4 ms·

Things I wish I knew earlier. When you buy them, you lock in the current rate for 6 months from the date you purchase & then you get the next rate for 6 months

Things I wish I knew earlier. When you buy them, you lock in the current rate for 6 months from the date you purchase & then you get the next rate for 6 months after that. So today you get 9.62% for 6 months, so you'll technically earn 4.81% interest on your money after 6 months from the date of purchase. You'll then get the next rate which is most likely 3% for 6 months (often quoted as 6% annually). This site does an amazing job tracking what the future rate will be - https://tipswatch.com/tracking-inflation-and-i-bonds/ https://tipswatch.com/tracking-inflation-and-i-bonds/ They will announce the final next 6 months rate in October. You can buy then (around the 15th) if you want. If you buy after November 1, you won't get the current 4.81% (aka 9.62%). But as stated, the October rate is pretty well calculated. Only 1 more inflation report will adjust it slightly. See the Tipswatch site I linked to for info on how & when it's calculated. Each person can buy $10,000. If you got a tax rebate you can buy up to $5,000 with that. If you have a company, the company can buy $10,000. Must be a US Citizen. Someone who works at the US Treasury thought it was a good idea to make you type a password with a "virtual keyboard" using your mouse. So you might want to create a script in your password manager to enter in the console like this: var x = PASSWORD_AS_STRING; for(var i = 0; i < x.length; i++){ PasswordVK(x[i]) } Side note, my 70yr old Mom thought this was an easy process. I felt like an idiot.

dragontamer 4y ago
> You'll then get the next rate which is most likely 3% for 6 months Which is less than the 3.9% you get from a 6M treasury right now. If i-bonds really only get 6% in the next rate, you've lost money compared to 6M or 1Y treasury bonds.
- adabyron 4y ago
  Good point. Though right now you also get the current 9.62% for 6 months so you come out ahead still with most likely an 8% return over 1 year. After November, it'll be interesting to see if I Bonds are worth buying anymore or if treasury bonds go down. It's also possible that in November they add something more than 0 to the fixed rate of the I Bond. Buying now though you unfortunately would not get that.
- medvezhenok 4y ago
  The 3.9% you get from a 6M treasury is annualized (so only 1.95% in 6 months), and the 3% for 6 months (from I-bonds) is actually >6% annualized. So I-bonds will still beat the 6M treasury bond unless the rates on the latter keep going up.
  - dragontamer 4y ago
    Uggh, its always annoying trying to compare apples to apples. Thanks for annualizing (or in this case, 6Month-izing) the rates for an actual apples-to-apples comparison.
    - nopzor 4y ago
      generally interest rates are always annualized.
mgkimsal 4y ago
> So today you get 9.62% for 6 months, so you'll technically earn 4.81% interest on your money after 6 months from the date of purchase. That doesn't seem correct. If I have $10k, and it earns an annual rate of 5%, for 6 months, I would get $250. That's not the same as saying I'm earning a 2.5% rate. You're earning 5%, but only for 6 months. If you were earning 2.5%, for 6 months, you'd only get $125.
- cjmb 4y ago
  In the OP - > [4.81% interest on your money after 6 months from the date of purchase] This is a single concept. The quantity of money earned (4.81%) and the time period over which it is earned (6 months from the date of purchase) are both specified. In your message - > it earns an annual rate of 5%, for 6 months You change the rate to annual here.. > You're earning 5%, Here you leave the time period over which the 5% is earned implicit (1 year) > If you were earning 2.5%, for 6 months, you'd only get $125. And once again here you drop the "per year" Conventionally, finance uses rates of return on an annual basis -- but it's not unreasonable to use another basis so long as that's specified clearly (as in the OP). This helps because the OP is trying to help people understand the dollar-magnitude of returns they are locking in (X% per year, but for half the time -- aka half the sticker price return) and what is variable in the future.
timr 4y ago
Yes, I-bonds are a bit of a meme right now, and IMO, overhyped. The other important things to note are that your money is locked for a year from purchase, you incur a penalty (3 months of interest) if you sell before 5 years, and the APY values being quoted are not indexed to inflation. I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Do not buy an I-bond if you need the cash or anticipate needing the cash in the near future. Also, do not treat I-bonds like investments. If you have a long time horizon and you want an investment return, you should just invest the money. If your goal is to time the market and wait for a buying opportunity (why?) then you'd be better off just keeping your cash in a regular treasury. Even parking your money in a 1 year treasury will yield you close to 5% right now (again, not inflation-indexed), but you'll still be liquid: https://www.cnbc.com/quotes/US1Y https://www.cnbc.com/quotes/US1Y If that is still too high a market risk for you, even a 3-month bill is yielding over 3%: https://www.cnbc.com/quotes/US3M https://www.cnbc.com/quotes/US3M I-bonds are a great place to put cash for things like emergency funds, assuming you keep the 1-year lockup in mind. Beyond that, they have fairly limited utility.
- thrtythreeforty 4y ago
  I-bonds are also a great option if your alternative is holding nothing but cash. This isn't really advisable, but I know people that do, largely due to fear of a decline in value. A guaranteed number-go-up product, even if all it does is tread water in real dollars, is a lot better than a product (bank account) that loses real value every year. For those people, I heartily recommend I-bonds.
  - timr 4y ago
    I'd argue if you want the equivalent optionality of "cash" and you're buying today, you'd do better to just ladder into short-duration treasuries, or keep it in a high-yield savings account. I-bonds are really only optimal if you plan on keeping medium-sized chunks of cash around in cold storage for time periods of longer than a year.
- sf_rob 4y ago
  The penalty point is an important one for the above. If you only plan on holding them for the minimum of 12 months and the second half interest rate is 3% then your effective annualized return is 5.48% (1.0962^.5*1.03^.25). >I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Yes and no, I-bonds use a trailing inflation definition so you receive a real advantaged proportionally to the difference in current and past inflation rates; this is of course speculative.
kagitac 4y ago
> Must be a US Citizen. That is incorrect. As long as you are a US resident for tax purposes you can purchase them. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm https://www.treasurydirect.gov/indiv/research/indepth/ibonds... https://www.irs.gov/individuals/international-taxpayers/introduction-to-residency-under-us-tax-law https://www.irs.gov/individuals/international-taxpayers/intr...
mNovak 4y ago
I find it easiest right-click>inspect the password field in chrome, and paste my password directly into the html value field. Another thing to note, if you're particularly trying to load up, is you can buy I-bonds as a 'gift', separate of your individual limit. Specifically you and your spouse can buy $10k each directly, plus each buy $10k as a gift to the other (thus $40k total). You can actually buy >$10k as a gift for someone, but you can't transfer beyond $10k a year to that person, effectively increasing the minimum hold period. Also a general note - you can enter your payment account electronically, but ever changing it requires mailing a form! So choose wisely.
- mister_tee 4y ago
  I might be wrong but don't gifts count against the recipient's annual $10k limit? That is, you could only give $2k to someone who has purchased $8k for themselves, all within the same year? Though, here is a Bogleheads thread where people suggest buying gift bonds even beyond 10k as you mention, to get higher interest rates now, storing them in the TreasuryDirect "gift box" until a year where the recipient comes in under the limit and they can be transferred. https://www.bogleheads.org/forum/viewtopic.php?t=306297 https://www.bogleheads.org/forum/viewtopic.php?t=306297 edit, adding: https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-purchase-limit https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-pur...
  - mNovak 4y ago
    Yes, but buying and 'delivering' the gift are two separate actions. So I can buy $30k in bonds for you today (which benefit from the current rates), held in the gift box until I transfer them to you. But as you said, I can only transfer $10k/year less any purchases you make that same year. In the 1 year hold case (buying direct + gifts for 1 year only) you can transfer and immediately sell the gifts alongside the original bonds, in the new year.
- adabyron 4y ago
  If I recall the right click & enter password as HTML didn't work. Neither did selecting the input element & modifying the value. Those are my first 2 I usually try. I'm assuming they're doing some crazy silly state/event tracking with their virtual keyboard elsewhere. I didn't dig into it that close. I just grumbled & shook my head.
gilch 4y ago
I think a trust can also buy $10,000. You can also gift I-bonds (say to family). I think they can only receive up to the $10k worth of gifts per year, less what they've bought themselves, but (and this is important) the bond itself starts earning interest immediately, when they are gifted, not when they are received. So the family member can just take it next year, after it's already started earning at this year's higher rate. I'm not a CPA or financial advisor, so please double-check me on this.

