What's the catch with I Bonds?

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

Post by dh »

I believe CPI-U was 271.696
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ClevrChico
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Re: What's the catch with I Bonds?

Post by ClevrChico »

One catch is that Treasury Direct has a "virtual keyboard" to enter your password. That's a lot of fun entering a complex password with special characters. (The type of password that should be encouraged.)

I gave up on it and will stick with Total Bond. (KISS)
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billthecat
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Re: What's the catch with I Bonds?

Post by billthecat »

ClevrChico wrote: Sun Aug 08, 2021 9:06 pm One catch is that Treasury Direct has a "virtual keyboard" to enter your password. That's a lot of fun entering a complex password with special characters. (The type of password that should be encouraged.)

I gave up on it and will stick with Total Bond. (KISS)
On Macs, it works fine with Safari and the built-in keychain to autopopulate the ID and password. But not so on iOS (iPhone) or iPadOS (iPad).
We cannot direct the winds but we can adjust our sails • Warning: you will succeed at whatever you focus on, good or bad
Sic Vis Pacem
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Re: What's the catch with I Bonds?

Post by Sic Vis Pacem »

I've read this whole thread, but I'm a little slow on anything related to bonds, so please forgive me if this has been addressed and I just did not understand it.

Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?

Mods - if this should be a separate thread, please advise and I'll delete and repost.
ikowik
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Re: What's the catch with I Bonds?

Post by ikowik »

billthecat wrote: Sun Aug 08, 2021 9:13 pm
ClevrChico wrote: Sun Aug 08, 2021 9:06 pm One catch is that Treasury Direct has a "virtual keyboard" to enter your password. That's a lot of fun entering a complex password with special characters. (The type of password that should be encouraged.)

I gave up on it and will stick with Total Bond. (KISS)
On Macs, it works fine with Safari and the built-in keychain to autopopulate the ID and password. But not so on iOS (iPhone) or iPadOS (iPad).
It also works with 1Password on mac OS (Big Sur) Safari, and on Chromebook. 1Password fills in the password and it is accepted. No need to use the virtual keyboard.
Angst
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Re: What's the catch with I Bonds?

Post by Angst »

Sic Vis Pacem wrote: Thu Aug 19, 2021 8:43 am Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?
The pros are that I Bonds currently pay more than any US Govt bond or bond fund you can find, and as you've already pointed out, they can help create more space for equity in your 401k by covering some of your fixed income presently held there. And they're inflation protected.

The cons? You have to set up a new account at Treasury Direct. It's not that hard, but people have had some problems, which always can be resolved but can be a pain if you're so unlucky to experience them. Lots of the I Bond threads in the forum touch on them - just do a search. I've owned US savings for more than a decade now and have been lucky enough to never have had problems with the Treasury Direct website.

Also, because I Bonds are not marketable, they don't go up and down with market whims, interest rates, etc. That might really be a feature anyhow, but in an equity market crash where there's potential for US Govt bonds/funds to go up in value, which is nice for rebalancing, I Bonds value simply continues to creep up every month like a savings account.

Check out the forum's Wiki on I Bonds: https://www.bogleheads.org/wiki/I_savings_bonds
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

Angst wrote: Thu Aug 19, 2021 8:38 pm
Sic Vis Pacem wrote: Thu Aug 19, 2021 8:43 am Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?
The pros are that I Bonds currently pay more than any US Govt bond or bond fund you can find, and as you've already pointed out, they can help create more space for equity in your 401k by covering some of your fixed income presently held there. And they're inflation protected.

The cons? You have to set up a new account at Treasury Direct. It's not that hard, but people have had some problems, which always can be resolved but can be a pain if you're so unlucky to experience them. Lots of the I Bond threads in the forum touch on them - just do a search. I've owned US savings for more than a decade now and have been lucky enough to never have had problems with the Treasury Direct website.

Also, because I Bonds are not marketable, they don't go up and down with market whims, interest rates, etc. That might really be a feature anyhow, but in an equity market crash where there's potential for US Govt bonds/funds to go up in value, which is nice for rebalancing, I Bonds value simply continues to creep up every month like a savings account.

Check out the forum's Wiki on I Bonds: https://www.bogleheads.org/wiki/I_savings_bonds
One other con, you basically aren't making any money on I Bonds with 0% fixed interest rate. But you basically aren't losing* money either, even if interest rates go to > 10%. They are essentially designed to keep pace with inflation. * Technically, you might lose a little bit due to deferred taxes. But that's noise compared to the impact of losing to inflation if it rears its ugly head.

By contrast, with their guaranteed doubling by 20 years, EE Bonds may be "better" investments of held for exactly 20 years and inflation remains below roughly 3.5%. But might lose to I Bonds if inflation is higher. (And I Bonds are far more flexible, sell anytime after 1 year...)

