6 ms·

Or using it as your emergency fund. Just keeping in mind that you should probably ladder your emergency fund into them, since they're locked up for 1 year.

mywittyname 5y ago
It's not much of an emergency fund if it's locked away for a year.
- bombcar 5y ago
  That's the point of the ladder - after a year or two you can access much of it at anytime. Buy 1k this year and 1k next year, and your accessible emergency fund is 1k - but from then on it grows 1k a year if you keep purchasing; only the last purchase isn't immediately available.
  - mywittyname 5y ago
    I understand that, but think about the trade-off: I am potentially earning $40-80 on interest over a year, but I lose access to $1000 ear-marked specifically for emergencies. If it's truly an emergency, then you're better off with $1000-inflation. Maybe get a high-yield savings account and split the difference ($20/yr, but access at any time). I will concede that people have different definitions of "emergency" funds. I see it as, $500-1000 sitting in an account to deal with things that need to paid for now or else bad things will happen. So sudden car repairs and the like. Other people call six months of wages an emergency fund. For these people, yeah, a ladder makes a lot of sense, but that's mostly because they never really expect to need the entire amount immediately (thus, IMHO, not really an emergency fund).
    - cma 5y ago
      Start with an emergency fund, do this in place of investing on top of it, then after it is laddered replace the emergency fund with this and invest the former emergency fund (or gradually replace things over time as the lockup frees up).
      - mywittyname 5y ago
        It's still so much work and risk for almost no gain. I have $1000, so I split it up $500 in cash, $500 in a bond. Next month, my car needs new tires or I can't get to work. New tires are $800, and I can't afford that half my emergency fund is tied up. I lost shifts at work because of this, but at least I got a $30 return (never mind each lost shift cost me $70). Emergency funds are for high impact, unpredictable events.
        jdmichal 5y ago
        I think the concepts of "emergency funds" being discussed are different here. There are the $1000 "I need cash now" emergency funds. Then there are the 6-12 month "I lost my job" emergency funds. I think you're discussing the former, while others are discussing the latter. I agree with you that you should not put the former in anything less liquid than a savings account. The latter, however, lends itself very nicely to laddering months of savings over months of layered investments. So that every month, the next month of your savings becomes free.
        wonnor 5y ago
        You're not understanding. You always have $1000 of non-tied up funds. Start with $1000 cash. Then, instead of investing your next $500, put it in bonds. After a year, remove $500 cash from the emergency fund and invest it. You now have an emergency fund of $500 cash and $500 withdrawable bonds.
        avgDev 5y ago
        Emergency funds are a safety net when everything is crashing and you lose your job. This way you don't need to sell off your stocks which would be lower if there was a crash. Otherwise, you would be realizing your loses. You seem to be looking a this from a someone that is young angle and doesn't have much expenses. My expenses are high, therefore my emergency fund is high. I keep $40k in cash, if can move $20k to I-Bonds that is $1600 a year. No other place will GUARANTEE that return. It took me all of 15 minutes. If you can offer me a greater GUARANTEED return I'm all ears.
    - seibelj 5y ago
