, you end up knowing the rate for the entire next year.

For further reading:
Thank you for this detailed explanation. Yes, I've updated my own original post to mention that the composite rate will change in October. Too late to get an April bond now, also.

Angst
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Re: I Bonds are a screaming buy - Tipswatch

Post by Angst » Thu Apr 30, 2020 3:22 pm

MisterMister wrote:
Thu Apr 30, 2020 12:29 pm
petercooperjr wrote:
Thu Apr 30, 2020 10:05 am

For further reading:
Thank you for this detailed explanation. Yes, I've updated my own original post to mention that the composite rate will change in October. Too late to get an April bond now, also.
One will also do well to note that the forum has its Wiki, and the Wiki has its I Savings Bonds web page. Not a bad place to start looking for info.

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Re: I Bonds are a screaming buy - Tipswatch

Post by justsomeguy2018 » Thu Apr 30, 2020 6:08 pm

LK2012 wrote:
Thu Apr 30, 2020 12:20 pm
justsomeguy2018 wrote:
Thu Apr 30, 2020 11:36 am

Interesting....so basically for a $10k bond its about $70 more vs a 1.50% no penalty CD. Hmm...probably not worth it....unless inflation jumps in the coming year...
Well, you also don't pay state/local taxes, can defer taxes if you wish, can use it tax-free for education, and you benefit if inflation jumps any time in the next 30 years.
I hear you, but I live in a no-income tax state, and income will likely be too high at time of withdrawal to use it for tax-free education. Also by the time I cash it in it is possible it pushes me into a higher tax bracket.

So other than the inflation benefit, I am just not sure there is a ton of benefit to me vs. a no-penalty CD.

That being said, I did buy an i-bond this month, but wasn't sure if I wanted to buy an additional one for my spouse.

My biggest concern with the i-bond is the potential for 0% interest payments.

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Re: I Bonds are a screaming buy - Tipswatch

Post by Mel Lindauer » Thu Apr 30, 2020 9:49 pm

justsomeguy2018 wrote:
Thu Apr 30, 2020 6:08 pm
LK2012 wrote:
Thu Apr 30, 2020 12:20 pm
justsomeguy2018 wrote:
Thu Apr 30, 2020 11:36 am

Interesting....so basically for a $10k bond its about $70 more vs a 1.50% no penalty CD. Hmm...probably not worth it....unless inflation jumps in the coming year...
Well, you also don't pay state/local taxes, can defer taxes if you wish, can use it tax-free for education, and you benefit if inflation jumps any time in the next 30 years.
I hear you, but I live in a no-income tax state, and income will likely be too high at time of withdrawal to use it for tax-free education. Also by the time I cash it in it is possible it pushes me into a higher tax bracket.

So other than the inflation benefit, I am just not sure there is a ton of benefit to me vs. a no-penalty CD.

That being said, I did buy an i-bond this month, but wasn't sure if I wanted to buy an additional one for my spouse.

My biggest concern with the i-bond is the potential for 0% interest payments.
Just so you know. If you find yourself approaching the phase-out income limit for using your I Bonds tax-free for qualifying educational expenses, you can always contribute to a 529 College Savings Plan while you're still eligible. The 529 is a qualifying educational expense and can continue to grow, tax-free, until your child(ren) are ready for college.
Best Regards - Mel | | Semper Fi

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Re: I Bonds are a screaming buy - Tipswatch

Post by feh » Thu Apr 30, 2020 10:09 pm

Mel Lindauer wrote:
Thu Apr 30, 2020 9:49 pm

Just so you know. If you find yourself approaching the phase-out income limit for using your I Bonds tax-free for qualifying educational expenses, you can always contribute to a 529 College Savings Plan while you're still eligible. The 529 is a qualifying educational expense and can continue to grow, tax-free, until your child(ren) are ready for college.
Thanks very much for this info. I think we're gonna go over the limit this year.

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Re: I Bonds are a screaming buy - Tipswatch

Post by indexfundfan » Fri May 01, 2020 9:04 am

As expected, the new fixed rate for I-bonds purchased from May 2020 through Oct 2020 is 0.0%.

Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 1.06% (composite rate), Series EE to Earn 0.10%

https://www.treasurydirect.gov/news/pre ... di0520.htm
My signature has been deleted.