Compared with the other inflation adjusted option, TIPS, I Bonds are currently (or were last I looked) paying out more, won't ever go below 0% (TIPS can go negative, so I Bonds provides some deflationary protection as well), and are far more tax efficient than TIPS held in taxable.
Sic Vis Pacem
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Re: What's the catch with I Bonds?

Post by Sic Vis Pacem »

Angst wrote: Thu Aug 19, 2021 8:38 pm
Sic Vis Pacem wrote: Thu Aug 19, 2021 8:43 am Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?
Also, because I Bonds are not marketable, they don't go up and down with market whims, interest rates, etc. That might really be a feature anyhow, but in an equity market crash where there's potential for US Govt bonds/funds to go up in value, which is nice for rebalancing, I Bonds value simply continues to creep up every month like a savings account.
It sounds to me like a good complement to a bond fund in a tax sheltered account, if not necessarily a replacement. I think I'll roll the dice on technical issues and test the waters. Thank you, kindly, for the thoughtful response.
Angst
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Re: What's the catch with I Bonds?

Post by Angst »

Sic Vis Pacem wrote: Thu Aug 19, 2021 9:22 pmIt sounds to me like a good complement to a bond fund in a tax sheltered account, if not necessarily a replacement. I think I'll roll the dice on technical issues and test the waters. Thank you, kindly, for the thoughtful response.
:thumbsup
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

Sic Vis Pacem wrote: Thu Aug 19, 2021 9:22 pm
Angst wrote: Thu Aug 19, 2021 8:38 pm
Sic Vis Pacem wrote: Thu Aug 19, 2021 8:43 am Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?
Also, because I Bonds are not marketable, they don't go up and down with market whims, interest rates, etc. That might really be a feature anyhow, but in an equity market crash where there's potential for US Govt bonds/funds to go up in value, which is nice for rebalancing, I Bonds value simply continues to creep up every month like a savings account.
It sounds to me like a good complement to a bond fund in a tax sheltered account, if not necessarily a replacement. I think I'll roll the dice on technical issues and test the waters. Thank you, kindly, for the thoughtful response.
Yep!
smectym
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Re: What's the catch with I Bonds?

Post by smectym »

Doc7 wrote: Thu Jul 08, 2021 8:03 pm
Jack56 wrote: Thu Jul 08, 2021 7:59 pm I bonds are not a real yield since they reset every six months & the only thing locked in is the base interest rate, now zero. Your yield for I bonds purchased now is zero for the 30 year life of the bond plus whatever the inflation rate is in any six month period. So you will make about $17 on a 10K investment over the next six months and then the rate will be reset based on whatever the inflation rate is then. You ain't going to become rich making around $34 a year (taxable) on your 10K investment -- assuming that inflation stays at the current level which is possible but most economists and the Fed think otherwise. And remember that a nominal return of inflation is a real return of zero. So in other words your 10K will be worth 10K in real terms whenever you redeem it -- but nothing more. It is possibly better than some other investments -- but it is hardly a good investment.
3.54% of $10,000 is $34 since when?

It’s tax deferred.

And after 1 year / 5 years (better) you can always cash and rebuy if the fixed rate is improved.

>>Nobody is buying I Bonds to “get rich”. They are buying because it is unlikely there is another better risk free investment for the next $10K they have to invest in fixed income in their AA/EF/short term savings this year.<< Most other sources will have a real value of less than $10K in the same time frame.
The carated comment is dead on. I bonds are a safe money investment. It so happens we bought a ton of them back when the annual limits were higher, and right now we're gratified to see a lot of 4% and 5% tax-deferred, state-tax-free yields in the portfolio, but we went through long stretches of lower yields, and are well aware that those can return. Regardless, this is a portfolio buffer that can never go down, and can only go "up" (albeit only in nominal terms, and only to the extent CPI accurately tracks inflation). But with all the caveats, one can't go wrong with I bonds for the "safe money" corner of the portfolio. For growth, of course look elsewhere.
IRouteIP
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Re: What's the catch with I Bonds?

Post by IRouteIP »

I have been debating I bonds as tier 2 of my emergency fund for a while now. I finally opened a TreasuryDirect account this evening. My Ally Bank NP CD @ 0.75% is up in 4 days, which I plan to transfer to I bonds and hope for no tier 2 level emergencies for the next 12 months. The 1 year period where the money is inaccessible is what has been stopping me.

The TD website doesn't seem that terrible. Not exactly modern, but it's not like I will need to make frequent transactions in it. I wouldn't let the website horror stories be what stops you.
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runcyc
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Re: What's the catch with I Bonds?

