What's the catch with I Bonds?

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

Post by beyou »

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

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

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

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

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

Post by phantom0308 »

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

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

Post by #Cruncher »

anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

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

Post by anon_investor »

#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

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

Post by BrokerageZelda »

anon_investor wrote: Mon Jun 07, 2021 11:31 am
#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

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

Post by anon_investor »

BrokerageZelda wrote: Mon Jun 07, 2021 11:37 am
anon_investor wrote: Mon Jun 07, 2021 11:31 am
#Cruncher wrote: Mon Jun 07, 2021 11:22 am
anon_investor wrote: Sun Jun 06, 2021 8:24 am ...
AlmstRtrd wrote: Sun Jun 06, 2021 7:21 am... I purchased my first $10,000 of Treasury Direct I-Bonds in early May. I just logged into TD to check that my first month's interest shows up and it does not. Will I only see interest with these after six months? As in November?
...
For you, Sept 1 and onward it will update monthly on the first of the month.
AlmstRtrd need not wait until September. He can see the first six monthly values now on this web page:

Code: Select all

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

Post by kate1234 »

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

Post by Richard1580 »

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

Post by MishkaWorries »

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

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

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

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

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

Post by mindboggling »

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

Post by Northern Flicker »

Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm
UpperNwGuy wrote: Wed Jun 02, 2021 8:25 pm Because of the limit on purchases, I Bonds seem to be most attractive to investors with smaller portfolios. Once your portfolio is large, the I Bonds have little impact.
That makes sense. However, for someone in their accumulation phase with 30+ years to retirement, it seems to me that over 10 years one could build a quite substantial position in these bonds. However, another factor that I didn't mention in my original post is the tailwind that most bonds have received from falling interest rates the past 40 years. Since these do not trade on the secondary market, perhaps that makes them less appealing over the full market cycle, as there is only one real source of return, as opposed to two? Just thinking out loud here.
The only problem with ibonds in that regard is they become a less desirable source of liquidity if rates fall after purchase-- if the real yield is zero today, you won't want to redeem an ibond with a 1% real yield.

There is a compelling argument to be made that holding a mix of ibonds, E bonds, TIPS, and treasuries provides a desirable source of liquidity for each of the four outcome combinations of inflation and interest rates.
Last edited by Northern Flicker on Thu Jun 10, 2021 7:09 pm, edited 1 time in total.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
rockstar
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Re: What's the catch with I Bonds?

Post by rockstar »

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

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

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

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

Post by mbasherp »

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

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

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

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

Post by TxFrog »

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

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

Post by rockstar »

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

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

Post by Grt2bOutdoors »

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

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

Post by rockstar »

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

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

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

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

Post by SnowBog »

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

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

Post by anon_investor »

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

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

Post by ivk5 »

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

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

Post by BrokerageZelda »

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

Post by anon_investor »

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

Post by ivk5 »

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

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

Post by rockstar »

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

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

Post by anon_investor »

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

I’m an I Bond fan and buyer. But I agree with Northern Flicker’s point, as I understood it, that they are not ideal place to park funds you have a reasonable expectation of needing for short term cash flow mgmt.
But once you get past the 1 year mark, isn't that what makes I Bonds great for an EF? You hope to never need to redeem them, but theyre available if needed.
wriley4409
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Re: What's the catch with I Bonds?

Post by wriley4409 »

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

Post by rockstar »

wriley4409 wrote: Sat Jun 12, 2021 11:58 am
I just bought $10k worth of I Bonds with a projected hold of 18-24 months. I'm thinking of splitting my emergency fund with half in I Bonds and half in checking in case I run into trouble redeeming the I Bonds in the future. I might buy more next year. But I can't see ever having more than $30k in I Bonds.
I use a tiered system for my emergency funds as well. The first tier is in my checking account, second is in a high yield savings account, and the third is I-Bonds. My goal is to have 12 months of expenses in I-Bonds by the time I retire.
I just need to go through the process to gain a comfort level for them, where I'll buy them, redeem some, and see how it goes. It's a learning process.
Grt2bOutdoors
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Re: What's the catch with I Bonds?

Post by Grt2bOutdoors »

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

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

Post by rockstar »

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

Then your I Bonds will still retain their purchasing power.

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

Post by fuseboy »

Hi All,

I have tried to figure out for a few hours now how dissolving an entity affects I-bonds in a Sole Proprietorship Entity account and a Revocable Living Trust Entity account. I just can't figure it out and would appreciate some help, please. I have not set up TD accounts for these two types yet, but I already have both a trust and a sole proprietorship existing, active and set up for other reasons.

What I am having trouble finding out is what happens with I-bonds (book) in a TD account when the Entity is dissolved. Either the sole proprietor or the trust, but the sole proprietorship is what I am most concerned with. (I imagine the trust will hang around until my death when it becomes irrevocable, but just in case it would be good to know.)

I read the CFR 31 part 363 about what happens when the person is deceased, but do the same things apply when an entity is dissolved? "§363.44 What happens when a TreasuryDirect® account owner dies and the estate is entitled to securities held in the account?" Can anyone point me to the section that deals with entities, or is this section applicable? If it matters, I am the trustee and beneficiary.

With the sole proprietorship, I only anticipate operating the business actively for the next 3-5 years or so. Would I be forced to transfer the bonds once I cease operations?

I am in California and my city charges a yearly $38 fee for the business tax certificate. It's not clear at all to me if I have to pay that fee in perpetuity or only if I am operating the business. So... if I close up shop in 5 years, but want to keep buying I-bonds with the entity account, can I do that? Do I have to keep paying the pesky business taxes with an undissolved entity to keep the IRS happy, even though I'm not operating the business? Will I be forced to dissolve the entity?

The definition for the sole proprietorship is: "Sole proprietorship. A sole proprietorship form of registration is available for an individual who is doing business as a sole proprietor." Does that "doing business" wording imply that the business has to be active, and what constitutes "doing business"?

Please help me out, I'm dazed and confused. (And have been ever since 2016 when I started the business, but that's another topic.)
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Kevin M
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Re: What's the catch with I Bonds?

Post by Kevin M »

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

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

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

Kevin
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poker27
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Re: What's the catch with I Bonds?

Post by poker27 »

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

My only hesitation is I like viewing all of my taxable $ in one place. First world problem to have, and the TS site is ‘fine’, but I’m picky
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