I Bonds Mega Thread (I Bond Heads Rejoice!)

[heilwasser]

I must be missing something but assuming a Jan purchase with a rate reset in Jul, If I sell on Sept 1, are the last three months of interest forfeited not Sept, Aug, and Jul? all of which have the lower rate?

With a sale in Sept, the latest three months of interest would be for the months of Jun, Jul, and Aug.

Thank you. I realized I misinterpreted the "sell on 1st of the month" advice as receiving the same month's interest, but realize now you need to complete the month to earn the interest.

[Drew31]

Has anyone seen predictions on the fixed rate for the Nov. 1 reset? Realize it's at the whim of the treasury but just curious as I haven't seen anything as of yet.

Original plan was to buy a tranche in October but now debating waiting until November as it would seem fixed rate would go higher.

[grabiner]

Has anyone seen predictions on the fixed rate for the Nov. 1 reset? Realize it's at the whim of the treasury but just curious as I haven't seen anything as of yet.

Original plan was to buy a tranche in October but now debating waiting until November as it would seem fixed rate would go higher.

With TIPS yielding 2% above inflation, the tax-deferral on an I-Bond yielding 0.9% isn't worth enough to make up for the yield difference. If the yield in November isn't around 1.5%, I would recommend just buying TIPS (or TIPS funds) for your inflation protection.

[Dave5280]

I recall someone claiming that if you hold an iBond for one day in a month, then that whole month is counted, and they said you should wait until after the first of a month to sell one. I haven’t tried to verify this.

[ehh]

I recall someone claiming that if you hold an iBond for one day in a month, then that whole month is counted, and they said you should wait until after the first of a month to sell one. I haven’t tried to verify this.

True. For best results, buy late in the month and redeem early in the month.

[Drew31]

Has anyone seen predictions on the fixed rate for the Nov. 1 reset? Realize it's at the whim of the treasury but just curious as I haven't seen anything as of yet.

Original plan was to buy a tranche in October but now debating waiting until November as it would seem fixed rate would go higher.

With TIPS yielding 2% above inflation, the tax-deferral on an I-Bond yielding 0.9% isn't worth enough to make up for the yield difference. If the yield in November isn't around 1.5%, I would recommend just buying TIPS (or TIPS funds) for your inflation protection.

I am transitioning much of my I Bonds to 2040’s TIPs, but planning to phase some of my short term reserves into I Bonds.

[WhitePuma]

Does anyone know of an analysis of the anticipated/probable new fixed rate as of Nov. 1st, such as correlation to real yield on TIPS? I recall this type of analysis was done last spring, and (correctly) predicted a fixed rate between 0.8 and 1.0% based on then-TIPS yields. As TIPS yields have risen slightly since the spring, are market pundits expecting the Series I Bond fixed rate to also rise slightly above 0.9% come Nov. 1?

[chem6022]

Has anyone seen predictions on the fixed rate for the Nov. 1 reset? Realize it's at the whim of the treasury but just curious as I haven't seen anything as of yet.

Does anyone know of an analysis of the anticipated/probable new fixed rate as of Nov. 1st, such as correlation to real yield on TIPS? I recall this type of analysis was done last spring, and (correctly) predicted a fixed rate between 0.8 and 1.0% based on then-TIPS yields. As TIPS yields have risen slightly since the spring, are market pundits expecting the Series I Bond fixed rate to also rise slightly above 0.9% come Nov. 1?

I am no market pundit but I did prospectively predict the 0.9% fixed rate a week early in this thread. If I apply the same methodology right now the predicted fixed rate a week from now would be 1.1%. Though there is still almost 2 months left before all the data would be available for me to make another prospective prediction.

[APX32]

I would appreciate some clarification on TIPS yields and how the entire process works. It’s very clear to me with I-bonds and EE bonds, but having read the overview on TreasuryDirect, I’m admittedly confused. First off, I couldn’t even find the rates, what kind of a rate am I looking at if decide to buy $10k worth of 5 year TIPS instead of I-bonds next year?

Then I see this bit:

“When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

So there’s a possibility that at the end of 5 years, I can just get back the original $10k? That makes no sense; in that scenario I’ve clearly lost money.

[Tom_T]

I would appreciate some clarification on TIPS yields and how the entire process works. It’s very clear to me with I-bonds and EE bonds, but having read the overview on TreasuryDirect, I’m admittedly confused. First off, I couldn’t even find the rates, what kind of a rate am I looking at if decide to buy $10k worth of 5 year TIPS instead of I-bonds next year?

Then I see this bit:

“When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

So there’s a possibility that at the end of 5 years, I can just get back the original $10k? That makes no sense; in that scenario I’ve clearly lost money.

You haven't lost money. You're forgetting the coupon rate - you'll earn interest twice a year, which is separately credited to your acccount. It's not like a CD or I Bond where the value includes the interest.

[dbr]

I would appreciate some clarification on TIPS yields and how the entire process works. It’s very clear to me with I-bonds and EE bonds, but having read the overview on TreasuryDirect, I’m admittedly confused. First off, I couldn’t even find the rates, what kind of a rate am I looking at if decide to buy $10k worth of 5 year TIPS instead of I-bonds next year?