Post by runcyc »

7eight9 wrote: Thu Jun 03, 2021 8:46 am
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.)
9.9% currently. Getting to 20% certainly seems achievable buying $25K/year (2 x $10K + $5K tax refund).
I'm 66 and retired. My wife and I maxed annual contributions to I-bonds at $30k each for about 6 years, during our 40s. Our I bonds have increased in value by about 59%, before tax, and currently account for about 48% of our investment portfolio...not a great return, but they're risk-free, compound tax-deferred, and are State tax free. I plan to soon begin annually liquidating just enough I -bonds, originally purchased in $5K denominations, to stay in a low Federal tax bracket and not make Social Security Income taxable.
Last edited by runcyc on Sat Aug 21, 2021 1:06 am, edited 1 time in total.
mrsmitt
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Re: What's the catch with I Bonds?

Post by mrsmitt »

Not so fast. This is a perfect vehicle for mid to large size EF.
samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
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BuyAndHoldOn
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Re: What's the catch with I Bonds?

Post by BuyAndHoldOn »

samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
Right - the "fixed" piece has held me back as well. I think if the fixed piece was a bigger chunk of the return, I wouldn't mind the 12-month lockup and 5-year period where you'd get 3 months of interest removed in selling.

I-Bonds are a great option, but they have the challenges (low yield) that all other fixed income has right now (and probably going forward...). I value liquidity enough that by the time I-bonds have a higher fixed rate, I would probably buy conventional bonds anyway [assuming those yields have moved up also].

I do agree that as an "emergency fund" [assuming you are past the lockup] these are a terrific option.
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Whakamole
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Re: What's the catch with I Bonds?

Post by Whakamole »

IRouteIP wrote: Fri Aug 20, 2021 8:51 pm I have been debating I bonds as tier 2 of my emergency fund for a while now. I finally opened a TreasuryDirect account this evening. My Ally Bank NP CD @ 0.75% is up in 4 days, which I plan to transfer to I bonds and hope for no tier 2 level emergencies for the next 12 months. The 1 year period where the money is inaccessible is what has been stopping me.

The TD website doesn't seem that terrible. Not exactly modern, but it's not like I will need to make frequent transactions in it. I wouldn't let the website horror stories be what stops you.
You don't have to put your EF into I-bonds all at once. You can gradually buy them over the course of a year. Once you've done this, you'll always have an EF from I-bonds, so you can - if you wish - buy some every year to expand your tax-deferred space.
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

BuyAndHoldOn wrote: Sat Aug 21, 2021 8:40 am
samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
Right - the "fixed" piece has held me back as well. I think if the fixed piece was a bigger chunk of the return, I wouldn't mind the 12-month lockup and 5-year period where you'd get 3 months of interest removed in selling.

I-Bonds are a great option, but they have the challenges (low yield) that all other fixed income has right now (and probably going forward...). I value liquidity enough that by the time I-bonds have a higher fixed rate, I would probably buy conventional bonds anyway [assuming those yields have moved up also].

I do agree that as an "emergency fund" [assuming you are past the lockup] these are a terrific option.
For those of us who need to purchase bonds in taxable accounts, I Bonds are a great option. They are safer than other bonds, basically having no credit or interest risk. While I won't "make" money with them (with 0% fixed), I basically can't lose money with them (which can happen with other investments). And as I'm in high tax years, the expanded tax advantaged space works out well, saving me state taxes entirely and likely significant federal savings.
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

BuyAndHoldOn wrote: Sat Aug 21, 2021 8:40 am
samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
Right - the "fixed" piece has held me back as well. I think if the fixed piece was a bigger chunk of the return, I wouldn't mind the 12-month lockup and 5-year period where you'd get 3 months of interest removed in selling.

I-Bonds are a great option, but they have the challenges (low yield) that all other fixed income has right now (and probably going forward...). I value liquidity enough that by the time I-bonds have a higher fixed rate, I would probably buy conventional bonds anyway [assuming those yields have moved up also].

I do agree that as an "emergency fund" [assuming you are past the lockup] these are a terrific option.
I find them particularly attractive now because bond yields are so low. You can't just look at the rate in isolation, but consider the alternatives.
IRouteIP
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Re: What's the catch with I Bonds?

Post by IRouteIP »

Whakamole wrote: Sat Aug 21, 2021 9:33 am You don't have to put your EF into I-bonds all at once. You can gradually buy them over the course of a year. Once you've done this, you'll always have an EF from I-bonds, so you can - if you wish - buy some every year to expand your tax-deferred space.
I had considered this, but then it would take even longer for the whole $10,000 to be available. $10,000 is 2.5 months of my 6 month emergency fund, and the amount I have in the CD that is scheduled to be transferred to my savings account on the 24th. The rest of the EF is in the Ally savings. I'm thinking I can roll the dice with a high probability of being OK. I guess the question is, do I feel lucky?
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Re: What's the catch with I Bonds?