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Re: I Bonds are a screaming buy - Tipswatch

Post by anon_investor » Fri May 01, 2020 9:51 am

indexfundfan wrote:
Fri May 01, 2020 9:04 am
As expected, the new fixed rate for I-bonds purchased from May 2020 through Oct 2020 is 0.0%.

Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 1.06% (composite rate), Series EE to Earn 0.10%

https://www.treasurydirect.gov/news/pre ... di0520.htm
No surprises. I am sure glad I completed my his/her purchases for 2020 in April. I have not filed my 2019 tax return yet, but at 0% fixed and a composite rate of 1.06%, I will NOT be playing the paper I Bond tax refund game this year. It will be interesting to see what the numbers will be in on November 1, 2020 and anticipated numbers for May 1, 2021. If the recent past repeats itself the fixed rate may be 0% for a few years...

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Re: I Bonds are a screaming buy - Tipswatch

Post by am » Fri May 01, 2020 10:43 am

anon_investor wrote:
Fri May 01, 2020 9:51 am
indexfundfan wrote:
Fri May 01, 2020 9:04 am
As expected, the new fixed rate for I-bonds purchased from May 2020 through Oct 2020 is 0.0%.

Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 1.06% (composite rate), Series EE to Earn 0.10%

https://www.treasurydirect.gov/news/pre ... di0520.htm
No surprises. I am sure glad I completed my his/her purchases for 2020 in April. I have not filed my 2019 tax return yet, but at 0% fixed and a composite rate of 1.06%, I will NOT be playing the paper I Bond tax refund game this year. It will be interesting to see what the numbers will be in on November 1, 2020 and anticipated numbers for May 1, 2021. If the recent past repeats itself the fixed rate may be 0% for a few years...
1.06% tax deferred and inflation protected is not bad at all given riskless alternatives.

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Re: I Bonds are a screaming buy - Tipswatch

Post by tipswatcher » Fri May 01, 2020 10:54 am

For what it is worth, I have posted my update on the I Bond and EE terms:

https://seekingalpha.com/article/434196 ... n-ee-terms

There had been some "speculation" that the Treasury could set a negative fixed rate on the I Bond. I didn't think that was likely. It didn't happen.

Also speculation that the terms of the EE doubling period could be extended beyond 20 years. I was worried. That didn't happen.

So, not a bad day.

If market conditions remain as they are, I will still be a buyer of I Bonds in January, even with a fixed rate of 0.0%. But if you haven't purchased before May 1, you might want to wait until November 1, just in case the fixed rate rises (little chance).
TIPS: Perfect investment for imperfect times?

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Re: I Bonds are a screaming buy - Tipswatch

Post by anon_investor » Fri May 01, 2020 11:42 am

tipswatcher wrote:
Fri May 01, 2020 10:54 am
For what it is worth, I have posted my update on the I Bond and EE terms:

https://seekingalpha.com/article/434196 ... n-ee-terms

There had been some "speculation" that the Treasury could set a negative fixed rate on the I Bond. I didn't think that was likely. It didn't happen.

Also speculation that the terms of the EE doubling period could be extended beyond 20 years. I was worried. That didn't happen.

So, not a bad day.

If market conditions remain as they are, I will still be a buyer of I Bonds in January, even with a fixed rate of 0.0%. But if you haven't purchased before May 1, you might want to wait until November 1, just in case the fixed rate rises (little chance).
Would you really buy in January 2021? I think I would wait until April 2021, so I would have a peak at what the post-May 1, 2021 rates would be. Especially if the inflation component remains low.
am wrote:
Fri May 01, 2020 10:43 am
1.06% tax deferred and inflation protected is not bad at all given riskless alternatives.
Probably, but since I just bought $20k for an effective composite rate of 1.74% for the next 12 months, 1.06% looks pretty terrible. Instead of playing the paper I Bond tax refund game, I would rather do something more productive with $5k. For example, a no penalty CD at ~1.5% is a risk free option. I just can't get myself to buy EE Bonds. I probably should before they increase the doubling time from 20 years... but I will likely still in peak earning years 20 years from now, so not the best tax wise.