Then I see this bit:

“When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

So there’s a possibility that at the end of 5 years, I can just get back the original $10k? That makes no sense; in that scenario I’ve clearly lost money.

You haven't lost money. You're forgetting the coupon rate - you'll earn interest twice a year, which is separately credited to your acccount. It's not like a CD or I Bond where the value includes the interest.

Some recent I bonds have been issued at 0% real rate. Since that low point I think around 1% is more typical now. There was a time some years ago that rates in excess of 2% were issued. The coupon rate matters, especially considering it is a real rate and there is a deflation floor.

[dbr]

I would appreciate some clarification on TIPS yields and how the entire process works. It’s very clear to me with I-bonds and EE bonds, but having read the overview on TreasuryDirect, I’m admittedly confused. First off, I couldn’t even find the rates, what kind of a rate am I looking at if decide to buy $10k worth of 5 year TIPS instead of I-bonds next year?

Then I see this bit:

“When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

So there’s a possibility that at the end of 5 years, I can just get back the original $10k? That makes no sense; in that scenario I’ve clearly lost money.

No, in the presence of deflation if you hit the floor then you have gained in real dollars. If you don't hit the floor then you are even in real dollars.

As discussed there is also the coupon, which is never negative but may be zero. In that case the sentence above applies, otherwise you make money on the coupon in addition.

[FactualFran]

Then I see this bit:

“When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

So there’s a possibility that at the end of 5 years, I can just get back the original $10k? That makes no sense; in that scenario I’ve clearly lost money.

In that scenario you will gain money relative to inflation. Suppose someone bought $10k par of TIPS for $10k. If between purchase and maturity the inflation index has changed -5%, a maturity amount of $10k will be paid instead of the inflation-adjusted principal of $9.5k.

There have not been any actual TIPS whose inflation-adjusted principal at maturity has been less than par.

[capen2468]

[Thread merged into here --admin LadyGeek]

I noticed I bonds only paying 3.38

Wondering if this is a good time to redeem . I know I’ll lose 3 months interest . Is that 3 months at 3.38 or was it higher ?

[exodusNH]

I noticed I bonds only paying 3.38

Wondering if this is a good time to redeem . I know I’ll lose 3 months interest . Is that 3 months at 3.38 or was it higher ?

Depends on when you bought it. https://eyebonds.info/ will help.

[LadyGeek]

I merged capen2468's thread into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)

[insanedude101]

I-bond penalizes you for three months of interest if you withdraw within the first five years. Let's say I invested first $10,000 in January 2022 and another $10,000 in January 2023. So my question is do I get penalized for withdrawing any money within January 2027 or January 2028?

[Silk McCue]

I-bond penalizes you for three months of interest if you withdraw within the first five years. Let's say I invested first $10,000 in January 2022 and another $10,000 in January 2023. So my question is do I get penalized for withdrawing any money within January 2027 or January 2028?

By definition the answer is yes according the funding date of the I Bond you are withdrawing from.

Cheers

[Shih Tsu man]

I am trying to build up a long term I-bond position as part of my fixed income allocation in a 90/10 stocks/bonds portfolio. It seems that the best strategy is to only max out your annual limit during a period when there is a fixed rate. Sometimes they don't have a fixed rate (like the 9.6% year), but other times like now they have a 0.9% fixed rate. I am maxed out for 2023, but for 2024, I am eager to see whether the October 2023 bonds have a fixed rate. If they do, I will max out on Jan 1 2024. If they do not offer a fixed rate, then I will wait until April 2024 or October 2024 to max out my 2024 bonds. I plan to hold the bonds to maturity unless they are needed in some emergency. If you bought I-bonds in 2000, you would have gotten a 13% return in 2022 due to the high fixed rate.

[FactualFran]

I am trying to build up a long term I-bond position as part of my fixed income allocation in a 90/10 stocks/bonds portfolio. It seems that the best strategy is to only max out your annual limit during a period when there is a fixed rate. Sometimes they don't have a fixed rate (like the 9.6% year), but other times like now they have a 0.9% fixed rate. I am maxed out for 2023, but for 2024, I am eager to see whether the October 2023 bonds have a fixed rate. If they do, I will max out on Jan 1 2024. If they do not offer a fixed rate, then I will wait until April 2024 or October 2024 to max out my 2024 bonds. I plan to hold the bonds to maturity unless they are needed in some emergency. If you bought I-bonds in 2000, you would have gotten a 13% return in 2022 due to the high fixed rate.

The term "fixed rate" has a certain meaning with I bonds. All I bonds have a fixed rate. The rate is announced at the start of May and November and is used for I bonds issued during the following 6 months. The fixed rate stays the same for the life of an I bond.

The current rate of a I bond is a combination of a fixed rate and an inflation rate. The inflation rate is announced early in May and November.

For more details, read the I bonds interest rate of the TreasuryDirect web site.