Post by chipperd »

samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
Haven’t read through all the thread so sorry if someone already posted the math
Assuming one holds the I bond for the first year only and there is a zero percent inflation component (who thinks inflation will be zero in the coming year?) the math works out to be a
1.77 percent return for essentially a one year c.d.
That beats any one year cd rate I’ve seen.
Please let me know if you’ve seen higher
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SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

chipperd wrote: Sat Aug 21, 2021 11:12 am
samsoes wrote: Wed Jun 02, 2021 8:26 pm The current 3.54% (inflation component) yield can easily drop to 0% in six months. The current 0% fixed rate component (for the life of the bond) makes I-bonds not worth a second look, at least for now.

Edit to add: Here's a historical chart of inflation and fixed rates:
https://www.treasurydirect.gov/indiv/re ... eChart.pdf
Haven’t read through all the thread so sorry if someone already posted the math
Assuming one holds the I bond for the first year only and there is a zero percent inflation component (who thinks inflation will be zero in the coming year?) the math works out to be a
1.77 percent return for essentially a one year c.d.
That beats any one year cd rate I’ve seen.
Please let me know if you’ve seen higher
Exactly!

Generally speaking, I Bonds are going to have a much better return than bank savings/CD's/etc. (With rare exceptions like HMBradley, or select Credit Unions/etc.)

But maybe its more accurate to say: "generally speaking, 'cash' held in banks will lose value to inflation". And by extension, I Bonds are a better "store of value" then keeping money in a bank.

With 0% fixed component currently, you won't "make" money on I Bonds (and may lose some in taxes - which can be deferred), but the results are still far better than is offered by the vast, vast majority of banks out there. So other than the 1 year lock-up, I think they are superior in every way to "cash".

As compared to other bonds - I think they can offer a nice complement. Because of the annual purchase limits, they will never be a large part of my portfolio... But even if the purchase was "unlimited" - I'm not sure I'd replace my total bond fund in my 401k or my muni bond funds in my taxable accounts with I Bonds/EE Bonds... I might reallocate funds slightly - but I don't see them replacing my other bonds.
IRouteIP
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Re: What's the catch with I Bonds?

Post by IRouteIP »

I just made my first I bond purchase and found the process to be pretty painless.

The TD website is not terrible, as some have claimed. I created my account and linked my bank account a couple of days ago. I did not need any signatures, medallion or otherwise. Tonight I just logged in, entered the amount, clicked submit, and done.

I have seen several posts from members passing on I bonds because they don't want to deal with the TreasuryDirect website. Maybe I got lucky or maybe my situation is not as complex as others, but, I had no issues with the site.
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Re: What's the catch with I Bonds?

Post by anon_investor »

IRouteIP wrote: Tue Aug 24, 2021 5:37 pm I just made my first I bond purchase and found the process to be pretty painless.

The TD website is not terrible, as some have claimed. I created my account and linked my bank account a couple of days ago. I did not need any signatures, medallion or otherwise. Tonight I just logged in, entered the amount, clicked submit, and done.

I have seen several posts from members passing on I bonds because they don't want to deal with the TreasuryDirect website. Maybe I got lucky or maybe my situation is not as complex as others, but, I had no issues with the site.
You will need a signature guarantee (but not a medallion signature guarantee) to add additional bank accounts. This is a new TD policy since 2021.
IRouteIP
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Re: What's the catch with I Bonds?

Post by IRouteIP »

anon_investor wrote: Tue Aug 24, 2021 5:40 pm
You will need a signature guarantee (but not a medallion signature guarantee) to add additional bank accounts. This is a new TD policy since 2021.
I guess we can file that under "maybe my situation is not as complex as others." Perhaps if I change banks some time 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 »

IRouteIP wrote: Tue Aug 24, 2021 5:46 pm
anon_investor wrote: Tue Aug 24, 2021 5:40 pm
You will need a signature guarantee (but not a medallion signature guarantee) to add additional bank accounts. This is a new TD policy since 2021.
I guess we can file that under "maybe my situation is not as complex as others." Perhaps if I change banks some time in the future...
It does not effect most people, but some people have multiple bank accounts.

But like you I had no issues creating the account and buying I Bonds, 2020 and 2021 purchases completed. But I have a new checking account I want to add, and I will have to mail out a form with signature guarantee, but I am in no rush as I am not closing my existing linked accounts. But I am using I Bonds as a layer of my EF, so I want the flexibility to be able to redeem my I Bonds to whichever bank account I want.
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Re: What's the catch with I Bonds?

