OT: I bonds
- Thread starter dorndawg
- Start date
Pretty sure it's a direct deal: https://www.treasurydirect.gov/indiv/myaccount/myaccount_treasurydirect.htm I haven't created an account but I may do so soon.
You have to open the account through the treasury direct .gov site and all I can tell you is it reminds me of 1998 internet.
Set up on Treasury Direct. Nothing to it. I think the account set up and linking
a bank account takes a few days.
- $10,000 per person annual limit, but I think if you are serious about buying more than that, you could set up entities with a separate EIN.
- You have to hold them for at least a year - you cannot redeemed redeem them at all, until a year has passed.
- They do not sale paper bonds via the website anymore. If you want paper bonds, the only way is to get that is to have all or a portion of a tax refund refunded in paper I Bonds by filing Form 8888 with your return. I like the paper ones as it makes it harder, thus less likely, to redeem.
a bank account takes a few days.
- $10,000 per person annual limit, but I think if you are serious about buying more than that, you could set up entities with a separate EIN.
- You have to hold them for at least a year - you cannot redeemed redeem them at all, until a year has passed.
- They do not sale paper bonds via the website anymore. If you want paper bonds, the only way is to get that is to have all or a portion of a tax refund refunded in paper I Bonds by filing Form 8888 with your return. I like the paper ones as it makes it harder, thus less likely, to redeem.
In my experience, it's impossible to open one "soon." It took the gubmint about a month to process my application and two months for my wife's. Ended up having to go to a bank to get a medallion stamp on our signatures. This was in November 2021; not sure if they're still backed up like they were then.
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Thanks for the info and suggestion. I’ve had money sitting in a money market not earning crap. Only makes sense to put it in something like this if you can part with it for a year. If rates go down, just leave it in there three months at that low rate and pull out and you only lose the interest on those last three months. Seems like a no brainer to me.
You want to buy before the end of September. The current rate is the highest ever at 9.62%. The rate is good for 6 months and then gets adjusted to the new rate, which is currently expected to be 7 53%. If that's where it lands, that's a blended annual return of 8.575%.
Worst case scenario is by November, all inflation is gone and it goes to zero. You still get a blended return of 4.81%.
If you buy before the end of the month, you get credit for the full month and can sell as soon as 11 months and 1 day. You'd get penalized 3 months of interest, but would still end up with a 6.7% return if 7.53% is the next rate.
Read more at the links below.
https://keilfp.com/blogpodcast/i-bond-rate-may-2022-october-2022/
https://www.usinflationcalculator.com/inflation/rates-for-series-i-bonds/
In addition to purchasing $10,000 in I-Bonds (electronic, via Treasury Direct), you can also buy up to $5,000 in paper I-Bonds using your IRS tax refund. If you wish, you can convert the paper I-Bond to electronic after you receive it.
https://www.cnbc.com/2022/05/14/how...00-in-nearly-risk-free-i-bonds-this-year.html
https://www.cnbc.com/2022/05/14/how...00-in-nearly-risk-free-i-bonds-this-year.html
The $10k cap as well as the inability to purchase through a retirement vehicle really limits it's usefulness though. I would have been happy to put 10% or even 20% of my assets in there for a year. But even if there weren't the $10k cap, I tend to run pretty thin on liquid assets outside of retirement. Pretty much the only significant assets outside of retirement are real estate, and if I'm holding on to something liquid, it's because I want to the flexibility to use it sooner than a year. I would have also loved for my mom to be able to put a couple of years of living expenses in ibonds.
$10k is better than nothing I guess, but for how little good it does for buyers, unless it does something for the government, I'd just as soon them not waste the time and effort.
It's a weird security for sure. Why the arbitrary $10,000 limit? Why the additional $5,000 with your tax refund, but only a paper bond (seriously, paper?), and why only for people who get a refund but not for people who have to pay in? Why can't we hold it in a custodial account somewhere instead of setting up a separate account on an antiquated website that's just one more account to have to keep track of?
Can't answer most of it, but I think the $10K limit is because it costs the government money. Pretty sure one year treasuries more or less always sell for less than CPI-U. Certainly if they sold another product at market that gave holders the option to redeem the bond any time after a year or keep receiving CPI-U on it as a return, that would be valuable enough to sell at below the current CPI-U. So offering these for $10k allows them to say they are offering individuals protection against inflation, when in reality, there's no real protection unless you are willing to put $10k away year after year and give up any chance of above inflation return on those deposits, so that it's almost a certain loser compared to investing in the S&P500.
Not meaning to pick on you here, just chiming in because I see this so frequently. People say past performanc is no guarantee of success, but then forget what that means. At some point, the US economy will be in long term decline. When it is, investing in the S&P500 is likely to be a losing investment far outpaced by things like bonds or I bonds. Given that they are sold below a market rate due to how they are set up, they make a compelling hedge for a mature investor.
This is true but irrelevant for most investors. Very few people are able and willing to save enough that they can make it without the S&P providing a return above inflation. If you want to fund a 30 year retirement with just inflation based returns (and assuming your salary keeps up with inflation), you'd need to save over 42% of your income for 40 years. For most people, even if you could guarantee that the S&P was going to lose money and matching inflation is the best possible return, they'd throw up their hands and just say they'll work til they die.
But you are correct about it being useful for investors exiting the accumulation phase and entering the drawdown phase and I undersold it looking at it just from the perspective of someone looking to accumulate and grow assets.
If you're a middle class retiree and have saved and invested to have $1M stashed for retirement, that's roughly $40k a year plus SS if you're following the 4% rule. I guess if you start putting $10k a year away starting say 8 years from retirement (which you would presumably be reducing yoru stock exposure anyway so it would be consistent with proper asset allocation), then that gives you roughly two years of inflation protected, liquid assets to draw down in the event of a market downturn. And I guess the value of someone that's going to be relying on a $500k nest egg and social security would be even greater.
Yep, basically. Was also getting at that bonds (especially bond funds) can be tricky for mature (ie, old) investors as the market can drive prices on those to some weird places. I guess you could always just buy actual bonds and have the option to mitigate that risk by holding until maturity, but typical 401k funds make that difficult.
ETA: not really arguing to build a $100k balance in ibonds and hold it for 30 years. If one is worried about inflation (I'm not, the Feds attitude towards wage gains has justified everything I've said for years), then it's an option. I'm more saying it's part of a CD portion of a portfolio. 10% in CDs is smart IMO (to give that hedge against the market but still seeing some gains), a rolling ladder, and there's no problem rolling this year's CD ladder rung into I bonds, then back out of it when inflation comes down. Why buy a CD at 2.5% when ibonds are right there at 9?
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Just bought in on I Bonds, in my mind it's like the back-end of our emergency fund.
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