[insanedude101]

I-bond penalizes you for three months of interest if you withdraw within the first five years. Let's say I invested first $10,000 in January 2022 and another $10,000 in January 2023. So my question is do I get penalized for withdrawing any money within January 2027 or January 2028?

By definition the answer is yes according the funding date of the I Bond you are withdrawing from.

Cheers

Thanks for the clarification!

[Shih Tsu man]

The term "fixed rate" has a certain meaning with I bonds. All I bonds have a fixed rate. The rate is announced at the start of May and November and is used for I bonds issued during the following 6 months. The fixed rate stays the same for the life of an I bond.

The current rate of a I bond is a combination of a fixed rate and an inflation rate. The inflation rate is announced early in May and November.

For more details, read the I bonds interest rate of the TreasuryDirect web site.

Sorry I wasn't clear in my original post. I'm saying that IF one is going to max out their I-bond limit for the year, it makes sense to ONLY max out the limit during a period where the fixed rate is >0. Since there are 3 different I-bonds interest rate periods during any calendar year (Jan-Apr, Apr-Oct, Oct-Dec), that means you have 3 chances to get a bond with a fixed rate > 0%.

See the rate chart linked: https://treasurydirect.gov/files/saving ... -chart.pdf. There are many periods with fixed rate = 0% and other periods where the fixed rate is > 0%. Since I plan to hold these bonds long term as part of my bond allocation, the plan is to ONLY max out my annual purchase limit during periods when the fixed rate is >0%. Obviously, there is a chance that 3 periods could come and go with fixed rate = 0%, but i think this strategy maximizes the chance of getting a long term fixed rate on the I-bonds.

[bogle2013]

[Thread merged into here --admin LadyGeek]

I'm having trouble finding an answer to this, so I'm hoping fellow Bogleheads can help me.

I'm going to cash in a Nov 2021 set of Ibonds (fixed rate 0%) on August 1st. Then, before the end of August, I will buy the same amount in the new Ibonds (fixed rate .9%). Since I am sort of "rolling over" the bonds, do they count against my yearly 10K limit? I'm betting they do, but it would be great if they didn't!

Harry Sit wrote a great article about this:

Cash Out Old I Bonds to Buy New Ones for a Better Rate

April 30, 2023 by Harry Sit

https://thefinancebuff.com/switch-old-i ... -rate.html

Quick question on this - I had bought i-Bonds in my kids name in 2021 to max out the great rate for us. Didn't think of it at the time as a gift to them but understand that it was now. Is it ok to now redeem the bond like mentioned in this article and then deposit the proceeds into their 529? I am guessing that is ok. I am trying to simplify everything and prefer it in their 529 than Treasury Direct.

[WhitePuma]

Has anyone seen predictions on the fixed rate for the Nov. 1 reset? Realize it's at the whim of the treasury but just curious as I haven't seen anything as of yet.

Does anyone know of an analysis of the anticipated/probable new fixed rate as of Nov. 1st, such as correlation to real yield on TIPS? I recall this type of analysis was done last spring, and (correctly) predicted a fixed rate between 0.8 and 1.0% based on then-TIPS yields. As TIPS yields have risen slightly since the spring, are market pundits expecting the Series I Bond fixed rate to also rise slightly above 0.9% come Nov. 1?

I am no market pundit but I did prospectively predict the 0.9% fixed rate a week early in this thread. If I apply the same methodology right now the predicted fixed rate a week from now would be 1.1%. Though there is still almost 2 months left before all the data would be available for me to make another prospective prediction.

Could you elaborate on the methodology that you’re using?

[TravellingTechOnFire]

I see a common scenario where folks who bought Ibonds in the last couple of years to chase rates are now interested in cashing out once they will "only" lose the 3.38% interest for the latest 3 months, in order to chase the latest rates in MMF's. I've seen some who are doing this with their EF seemingly with the thought of being able to jump back into Ibonds at any time.

A couple of issues I see with this are:
1) Although you can jump back into Ibonds at any time, annual contribution limits may be too small for a sizeable EF.
2)Locking up EF funds for 1 year is an issue.
3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Losing 3 months interest at 3.38 in order to cash out Ibonds less than 5 years old with, for example, $10,000:

After tax return on MMF for 2 years is ~$720, less the $169 early withdrawal penalty, for a net of $551. This is ~2.75% return after 2 years assuming MMF rates stay at 5%. I don't see the advantage of losing long term inflation protection and tax deferral considering MMF's, AFAIK, don't beat inflation long term, and are unlikely to remain high for years. This assumes we get inflation under control and FFR rate drops in the near(1-2 year) future.

I currently hold 75% of my EF in Ibonds, and the above logic is why, for now, I'm holding and not chasing MMF rates.

Any other thoughts on this?

[JayDee37]

I see a common scenario where folks who bought Ibonds in the last couple of years to chase rates are now interested in cashing out once they will "only" lose the 3.38% interest for the latest 3 months, in order to chase the latest rates in MMF's. I've seen some who are doing this with their EF seemingly with the thought of being able to jump back into Ibonds at any time.