Post by euler »

I was able to set up an individual TD account for myself, but when I tried to create a second, "entity" account for my sole proprietorship, I somehow fell into signature-guarantee purgatory. This has pretty much brought my I-bonds aspirations to a standstill. I see no practical way to obtain the signature guarantee they are asking for. (My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.) Assuming that it is technically possible to meet their demand---which is not obvious---it would probably cost me some money, making the investment not worthwhile.

Based on reports here, the $5k IRS refund channel also seems rather hit-or-miss.

At least I can still get my $10k/yr.
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HueyLD
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Re: What's the catch with I Bonds?

Post by HueyLD »

euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
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Re: What's the catch with I Bonds?

Post by euler »

HueyLD wrote: Tue Aug 24, 2021 9:02 pm
euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
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Re: What's the catch with I Bonds?

Post by Darth Xanadu »

Sic Vis Pacem wrote: Thu Aug 19, 2021 8:43 am I've read this whole thread, but I'm a little slow on anything related to bonds, so please forgive me if this has been addressed and I just did not understand it.

Assuming the ability to max out tax deferred space, mid/early-accumulation investor (Late 30's), and assuming I currently hold my bond allocation (Vanguard Total Bond) in my Traditional 401k, what are the pros/cons to substituting iBonds for the bond portion of my existing portfolio, and using the space in my 401k for more equities?

Mods - if this should be a separate thread, please advise and I'll delete and repost.
Given this set of circumstances, I would think Series I Bonds and/or Series EE Bonds would be an attractive option. Specifically for Series I Bonds, the growth of those investments may be tax-exempt for qualified education expenses. I'm not sure of your family or income situation, but certainly worth considering if appropriate.
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Re: What's the catch with I Bonds?

Post by Whakamole »

euler wrote: Tue Aug 24, 2021 10:27 pm
HueyLD wrote: Tue Aug 24, 2021 9:02 pm
euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
The last time I needed a MSG, it was at my credit union, and I had a long chat with the person doing it. The organization doing the MSG is taking full liability for anything that happens. I had to bring a mountain of paperwork with me (even making a second appointment) just to get the forms filled out. I can imagine that not everyone wants to be potentially on the hook for a hundred thousand+ of I-bonds.
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ApeAttack
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Re: What's the catch with I Bonds?

Post by ApeAttack »

Super simple question, but I don't want to mess this up.

According to TD, someone can purchase up to $10k "per calendar year". I just want to confirm this means if I purchase (through TD) 10k at any time in 2021, I am allowed to purchase 10k on Jan 1, 2022. And if I did that, I would have to wait until Jan 1, 2023 to purchase more I-Bonds through TD.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
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JoMoney
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Re: What's the catch with I Bonds?

Post by JoMoney »

ApeAttack wrote: Wed Aug 25, 2021 10:02 pm Super simple question, but I don't want to mess this up.

According to TD, someone can purchase up to $10k "per calendar year". I just want to confirm this means if I purchase (through TD) 10k at any time in 2021, I am allowed to purchase 10k on Jan 1, 2022. And if I did that, I would have to wait until Jan 1, 2023 to purchase more I-Bonds through TD.
You have it right ... but for what it's worth, because of the way interest is accrued on them you're better off purchasing them on Jan 31'st (or closer to the end of the month) because they're treated as if you've owned them the entire month regardless of what day of the month you actually bought them. Whenever you get around to selling them, you're better off selling them early in the month (if you can manage your need of the money to time it that way).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: What's the catch with I Bonds?

Post by JoMoney »

euler wrote: Tue Aug 24, 2021 10:27 pm
HueyLD wrote: Tue Aug 24, 2021 9:02 pm
euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
I was looking to get a MSG from my local Fidelity office late last year after finding out my credit union no longer did MSG (and wouldn't do anything other than notary -which TD would not accept.) The reason Fidelity told me I couldn't get one was there offices were closed for everything except appointments for a very limited sort of things (because of COVID).
After searching around at a few other local banks and CU's I was surprised at how many did not offer MSG. I wound up opening a Chase account and getting a new account bonus to boot. I've heard some of the other big national banks will give you a hassle about how long you've had an account with them if getting a MSG, Chase didn't seem to have any issue about the length of time having an account with them, but the first person I talked to did have concerns about having statements or documents for the account (TD doesn't provide statements), a different person I talked to had no problems giving an MSG on the form after looking at my ID, said something to the effect of "Oh we get these all the time, they're no big deal"... so there seems to be some difference between who you talk to and their familiarity with the purpose of what the TD form(s) are requesting.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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ApeAttack
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Re: What's the catch with I Bonds?

Post by ApeAttack »

JoMoney wrote: Wed Aug 25, 2021 10:06 pm
ApeAttack wrote: Wed Aug 25, 2021 10:02 pm Super simple question, but I don't want to mess this up.