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Re: I Bonds are a screaming buy - Tipswatch

Post by tipswatcher » Fri May 01, 2020 11:59 am

Would you really buy in January 2021? I think I would wait until April 2021
You are correct. Thanks. I would absolutely wait until April 2021 to see if it was likely the 0.0% fixed rate might rise. I'd even be likely to wait until October 2021 if the fixed rate stayed at 0.0%. I was just meaning that I would use my 2021 allocation on 0.0% fixed rate I Bonds if that looks like my only option, especially if TIPS yields stay negative or near negative.
TIPS: Perfect investment for imperfect times?

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Re: I Bonds are a screaming buy - Tipswatch

Post by anon_investor » Fri May 01, 2020 12:46 pm

tipswatcher wrote:
Fri May 01, 2020 11:59 am
Would you really buy in January 2021? I think I would wait until April 2021
You are correct. Thanks. I would absolutely wait until April 2021 to see if it was likely the 0.0% fixed rate might rise. I'd even be likely to wait until October 2021 if the fixed rate stayed at 0.0%. I was just meaning that I would use my 2021 allocation on 0.0% fixed rate I Bonds if that looks like my only option, especially if TIPS yields stay negative or near negative.
Agreed. I have no TIPS option in my 401k and do not want to waste Roth IRA space (no TIRA due to backdoor Roth), so I Bonds are always the better option for me over TIPS. I will definitely buy I Bonds in 2021, so if the fixed rate stays at 0%, waiting a long as possible to take a peek at future rates makes perfect sense.

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Re: I Bonds are a screaming buy - Tipswatch

Post by #Cruncher » Fri May 01, 2020 1:27 pm

For those interested, here are the composite rates that will take effect from May 2020 to October 2020 [ 1 ] and run for six months for all outstanding I Bonds, including newly issued ones with a 0.00% fixed rate. [ 2 ] They incorporate the new semi-annual inflation rate of 0.53%:

Code: Select all

  Fixed Rate Announced      Fixed   Composite
# Times   First    Last     Rate      Rate
-------  ------   ------    -----   ---------
    1    May 00             3.60%     4.68% [3]
    3    Sep 98   Nov 00    3.40%     4.48%
    2    Nov 98   May 99    3.30%     4.38%
    1    May 01             3.00%     4.08%
    2    Nov 01   May 02    2.00%     3.07%
    1    Nov 02             1.60%     2.67%
    2    May 06   Nov 06    1.40%     2.47%
    1    May 07             1.30%     2.37%

Code: Select all

    2    May 05   Nov 07    1.20%     2.27%
    2    May 03   Nov 03    1.10%     2.17%
    3    May 04   Nov 05    1.00%     2.07%
    1    Nov 08             0.70%     1.76%
    2    Nov 18   May 19    0.50%     1.56%
    2    Nov 09   May 18    0.30%     1.36%
    3    May 10   Nov 19    0.20%     1.26%
    5    May 09   Nov 17    0.10%     1.16%
   12    May 08   May 20    0.00%     1.06% <-- new purchase
These composite rates summarize the 520 column near the left side of the I Bond Composite Rates triangle. The source is TreasuryDirect's What have the rates been in the past?.
  1. New composite rates take effect every six months based on the month an I Bond is purchased. For an I Bond purchased in May or November, the composite rates above will take effect May 2020 and run through October 2020. But for an I Bond purchased in April or October, they won't take effect until October 2020 and will run through March 2021. See When does my bond change rates?
  2. Click here for my post from six months ago with the previous composite rates.
  3. Composite rates are computed as follows and rounded to 4 decimal places:

    Code: Select all

    composite rate = fixed rate + ( 2 * inflation rate ) + ( fixed rate * inflation rate )
            0.0468 = 0.0360     + ( 2 * 0.0053         ) + ( 0.0360     * 0.0053         )
Last edited by #Cruncher on Fri May 01, 2020 3:09 pm, edited 1 time in total.

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Re: I Bonds are a screaming buy - Tipswatch

Post by ray.james » Fri May 01, 2020 1:49 pm

Thank you Cruncher!