A couple of issues I see with this are:
1) Although you can jump back into Ibonds at any time, annual contribution limits may be too small for a sizeable EF.
2)Locking up EF funds for 1 year is an issue.
3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Losing 3 months interest at 3.38 in order to cash out Ibonds less than 5 years old with, for example, $10,000:

After tax return on MMF for 2 years is ~$720, less the $169 early withdrawal penalty, for a net of $551. This is ~2.75% return after 2 years assuming MMF rates stay at 5%. I don't see the advantage of losing long term inflation protection and tax deferral considering MMF's, AFAIK, don't beat inflation long term, and are unlikely to remain high for years. This assumes we get inflation under control and FFR rate drops in the near(1-2 year) future.

I currently hold 75% of my EF in Ibonds, and the above logic is why, for now, I'm holding and not chasing MMF rates.

Any other thoughts on this?

First, a question--on the bolded part above, did you mean I bonds? As far as I know there is no early withdrawal penalty for redeeming MMF shares.

Regarding the general sentiment, I think similarly. I also have about 75% of my EF in I bonds, and some of those are at the 0% fixed rate. I don't have enough liquid assets to just willy-nilly lock up $10K or $20K of my emergency fund for a year by selling the 0% fixed rate bonds and rolling them into a new purchase. And I bond purchases are like Roth space, if you don't use your annual allocation (or you sell/withdraw a prior purchase) you lose it. For folks who are chasing rates this is not a concern, but it matters for those like myself who are trying to build up a larger I Bond portfolio to serve as an emergency fund (during working years) and part of an inflation/deflation/tax-deferred bridge fund to support spending during the first few years of retirement until taking SS.

I do believe that the MMF rates will stay nicely elevated for the next year and a half or so, FWIW, but I am holding on to my I Bonds for now.

[WhitePuma]

3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Why the apples-to-orange comparison? Series I bond interest is taxable at the federal level upon redemption, so 3.38% does not equal 3.38%.

[grabiner]

I see a common scenario where folks who bought Ibonds in the last couple of years to chase rates are now interested in cashing out once they will "only" lose the 3.38% interest for the latest 3 months, in order to chase the latest rates in MMF's. I've seen some who are doing this with their EF seemingly with the thought of being able to jump back into Ibonds at any time.

My own recommendation in this situation is to switch from I-Bonds to TIPS. When the rate resets, you can hold an I-Bond yielding 0% or 0.4% tax-deferred, or a TIPS yielding 2% which should be significantly more even after tax, so losing the I-bonds is not a significant loss. (If the November I-Bond rate is over 1%, you may want to buy I-Bonds rather than TIPS in November.)

While long-term TIPS aren't ideal for an emergency fund, they may be better than high-yielding I-Bonds. If you redeem an I-Bond early in an emergency, you lose some of the benefit of the tax deferral. And if your I-Bonds are yielding more than the current rate, you permanently lose the higher rate when you redeem them.

[Drew31]

I see a common scenario where folks who bought Ibonds in the last couple of years to chase rates are now interested in cashing out once they will "only" lose the 3.38% interest for the latest 3 months, in order to chase the latest rates in MMF's. I've seen some who are doing this with their EF seemingly with the thought of being able to jump back into Ibonds at any time.

My own recommendation in this situation is to switch from I-Bonds to TIPS. When the rate resets, you can hold an I-Bond yielding 0% or 0.4% tax-deferred, or a TIPS yielding 2% which should be significantly more even after tax, so losing the I-bonds is not a significant loss. (If the November I-Bond rate is over 1%, you may want to buy I-Bonds rather than TIPS in November.)

While long-term TIPS aren't ideal for an emergency fund, they may be better than high-yielding I-Bonds. If you redeem an I-Bond early in an emergency, you lose some of the benefit of the tax deferral. And if your I-Bonds are yielding more than the current rate, you permanently lose the higher rate when you redeem them.

This is what I'm doing. Switching I Bonds out for TIPS in the 2040s yielding 2% real which will serve as a floor to get us to SS @ 70. I have other sources I'm using as short term reserves/EF so not concerned about the duration lengthening.

[chem6022]

Could you elaborate on the methodology that you’re using?

Sorry for the delay reply. Here is an outline of the methodology from the earlier post with the prospective prediction.

More recently though, fixed rates may have become more systematic in the last ~7 years. Since November 2015 I can match the fixed rates using a reasonable set of parameters. First I do a simple average over 6 months (126 trading days) of the 5-year real yield data, but lagged by a week (5 trading days) to account for the Treasury making its decision on the new fixed rate with slightly stale data. Then I multiply that average 6-month real yield by 65% and round to the nearest 0.1%. Using those formulas I can exactly predict the last 9 positive average real rates (where 1 rounded down to a 0.0% fixed rate) dating back to Nov 2015 (in green in the spreadsheet). The caveats are that this is a smallish time period and the treasurer can change things arbitrarily as shown by things like the May 2009 fixed rate.