According to TD, someone can purchase up to $10k "per calendar year". I just want to confirm this means if I purchase (through TD) 10k at any time in 2021, I am allowed to purchase 10k on Jan 1, 2022. And if I did that, I would have to wait until Jan 1, 2023 to purchase more I-Bonds through TD.
You have it right ... but for what it's worth, because of the way interest is accrued on them you're better off purchasing them on Jan 31'st (or closer to the end of the month) because they're treated as if you've owned them the entire month regardless of what day of the month you actually bought them. Whenever you get around to selling them, you're better off selling them early in the month (if you can manage your need of the money to time it that way).
Yup, I've switched my I-Bond strategy to purchasing them at the end of a month. A little extra money from my MM account, a little extra money from TD, and the money isn't frozen for all 365 days.

Thanks for confirming my interpretation of the TD rules.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

Whakamole wrote: Tue Aug 24, 2021 10:56 pm
euler wrote: Tue Aug 24, 2021 10:27 pm
HueyLD wrote: Tue Aug 24, 2021 9:02 pm
euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
The last time I needed a MSG, it was at my credit union, and I had a long chat with the person doing it. The organization doing the MSG is taking full liability for anything that happens. I had to bring a mountain of paperwork with me (even making a second appointment) just to get the forms filled out. I can imagine that not everyone wants to be potentially on the hook for a hundred thousand+ of I-bonds.
You only need a "signature gurantee" for TD forms, not a "medallion signature gurantee". Getting a "signature gurantee" is much easier to get.
criticalmass
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Re: What's the catch with I Bonds?

Post by criticalmass »

dcabler wrote: Thu Jun 03, 2021 6:03 am
mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
It did not require a Medallion signature for either myself or my wife when we opened up TreasuryDirect accounts and began purchasing Ibonds.

Cheers.
Treasury Direct didn't require a Medallion signature to setup the account or the original external account(s) for me either, several decades ago. But it does require a Medallion signature or similar if you need to update bank account information. Technically you don't really need the "Medallion" guarantee, however my banks/credit unions treats all signature guarantees as "medallion" or with the same procedures.

When I needed to use Treasury Direct recently, I discovered the existing routing number/account number no longer worked due to bank mergers. Unlike other platforms, Treasury D never updated the information automatically. Ok, no problem, just go online and enter the new bank information right? Nope: Treasury D no longer allows that. I had to print out some forms, and find a local banker who was willing to do the Medallion signature procedure. That's a big deal for them, because they have to indemnify the account. So then I had to get proof of the account value. A statement would have sufficed, but Treasury D doesn't issue traditional statements. Eventually I got it done, put a stamp on it and went to post office. A week or two later, Treasury D finally allowed me to deposit and withdrawal the same account (with new routing #) that I used 20+ years ago. Yippee.
euler
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Re: What's the catch with I Bonds?

Post by euler »

anon_investor wrote: Wed Aug 25, 2021 10:58 pm
Whakamole wrote: Tue Aug 24, 2021 10:56 pm
euler wrote: Tue Aug 24, 2021 10:27 pm
HueyLD wrote: Tue Aug 24, 2021 9:02 pm
euler wrote: Tue Aug 24, 2021 8:10 pm My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
The last time I needed a MSG, it was at my credit union, and I had a long chat with the person doing it. The organization doing the MSG is taking full liability for anything that happens. I had to bring a mountain of paperwork with me (even making a second appointment) just to get the forms filled out. I can imagine that not everyone wants to be potentially on the hook for a hundred thousand+ of I-bonds.
You only need a "signature gurantee" for TD forms, not a "medallion signature gurantee". Getting a "signature gurantee" is much easier to get.
I read through Treasury's web page on signature guarantees and even pointed this out to the Fidelity rep, but it's not obvious to me that banks make much of a distinction. Or perhaps they are just confused. If giving "just a regular signature guarantee" (whatever that is) still means they assume all liability, then how would it differ from a MSG from their perspective?

If you can share a shortcut to getting a magic stamp/guarantee that makes TD happy, I'm sure several of us would love to hear it...
et14x
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Re: What's the catch with I Bonds?