Just back in early 2019(last year), there was discussion on bogleheads to wait and see if those 1% rates are coming back(fixed rate at 0.5%). How much things change in few months. Now no one is expecting back above zero for some time!
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: I Bonds are a screaming buy - Tipswatch

Post by bandoba » Fri May 01, 2020 2:30 pm

Mel Lindauer wrote:
Thu Apr 30, 2020 9:49 pm
Just so you know. If you find yourself approaching the phase-out income limit for using your I Bonds tax-free for qualifying educational expenses, you can always contribute to a 529 College Savings Plan while you're still eligible. The 529 is a qualifying educational expense and can continue to grow, tax-free, until your child(ren) are ready for college.
So one can basically redeem purchased I-Bonds and put that money into 529 without paying tax on redeemed I-Bonds? Is there a limit on how much can be redeemed per year?

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Re: I Bonds are a screaming buy - Tipswatch

Post by bandoba » Fri May 01, 2020 2:41 pm

bandoba wrote:
Fri May 01, 2020 2:30 pm
Mel Lindauer wrote:
Thu Apr 30, 2020 9:49 pm
Just so you know. If you find yourself approaching the phase-out income limit for using your I Bonds tax-free for qualifying educational expenses, you can always contribute to a 529 College Savings Plan while you're still eligible. The 529 is a qualifying educational expense and can continue to grow, tax-free, until your child(ren) are ready for college.
So one can basically redeem purchased I-Bonds and put that money into 529 without paying tax on redeemed I-Bonds? Is there a limit on how much can be redeemed per year?
Answering part of my own question above (remember to use Google!!) - here is link with a info https://www.savingforcollege.com/articl ... a-529-plan

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Re: I Bonds are a screaming buy - Tipswatch

Post by Angst » Sat May 02, 2020 10:02 am

bandoba wrote:
Fri May 01, 2020 2:41 pm
bandoba wrote:
Fri May 01, 2020 2:30 pm
Mel Lindauer wrote:
Thu Apr 30, 2020 9:49 pm
Just so you know. If you find yourself approaching the phase-out income limit for using your I Bonds tax-free for qualifying educational expenses, you can always contribute to a 529 College Savings Plan while you're still eligible. The 529 is a qualifying educational expense and can continue to grow, tax-free, until your child(ren) are ready for college.
So one can basically redeem purchased I-Bonds and put that money into 529 without paying tax on redeemed I-Bonds? Is there a limit on how much can be redeemed per year?
Answering part of my own question above (remember to use Google!!) - here is link with a info https://www.savingforcollege.com/articl ... a-529-plan
Perhaps the forum's Wiki page on I Bonds can help? I haven't looked at it recently:
https://www.bogleheads.org/wiki/I_savings_bonds#Tax-free_growth_for_Qualified_Education_Expenses

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Re: I Bonds are a screaming buy - Tipswatch

Post by Davistax » Sat May 02, 2020 2:23 pm

leftcoaster wrote:
Tue Mar 10, 2020 9:25 am
Reminder that you can actually buy 20k - 10k personal and 10k in a revocable living trust. For a married couple that means 30k. And you can have all reissued to the trust.

Add to that the 5k from an IRS refund and you can do 65k / year.
Actually, you can have more by having multiple revocable living trusts, though it may become more expensive creating them than it's worth. My wife & I each had 2 trusts & were able to purchase $ 30,000 each in one year as well as using the $ 5,000 federal refund.

bandoba
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Re: I Bonds are a screaming buy - Tipswatch

Post by bandoba » Sat May 02, 2020 2:35 pm

Angst wrote:
Sat May 02, 2020 10:02 am

Perhaps the forum's Wiki page on I Bonds can help? I haven't looked at it recently:
https://www.bogleheads.org/wiki/I_savings_bonds#Tax-free_growth_for_Qualified_Education_Expenses
Good point, I missed looking at the Wiki. It already has related info.

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Re: I Bonds are a screaming buy - Tipswatch

Post by MisterMister » Sun May 03, 2020 10:43 am

As expected, the one-year APY of an I-Bond purchased on 4/30/2020 and redeemed on 4/1/2021 will be competitive, if slightly under current one-year CD rates at 1.57% (considering you're just holding the bond about 11 months and factoring in the 3-month penalty). However the TEY could beat CD rates if you live in a high-tax state because that could add a 10-30 basis point boost to the APY.

In any event most people buy I-Bonds for inflation protection, not as something to compete with CDs. Still, safe fixed-rate returns seem likely to be abysmal over at least the next 6-12 months, so anyone who did purchase as an alternate to a CD will want to review rates as the anniversary approaches.

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