Using that formula to predict the new fixed rate results in a 1.459% average yield that discounts by 65% to 0.948%, which just barely rounds down to a predicted 0.9% fixed rate. So that is my prediction and it will be interesting to see what actually happens. In any case, the data may be useful to anyone else who wants to try reading the tea leaves, so check out the spreadsheet if you are intrigued.

Does that help?

[rab]

Could you elaborate on the methodology that you’re using?

Sorry for the delay reply. Here is an outline of the methodology from the earlier post with the prospective prediction.

More recently though, fixed rates may have become more systematic in the last ~7 years. Since November 2015 I can match the fixed rates using a reasonable set of parameters. First I do a simple average over 6 months (126 trading days) of the 5-year real yield data, but lagged by a week (5 trading days) to account for the Treasury making its decision on the new fixed rate with slightly stale data. Then I multiply that average 6-month real yield by 65% and round to the nearest 0.1%. Using those formulas I can exactly predict the last 9 positive average real rates (where 1 rounded down to a 0.0% fixed rate) dating back to Nov 2015 (in green in the spreadsheet). The caveats are that this is a smallish time period and the treasurer can change things arbitrarily as shown by things like the May 2009 fixed rate.

Using that formula to predict the new fixed rate results in a 1.459% average yield that discounts by 65% to 0.948%, which just barely rounds down to a predicted 0.9% fixed rate. So that is my prediction and it will be interesting to see what actually happens. In any case, the data may be useful to anyone else who wants to try reading the tea leaves, so check out the spreadsheet if you are intrigued.

Does that help?

Hi @chem6022, I saw that upthread you made a tentatve prediction of ~1.1% for the next fixed rate. Do you plan on making a prediction in late October so we can get another data point for your methodology? If it works, it will be very helpful to anyone considering new I-bond purchases!

[alluringreality]

Hi @chem6022, I saw that upthread you made a tentatve prediction of ~1.1% for the next fixed rate. Do you plan on making a prediction in late October so we can get another data point for your methodology? If it works, it will be very helpful to anyone considering new I-bond purchases!

I think the process is documented well enough for it to be carried out with a bit of spreadsheet understanding. When 5 weekdays remain in October or April, download csv files for the latest one (October) or two (April) years from the following. Use the AVERAGE function on the most recent 126 lines of the 5 year column. Multiply that result by 0.65 for the 65% adjustment. Then use the ROUND function for one decimal. Basically for October the formula for the 2023 csv is the following:
=ROUND(AVERAGE(B2:B127)*0.65,1)
https://home.treasury.gov/resource-cent ... value=2023

[evelynmanley]

An estimate from David Enna, Tipswatch:

U.S. inflation rose 0.6% in August; what does it mean for TIPS, I Bonds and Social Security?
Posted on September 13, 2023 by Tipswatch

https://tipswatch.com/2023/09/13/u-s-in ... -security/

[TravellingTechOnFire]

I see a common scenario where folks who bought Ibonds in the last couple of years to chase rates are now interested in cashing out once they will "only" lose the 3.38% interest for the latest 3 months, in order to chase the latest rates in MMF's. I've seen some who are doing this with their EF seemingly with the thought of being able to jump back into Ibonds at any time.

A couple of issues I see with this are:
1) Although you can jump back into Ibonds at any time, annual contribution limits may be too small for a sizeable EF.
2)Locking up EF funds for 1 year is an issue.
3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Losing 3 months interest at 3.38 in order to cash out Ibonds less than 5 years old with, for example, $10,000:

After tax return on MMF for 2 years is ~$720, less the $169 early withdrawal penalty, for a net of $551. This is ~2.75% return after 2 years assuming MMF rates stay at 5%. I don't see the advantage of losing long term inflation protection and tax deferral considering MMF's, AFAIK, don't beat inflation long term, and are unlikely to remain high for years. This assumes we get inflation under control and FFR rate drops in the near(1-2 year) future.

I currently hold 75% of my EF in Ibonds, and the above logic is why, for now, I'm holding and not chasing MMF rates.

Any other thoughts on this?

First, a question--on the bolded part above, did you mean I bonds? As far as I know there is no early withdrawal penalty for redeeming MMF shares.

Regarding the general sentiment, I think similarly. I also have about 75% of my EF in I bonds, and some of those are at the 0% fixed rate. I don't have enough liquid assets to just willy-nilly lock up $10K or $20K of my emergency fund for a year by selling the 0% fixed rate bonds and rolling them into a new purchase. And I bond purchases are like Roth space, if you don't use your annual allocation (or you sell/withdraw a prior purchase) you lose it. For folks who are chasing rates this is not a concern, but it matters for those like myself who are trying to build up a larger I Bond portfolio to serve as an emergency fund (during working years) and part of an inflation/deflation/tax-deferred bridge fund to support spending during the first few years of retirement until taking SS.

I do believe that the MMF rates will stay nicely elevated for the next year and a half or so, FWIW, but I am holding on to my I Bonds for now.

The penalty I am referring to is for the situation where someone cashes out their Ibonds in order to get into a higher yield MMF. The penalty applies to the yield of the MMF since the penalty is only realized if cashing out the Ibond to switch to the "higher" MMF yield.