Post by et14x »

euler wrote: Thu Aug 26, 2021 9:33 am
anon_investor wrote: Wed Aug 25, 2021 10:58 pm
Whakamole wrote: Tue Aug 24, 2021 10:56 pm
euler wrote: Tue Aug 24, 2021 10:27 pm
HueyLD wrote: Tue Aug 24, 2021 9:02 pm
Why did Fidelity refuse to do a MSG for you?
They didn't really give a reason, other than to say they don't do them anymore. I have significant assets there and have been a customer for >20 years, so I think they would have done it for me if for anyone.
The last time I needed a MSG, it was at my credit union, and I had a long chat with the person doing it. The organization doing the MSG is taking full liability for anything that happens. I had to bring a mountain of paperwork with me (even making a second appointment) just to get the forms filled out. I can imagine that not everyone wants to be potentially on the hook for a hundred thousand+ of I-bonds.
You only need a "signature gurantee" for TD forms, not a "medallion signature gurantee". Getting a "signature gurantee" is much easier to get.
I read through Treasury's web page on signature guarantees and even pointed this out to the Fidelity rep, but it's not obvious to me that banks make much of a distinction. Or perhaps they are just confused. If giving "just a regular signature guarantee" (whatever that is) still means they assume all liability, then how would it differ from a MSG from their perspective?

If you can share a shortcut to getting a magic stamp/guarantee that makes TD happy, I'm sure several of us would love to hear it...
Here's how I did it.

If you look at this form https://treasurydirect.gov/forms/sec5512.pdf, on page 5 inside the box is a list of acceptable seals and stamps.
The financial institution’s official seal or stamp, including:
• Signature Guaranteed seal or stamp; Endorsement Guaranteed seal or stamp; Corporate seal or stamp (a corporate resolution isn’t required); or Issuing or paying agent seal or stamp (including name, location, and four-digit identification number or nine-digit routing number).
• The seal or stamp of Treasury-recognized Signature Guarantee Programs or other Treasury-approved Medallion Programs.
Medallion Signature Guarantee is only one of the listed requirements, but there are others. When I added an extra bank account, I went to a local CU and they gave me a Paying Agent Seal, and only needed to see my ID. No MSG was required. I sent in the paperwork, and about a week later the account was added.
kakemono
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Re: What's the catch with I Bonds?

Post by kakemono »

IRouteIP wrote: Tue Aug 24, 2021 5:37 pm I just made my first I bond purchase and found the process to be pretty painless.

The TD website is not terrible, as some have claimed. I created my account and linked my bank account a couple of days ago. I did not need any signatures, medallion or otherwise. Tonight I just logged in, entered the amount, clicked submit, and done.

I have seen several posts from members passing on I bonds because they don't want to deal with the TreasuryDirect website. Maybe I got lucky or maybe my situation is not as complex as others, but, I had no issues with the site.
I had the same experience. Simple enough. It isn't modern, but it works fine.



I just read about I-Bonds and plan to transition my emergency fund 10k at a time.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

Another often-overlooked benefit of I Bonds is that they can be used, tax-free, for qualifying educational expenses.
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HomeStretch
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Re: What's the catch with I Bonds?

Post by HomeStretch »

euler wrote: Tue Aug 24, 2021 8:10 pm … I see no practical way to obtain the signature guarantee they are asking for. (My local Fidelity office can't provide one, and I don't have any other brick-and-mortar alternatives.) …
Our local Fidelity office provided a signature guarantee today for a family member’s new TD account.
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Re: What's the catch with I Bonds?

Post by Blue456 »

Mel Lindauer wrote: Wed Sep 15, 2021 1:03 am Another often-overlooked benefit of I Bonds is that they can be used, tax-free, for qualifying educational expenses.
If your income is less than $116,300 and partial if below $146,300. Not useful for us at all.

https://www.collegedata.com/resources/p ... or-college
dcabler
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Re: What's the catch with I Bonds?

Post by dcabler »

Blue456 wrote: Wed Sep 15, 2021 5:25 am
Mel Lindauer wrote: Wed Sep 15, 2021 1:03 am Another often-overlooked benefit of I Bonds is that they can be used, tax-free, for qualifying educational expenses.
If your income is less than $116,300 and partial if below $146,300. Not useful for us at all.

https://www.collegedata.com/resources/p ... or-college
Current cutoffs are here: https://www.irs.gov/pub/irs-pdf/f8815.pdf

cheers.
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Re: What's the catch with I Bonds?

Post by cresive »

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.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings.

I am quoting your post because IMO, your most recent question should trump the remaining issues. I have visited I-bonds multiple times over the years with limited interest. If I had 30+ years until retirement, I would do what I actually did out of ignorance and stay almost completely in equities. If I had 30 years to ride out any stormy market volatility, I would do just that. I lost my shirt in 2008, but kept dollar averaging my retirement contributions and those discounted stocks I bought in 2008-2010 wound up setting me up for a good retirement in 2013. Thus, I am not looking at my I-bond investment as a long-term, earnings, but as ballast against sequence of returns risk. I used equities as my major earnings vehicle.

I am closer to my retirement date now, so I-bonds are a good option as an adjunct to my retirement plan. I am using them as a hedge against inflation. There is a 5 year vesting period, so I am buying an I-bond ladder to help secure my first 5 years of retirement (I am about 7 years out now). I am using my I-bond purchases as "cash" to fund my lifestyle prior to collecting SSA benefits. This will help me ride out any poor markets early in retirement, while maintaining purchasing power of my savings.