      Don’t forget you have to pay income taxes on the money the government inflated away from you!
      - thfuran 5y ago
        As opposed to a high yield savings account, which didn't give you interest in the first place but would've also been taxable if it had.
        seibelj 5y ago
        I just think the band-aid is absurd of the government paying you interest matching inflation which they themselves caused which is then taxed to go back to the government so they can spend it and cause more inflation.
        dragonwriter 5y ago
        Taxing it back causes deflation (or “counteracts inflation”.) They don't need to tax it to spend it, because the government has essentially infinite borrowing abiliry, so literally all taxing it back does is counteract inflation. (OTOH, giving you the inflation-indexed bond itself caused more inflation, so if your beef is with causing more inflation...)
      - brewdad 5y ago
        Like a stock sale, you don't pay taxes on the interest until you cash in the bond (you can, but for most cases you shouldn't). It will be regular income rather than long-term capital gains however. A regular savings account will require you to pay taxes annually as regular income. I-Bond interest is not subject to state or local taxes, so there's a savings there compared to a savings account. If you really hate paying taxes, you can cash them tax-free if you use them to pay for qualified educational expenses. There are income limits for this that probably eliminate the typical poster to this site but for people in the right situations it can be useful.
    - prepend 5y ago
      The alternative is a 0.1-1% money market fund. So getting $50/year vs $1 isn’t a huge amount, but it’s something. Since you, hopefully, don’t ever use your emergency fund, adding $1000 a year for decades adds up. Of course rates won’t always be this high for I-bonds and so low for MMA, but you get the idea.
      - splitstud 5y ago
    - ihattendorf 5y ago
      When people suggest using I bonds as emergency funds it's usually recommended in addition to at least a few thousand that remains in a savings/checking account for immediate withdrawal.
    - kube-system 5y ago
      The liquidity requirement of an emergency fund varies based on the amount of savings capability a person has, and the type of emergency they want to save for. Someone living paycheck to paycheck will likely need 100% liquidity, and someone who is wealthier might only need a single-digit percent liquidity.
- deleted 5y ago
  [deleted]
- Trasmatta 5y ago
  That was the reason for the second sentence of my post
- deleted 5y ago
  [deleted]
jjoonathan 5y ago
How long does it take to get the money out after the lockup? Typical ACH 2-3 days?
- bombcar 5y ago
  Correct, though if you go the paper route via tax returns you can "cash" the paper bonds at any bank at any time (or maybe it has to be a bank you have an account with already).
- Trasmatta 5y ago
  Yes, but the thing you have to be careful of is if you switched banks. They require you to jump through hoops to update your bank on TreasuryDirect. So if you change banks, you should begin the process to update with TD right away, so you don't get a nasty surprise if you need to cash out quickly in the future.
Dwolb 5y ago
Yup especially if you have a larger emergency fund meant to last >12 months. Any dollars you don't need >12 months should definitely be put in. Can decide on drawing down emergency fund + increasing risk on the incremental dollars after.
paxys 5y ago
Laddering it in such a way would require many years, and I doubt the rates will stay this attractive for very long.
- bowmessage 5y ago
  yes, this is all _totally_ transitory /s.