[TravellingTechOnFire]

3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Why the apples-to-orange comparison? Series I bond interest is taxable at the federal level upon redemption, so 3.38% does not equal 3.38%.

Everyone's situation is different of course, but 0-12% tax rate seems quite common in retirement even with a significant retirement income. Assuming the I-bonds end up being held long term into retirement, one may end up paying a much lower tax rate upon redemption vs 22% or higher.

Maybe there is a smarter play than holding Ibonds but it doesn't seem like a slam dunk to me even with MMF @ 5% temporarily.

[Mel Lindauer]

[Thread merged into here --admin LadyGeek]

I'm having trouble finding an answer to this, so I'm hoping fellow Bogleheads can help me.

I'm going to cash in a Nov 2021 set of Ibonds (fixed rate 0%) on August 1st. Then, before the end of August, I will buy the same amount in the new Ibonds (fixed rate .9%). Since I am sort of "rolling over" the bonds, do they count against my yearly 10K limit? I'm betting they do, but it would be great if they didn't!

Harry Sit wrote a great article about this:

Cash Out Old I Bonds to Buy New Ones for a Better Rate

April 30, 2023 by Harry Sit

https://thefinancebuff.com/switch-old-i ... -rate.html

Quick question on this - I had bought i-Bonds in my kids name in 2021 to max out the great rate for us. Didn't think of it at the time as a gift to them but understand that it was now. Is it ok to now redeem the bond like mentioned in this article and then deposit the proceeds into their 529? I am guessing that is ok. I am trying to simplify everything and prefer it in their 529 than Treasury Direct.

I Bonds held in children's names do not qualify for the tax-free treatment when used for qualifying educational expenses (that includes a 529 Plan).

[WhitePuma]

3) Interest being earned on MMF's is subject to federal and state taxes. A 22% federal and 6% state(just as example) reduces a 5% MMF to 3.6%, which is barely above the Ibond rate of 3.38.

Why the apples-to-orange comparison? Series I bond interest is taxable at the federal level upon redemption, so 3.38% does not equal 3.38%.

Everyone's situation is different of course, but 0-12% tax rate seems quite common in retirement even with a significant retirement income. Assuming the I-bonds end up being held long term into retirement, one may end up paying a much lower tax rate upon redemption vs 22% or higher.

Maybe there is a smarter play than holding Ibonds but it doesn't seem like a slam dunk to me even with MMF @ 5% temporarily.

MMF yield will eventually go down once inflation is tamed. But so will the I Bond variable rate.

[protagonist]

The big question for me is whether it is worth sacrificing 1% or more of interest in taxable for the increased flexibility and tax deferral of I-bonds over TIPS. I have already converted most of my I-bonds into TIPS, but I have about $130,000 left in I-bonds, all currently getting very low yields. I will sell them over the next few months.
I could convert them to I-bonds at the new November fixed rate, or use the proceeds to buy more TIPS.

An additional benefit of converting to TIPS- I like the idea of simplifying and freeing myself from Treasury Direct, especially for my heirs (as well as myself if I suffer cognitive decline when I get older). My TIPS and the rest of my investments will all be in Fidelity. But I'm not sure it is worth the yield sacrifice. At 0.5% less yield vs. TIPS I would jump on I-bonds, since I have more than enough TIPS to finance my retirement through 2033 and purchase later maturities when they become available. At 1% less I'm not sure.

Thoughts on this?

[chem6022]

Hi @chem6022, I saw that upthread you made a tentatve prediction of ~1.1% for the next fixed rate. Do you plan on making a prediction in late October so we can get another data point for your methodology? If it works, it will be very helpful to anyone considering new I-bond purchases!

Real life permitting I do hope to post a prospective prediction when all the real yield data except the last 5 trading days is available. Meanwhile I also updated the spreadsheet I shared with the yield data through 9/5 when I posted the 1.1% prediction you mentioned. Updating a copy of that sheet with the real yield data through 10/24 should be another way to see what I think the next fixed rate will be.

[chem6022]

Hi @chem6022, I saw that upthread you made a tentatve prediction of ~1.1% for the next fixed rate. Do you plan on making a prediction in late October so we can get another data point for your methodology? If it works, it will be very helpful to anyone considering new I-bond purchases!

I think the process is documented well enough for it to be carried out with a bit of spreadsheet understanding. When 5 weekdays remain in October or April, download csv files for the latest one (October) or two (April) years from the following. Use the AVERAGE function on the most recent 126 lines of the 5 year column. Multiply that result by 0.65 for the 65% adjustment. Then use the ROUND function for one decimal. Basically for October the formula for the 2023 csv is the following:
=ROUND(AVERAGE(B2:B127)*0.65,1)
https://home.treasury.gov/resource-cent ... value=2023

I haven't tested it but that does seem to be the gist of it. The caveat is that the treasury can do whatever it wants with the fixed rate, but at least for the last 8 years now it has followed this pattern.