I hope my response gives you the perspective you seeking.

Ben
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HomerJ
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Re: What's the catch with I Bonds?

Post by HomerJ »

Blue456 wrote: Wed Sep 15, 2021 5:25 am
Mel Lindauer wrote: Wed Sep 15, 2021 1:03 am Another often-overlooked benefit of I Bonds is that they can be used, tax-free, for qualifying educational expenses.
If your income is less than $116,300 and partial if below $146,300. Not useful for us at all.

https://www.collegedata.com/resources/p ... or-college
I've thought about retiring before my last kid's last year of college (to lower my income), and then paying for that last year with my oldest ibond money...
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: What's the catch with I Bonds?

Post by Angst »

cresive wrote: Wed Sep 15, 2021 7:23 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm [Snip]... 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.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings. [Snip]...
As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.

More importantly, consider the scenario of someone with a "measly" million dollar portfolio, but with only 10% of it in fixed income: In this case, would moving $10,000 from the Total Bond Fund into I Bonds instead be too small an amount to be bothered with? I think not. And even if the entire portfolio were double in size, $10,000 now and another $10,000 in Jan 2022 would similarly be worth considering.
flipmode1246
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Re: What's the catch with I Bonds?

Post by flipmode1246 »

The annual limit is $20,000 if married, plus there's the ability to invest another $5,000 from your tax refund in i-bonds. You could put in $20,000 now and $25,000 during Q1 2022, which totals $45,000. Not that small for most.

The i-bond rate is going to update in November 2021 to ~7% for 6 months, assuming inflation in September 2021 is 0.2% (consistent with prior month). CPI-U inflation for the 5 months ended 8/31/2021 is 3.28%, which when annualized as they do to calculate the i-bond rate is 6.56%.
Candor
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Re: What's the catch with I Bonds?

Post by Candor »

Angst wrote: Wed Sep 15, 2021 11:11 am
cresive wrote: Wed Sep 15, 2021 7:23 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm [Snip]... 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.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings. [Snip]...
As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.

More importantly, consider the scenario of someone with a "measly" million dollar portfolio, but with only 10% of it in fixed income: In this case, would moving $10,000 from the Total Bond Fund into I Bonds instead be too small an amount to be bothered with? I think not. And even if the entire portfolio were double in size, $10,000 now and another $10,000 in Jan 2022 would similarly be worth considering.
Yes, some here like to go out of their way to point out how $10k-$25k per year is not worth their time.
Time is your friend, impulse is your enemy. - John C. Bogle
kaseg
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Re: What's the catch with I Bonds?

Post by kaseg »

Thanks to this thread I was reminded I'd been intending to change my bank account on my TD account. My credit union was happy to give me the needed stamp and signature - only took about 5 minutes. Definitely less difficult than anticipated. Of course, YMMV.
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

Angst wrote: Wed Sep 15, 2021 11:11 am
cresive wrote: Wed Sep 15, 2021 7:23 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm [Snip]... 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.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings. [Snip]...
As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.

More importantly, consider the scenario of someone with a "measly" million dollar portfolio, but with only 10% of it in fixed income: In this case, would moving $10,000 from the Total Bond Fund into I Bonds instead be too small an amount to be bothered with? I think not. And even if the entire portfolio were double in size, $10,000 now and another $10,000 in Jan 2022 would similarly be worth considering.
Spot on!

I have to admit, I used to think I/EE Bonds were NOT worth the effort. As a % of my portfolio, the limits felt too small. And we are conditioned to being able to buy as much as we want of pretty much any other asset, that these limits make one think it's not worth their time...

But a few things finally occurred to me... First is I/EE Bonds have unique characteristics that can't be found in any other asset (as a whole), meaning they can add a level of diversification not otherwise available. Second is that over 10 - 30+ years, even at the low limits, one can amass a sizeable amount of I/EE Bonds if they want. Lastly, I realized that viewing limits at % of portfolio wasn't meaningful as a buy and hold investor who's been investing for 20+ years; instead I should be looking at it at % of "new" money to invest in a year, or even more specifically % of new money directed towards fixed income investments. And the so-called low (especially if extended to trusts/etc.) limits pretty much line up with what I would "want" to save in I/EE Bonds in a given year (we make a good living and our AA is 60/40, and still want other diversity so we also add to Muni and TBM, although the bulk of new fixed income is going to I/EE Bonds).

Since then, I've become a strong support of I Bonds for pretty much anyone, and EE Bonds in the 20 year commitment makes sense for their needs. :sharebeer
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