mywittyname 5y ago

It's not much of an emergency fund if it's locked away for a year.

bombcar 5y ago
That's the point of the ladder - after a year or two you can access much of it at anytime. Buy 1k this year and 1k next year, and your accessible emergency fund is 1k - but from then on it grows 1k a year if you keep purchasing; only the last purchase isn't immediately available.
- mywittyname 5y ago
  I understand that, but think about the trade-off: I am potentially earning $40-80 on interest over a year, but I lose access to $1000 ear-marked specifically for emergencies. If it's truly an emergency, then you're better off with $1000-inflation. Maybe get a high-yield savings account and split the difference ($20/yr, but access at any time). I will concede that people have different definitions of "emergency" funds. I see it as, $500-1000 sitting in an account to deal with things that need to paid for now or else bad things will happen. So sudden car repairs and the like. Other people call six months of wages an emergency fund. For these people, yeah, a ladder makes a lot of sense, but that's mostly because they never really expect to need the entire amount immediately (thus, IMHO, not really an emergency fund).
  - cma 5y ago
    Start with an emergency fund, do this in place of investing on top of it, then after it is laddered replace the emergency fund with this and invest the former emergency fund (or gradually replace things over time as the lockup frees up).
    - mywittyname 5y ago
      It's still so much work and risk for almost no gain. I have $1000, so I split it up $500 in cash, $500 in a bond. Next month, my car needs new tires or I can't get to work. New tires are $800, and I can't afford that half my emergency fund is tied up. I lost shifts at work because of this, but at least I got a $30 return (never mind each lost shift cost me $70). Emergency funds are for high impact, unpredictable events.
      - jdmichal 5y ago
        I think the concepts of "emergency funds" being discussed are different here. There are the $1000 "I need cash now" emergency funds. Then there are the 6-12 month "I lost my job" emergency funds. I think you're discussing the former, while others are discussing the latter. I agree with you that you should not put the former in anything less liquid than a savings account. The latter, however, lends itself very nicely to laddering months of savings over months of layered investments. So that every month, the next month of your savings becomes free.
      - wonnor 5y ago
        You're not understanding. You always have $1000 of non-tied up funds. Start with $1000 cash. Then, instead of investing your next $500, put it in bonds. After a year, remove $500 cash from the emergency fund and invest it. You now have an emergency fund of $500 cash and $500 withdrawable bonds.
      - avgDev 5y ago
        Emergency funds are a safety net when everything is crashing and you lose your job. This way you don't need to sell off your stocks which would be lower if there was a crash. Otherwise, you would be realizing your loses. You seem to be looking a this from a someone that is young angle and doesn't have much expenses. My expenses are high, therefore my emergency fund is high. I keep $40k in cash, if can move $20k to I-Bonds that is $1600 a year. No other place will GUARANTEE that return. It took me all of 15 minutes. If you can offer me a greater GUARANTEED return I'm all ears.
  - seibelj 5y ago
    Don’t forget you have to pay income taxes on the money the government inflated away from you!
    - thfuran 5y ago
      As opposed to a high yield savings account, which didn't give you interest in the first place but would've also been taxable if it had.
      - seibelj 5y ago
        I just think the band-aid is absurd of the government paying you interest matching inflation which they themselves caused which is then taxed to go back to the government so they can spend it and cause more inflation.
        dragonwriter 5y ago
        Taxing it back causes deflation (or “counteracts inflation”.) They don't need to tax it to spend it, because the government has essentially infinite borrowing abiliry, so literally all taxing it back does is counteract inflation. (OTOH, giving you the inflation-indexed bond itself caused more inflation, so if your beef is with causing more inflation...)
    - brewdad 5y ago
      Like a stock sale, you don't pay taxes on the interest until you cash in the bond (you can, but for most cases you shouldn't). It will be regular income rather than long-term capital gains however. A regular savings account will require you to pay taxes annually as regular income. I-Bond interest is not subject to state or local taxes, so there's a savings there compared to a savings account. If you really hate paying taxes, you can cash them tax-free if you use them to pay for qualified educational expenses. There are income limits for this that probably eliminate the typical poster to this site but for people in the right situations it can be useful.
  - prepend 5y ago
    The alternative is a 0.1-1% money market fund. So getting $50/year vs $1 isn’t a huge amount, but it’s something. Since you, hopefully, don’t ever use your emergency fund, adding $1000 a year for decades adds up. Of course rates won’t always be this high for I-bonds and so low for MMA, but you get the idea.
    - splitstud 5y ago
  - ihattendorf 5y ago
    When people suggest using I bonds as emergency funds it's usually recommended in addition to at least a few thousand that remains in a savings/checking account for immediate withdrawal.
  - kube-system 5y ago
    The liquidity requirement of an emergency fund varies based on the amount of savings capability a person has, and the type of emergency they want to save for. Someone living paycheck to paycheck will likely need 100% liquidity, and someone who is wealthier might only need a single-digit percent liquidity.
deleted 5y ago
[deleted]
Trasmatta 5y ago
That was the reason for the second sentence of my post
deleted 5y ago
[deleted]

jjoonathan 5y ago

How long does it take to get the money out after the lockup? Typical ACH 2-3 days?

bombcar 5y ago
Correct, though if you go the paper route via tax returns you can "cash" the paper bonds at any bank at any time (or maybe it has to be a bank you have an account with already).
Trasmatta 5y ago
Yes, but the thing you have to be careful of is if you switched banks. They require you to jump through hoops to update your bank on TreasuryDirect. So if you change banks, you should begin the process to update with TD right away, so you don't get a nasty surprise if you need to cash out quickly in the future.

Dwolb 5y ago

Yup especially if you have a larger emergency fund meant to last >12 months. Any dollars you don't need >12 months should definitely be put in. Can decide on drawing down emergency fund + increasing risk on the incremental dollars after.

paxys 5y ago

Laddering it in such a way would require many years, and I doubt the rates will stay this attractive for very long.

bowmessage 5y ago
yes, this is all _totally_ transitory /s.