[Agitated_Analyst]

[Thread merged into here --admin LadyGeek]

I'm having trouble finding an answer to this, so I'm hoping fellow Bogleheads can help me.

I'm going to cash in a Nov 2021 set of Ibonds (fixed rate 0%) on August 1st. Then, before the end of August, I will buy the same amount in the new Ibonds (fixed rate .9%). Since I am sort of "rolling over" the bonds, do they count against my yearly 10K limit? I'm betting they do, but it would be great if they didn't!

Harry Sit wrote a great article about this:

Cash Out Old I Bonds to Buy New Ones for a Better Rate

April 30, 2023 by Harry Sit

https://thefinancebuff.com/switch-old-i ... -rate.html

Quick question on this - I had bought i-Bonds in my kids name in 2021 to max out the great rate for us. Didn't think of it at the time as a gift to them but understand that it was now. Is it ok to now redeem the bond like mentioned in this article and then deposit the proceeds into their 529? I am guessing that is ok. I am trying to simplify everything and prefer it in their 529 than Treasury Direct.

I purchased I-Bonds in my child's name and have researched this issue. It is my understanding that you can cash out the I-Bonds and move the proceeds to a CUSTODIAL 529 where the child remains the owner of the money. In my situation, this would lead to us having two 529 plans to track. One where I'm the owner with my child as the beneficiary and another where my child is the owner and the beneficiary. Your only legal option to move the money into the 529 plan that you own would be to reimburse yourself from your child's I-Bonds for things that benefit the child, but are not essentials like food or shelter (think dance classes, first car, etc). You could then place those funds into the 529 you own.

[fujiters]

[Thread merged into here --admin LadyGeek]

I'm having trouble finding an answer to this, so I'm hoping fellow Bogleheads can help me.

I'm going to cash in a Nov 2021 set of Ibonds (fixed rate 0%) on August 1st. Then, before the end of August, I will buy the same amount in the new Ibonds (fixed rate .9%). Since I am sort of "rolling over" the bonds, do they count against my yearly 10K limit? I'm betting they do, but it would be great if they didn't!

Harry Sit wrote a great article about this:

Cash Out Old I Bonds to Buy New Ones for a Better Rate

April 30, 2023 by Harry Sit

https://thefinancebuff.com/switch-old-i ... -rate.html

Quick question on this - I had bought i-Bonds in my kids name in 2021 to max out the great rate for us. Didn't think of it at the time as a gift to them but understand that it was now. Is it ok to now redeem the bond like mentioned in this article and then deposit the proceeds into their 529? I am guessing that is ok. I am trying to simplify everything and prefer it in their 529 than Treasury Direct.

I purchased I-Bonds in my child's name and have researched this issue. It is my understanding that you can cash out the I-Bonds and move the proceeds to a CUSTODIAL 529 where the child remains the owner of the money. In my situation, this would lead to us having two 529 plans to track. One where I'm the owner with my child as the beneficiary and another where my child is the owner and the beneficiary. Your only legal option to move the money into the 529 plan that you own would be to reimburse yourself from your child's I-Bonds for things that benefit the child, but are not essentials like food or shelter (think dance classes, first car, etc). You could then place those funds into the 529 you own.

Note that you'll still have to pay taxes on the gains. In order to take advantage of the tax exemption for qualified educational expenses, "The owner of the bond must be 24 years or older when the bond is issued."

What's the appeal of moving it into a 529 versus any other type of account owned by the child?

[Agitated_Analyst]

[Thread merged into here --admin LadyGeek]

I'm having trouble finding an answer to this, so I'm hoping fellow Bogleheads can help me.

I'm going to cash in a Nov 2021 set of Ibonds (fixed rate 0%) on August 1st. Then, before the end of August, I will buy the same amount in the new Ibonds (fixed rate .9%). Since I am sort of "rolling over" the bonds, do they count against my yearly 10K limit? I'm betting they do, but it would be great if they didn't!

Harry Sit wrote a great article about this:

Cash Out Old I Bonds to Buy New Ones for a Better Rate

April 30, 2023 by Harry Sit

https://thefinancebuff.com/switch-old-i ... -rate.html

Quick question on this - I had bought i-Bonds in my kids name in 2021 to max out the great rate for us. Didn't think of it at the time as a gift to them but understand that it was now. Is it ok to now redeem the bond like mentioned in this article and then deposit the proceeds into their 529? I am guessing that is ok. I am trying to simplify everything and prefer it in their 529 than Treasury Direct.

I purchased I-Bonds in my child's name and have researched this issue. It is my understanding that you can cash out the I-Bonds and move the proceeds to a CUSTODIAL 529 where the child remains the owner of the money. In my situation, this would lead to us having two 529 plans to track. One where I'm the owner with my child as the beneficiary and another where my child is the owner and the beneficiary. Your only legal option to move the money into the 529 plan that you own would be to reimburse yourself from your child's I-Bonds for things that benefit the child, but are not essentials like food or shelter (think dance classes, first car, etc). You could then place those funds into the 529 you own.

Note that you'll still have to pay taxes on the gains. In order to take advantage of the tax exemption for qualified educational expenses, "The owner of the bond must be 24 years or older when the bond is issued."

What's the appeal of moving it into a 529 versus any other type of account owned by the child?

The reasons, in my mind, are limited. We actually just rolled a 0% fixed rate I-bond my child owns into a 0.90% I-bond. I don't plan on rolling the money into a custodial 529. I don't want to lose the flexibility of the money. I suppose if the child is getting close to the age of control, you may think about rolling the funds into a custodial 529 to add extra incentive for them to use the proceeds for education. However, they could still just pull the money out and take the penalty.

As for the taxes, unless your child has a lot of taxable assets, you can report the annual interest for the I-Bonds every year rather than deferring the tax. Unearned income up to $1,250 is tax free and the next $1,250 is taxed at the kiddie tax rate. It's not until $2,500 that unearned income gets taxed at the parent's rate. Therefore, if your child owns a couple I-Bonds and nothing else, the tax impact of the interest is negligible. This is another argument for not rolling the proceeds into a custodial 529.

[OpenMinded1]

Cashed in some digital I-bonds for the first time today. Very easy, and it only took two days to get deposited in my bank account. These days I'm surprised when anything goes the way it is supposed to.

[iamfinethanku]

I was wondering if anyone can help figuring out timing of selling/repurchasng?:

We bought a total $20,000 Ibond (spouse/myself) on April 1, 2022 and plan to hold for a long run (semi-EF, and also as bond portion)

Given current 0.9% fixed rate, I'd like to sell now and re-purchase within this year, and buy another $20,000 early next year after tax return.

However, per Finance Buff blogpost and TIPS watch post, appears optimal timing for selling for me would be Jan1, 2024 - which would prohibit my buying I bonds next year.

Should I just sell total $20000 in Oct 2023 and rebuy, or Nov 1 2023, or Dec this year?

Thank you!

[joe-kr]

I was wondering if anyone can help figuring out timing of selling/repurchasng?:

We bought a total $20,000 Ibond (spouse/myself) on April 1, 2022 and plan to hold for a long run (semi-EF, and also as bond portion)

Given current 0.9% fixed rate, I'd like to sell now and re-purchase within this year, and buy another $20,000 early next year after tax return.

However, per Finance Buff blogpost and TIPS watch post, appears optimal timing for selling for me would be Jan1, 2024 - which would prohibit my buying I bonds next year.

Should I just sell total $20000 in Oct 2023 and rebuy, or Nov 1 2023, or Dec this year?

Thank you!

Your ibonds are still earning 6.48% which is why it's not a good time to sell them. Plus you will lose the last 3 months of interest when you sell. This is why the blog you mention recommends selling on Jan 1, 2024, since then you'll only lose 3 months at the 3.38% rate.

I think you should sell on Dec 1 2023, then you'll lose 2 months at 3.38% and only 1 month at 6.48%. Then repurchase in Dec 2023, but note - the new fixed rate will be announced on Nov 1, and could be the same .9% or higher or lower.

Once you repurchase (lets assume its the same fixed .9%, you will make up the lost interest in less than 2 years, then you'll be ahead for the remainder of the time you hold this new ibond.

[joe-kr]

Another thing I did not factor in my answer is that you'll have to pay tax on your gains once you sell the 2022 ibond. If you sell on Dec 1, 23, that will be $1,272 of interest on each 10,000 ibond. Just something to consider.

[ObiQuiet]

However, per Finance Buff blogpost and TIPS watch post, appears optimal timing for selling for me would be Jan1, 2024 - which would prohibit my buying I bonds next year.

Why would selling in Jan prohibit buying?

[mookie]

[Thread merged into here --admin LadyGeek]

Is this correct? This is for a married person, without getting into the more complicated steps of buying for children, trust, etc.

1. Compare previously purchased I bonds rate to current I bonds rate. If current I bonds rate is higher, than sell old I bonds during the correct window (see article below).

2. In a year in which you sold I bonds because the current rate is higher, then buy $10k in I bonds for myself and $10k as gift for spouse, and spouse does the same.

3. If a future year’s rate is better than a bond bought within a few years prior (so that the taxes from selling won’t be so great), then repeat steps 1 and 2. If a future year’s rate is worse than a bond that was bought as a gift, then instead of buying I bonds that year, gift the one from a prior year with the superior rate.

--buy bonds on April or October 25th in order to see if the May/November rates will be higher than the current rate (doesn't earn interest when bought early in month; takes a few days for the purchase to go through at the end of the month)
--sell bonds on the 29th of the month, so that the transaction processes on the 1st or 2nd of the month

I based this off of this helpful article:
https://thefinancebuff.com/switch-old-i ... -rate.html

[iamfinethanku]

However, per Finance Buff blogpost and TIPS watch post, appears optimal timing for selling for me would be Jan1, 2024 - which would prohibit my buying I bonds next year.

Why would selling in Jan prohibit buying?

Actually I'm planning to buy additional $20000 in 2024, that's why.