dragontamer 4y ago

> You'll then get the next rate which is most likely 3% for 6 months Which is less than the 3.9% you get from a 6M treasury right now. If i-bonds really only get 6% in the next rate, you've lost money compared to 6M or 1Y treasury bonds.

adabyron 4y ago
Good point. Though right now you also get the current 9.62% for 6 months so you come out ahead still with most likely an 8% return over 1 year. After November, it'll be interesting to see if I Bonds are worth buying anymore or if treasury bonds go down. It's also possible that in November they add something more than 0 to the fixed rate of the I Bond. Buying now though you unfortunately would not get that.
medvezhenok 4y ago
The 3.9% you get from a 6M treasury is annualized (so only 1.95% in 6 months), and the 3% for 6 months (from I-bonds) is actually >6% annualized. So I-bonds will still beat the 6M treasury bond unless the rates on the latter keep going up.
- dragontamer 4y ago
  Uggh, its always annoying trying to compare apples to apples. Thanks for annualizing (or in this case, 6Month-izing) the rates for an actual apples-to-apples comparison.
  - nopzor 4y ago
    generally interest rates are always annualized.

mgkimsal 4y ago

> So today you get 9.62% for 6 months, so you'll technically earn 4.81% interest on your money after 6 months from the date of purchase. That doesn't seem correct. If I have $10k, and it earns an annual rate of 5%, for 6 months, I would get $250. That's not the same as saying I'm earning a 2.5% rate. You're earning 5%, but only for 6 months. If you were earning 2.5%, for 6 months, you'd only get $125.

cjmb 4y ago
In the OP - > [4.81% interest on your money after 6 months from the date of purchase] This is a single concept. The quantity of money earned (4.81%) and the time period over which it is earned (6 months from the date of purchase) are both specified. In your message - > it earns an annual rate of 5%, for 6 months You change the rate to annual here.. > You're earning 5%, Here you leave the time period over which the 5% is earned implicit (1 year) > If you were earning 2.5%, for 6 months, you'd only get $125. And once again here you drop the "per year" Conventionally, finance uses rates of return on an annual basis -- but it's not unreasonable to use another basis so long as that's specified clearly (as in the OP). This helps because the OP is trying to help people understand the dollar-magnitude of returns they are locking in (X% per year, but for half the time -- aka half the sticker price return) and what is variable in the future.

timr 4y ago

Yes, I-bonds are a bit of a meme right now, and IMO, overhyped. The other important things to note are that your money is locked for a year from purchase, you incur a penalty (3 months of interest) if you sell before 5 years, and the APY values being quoted are not indexed to inflation. I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Do not buy an I-bond if you need the cash or anticipate needing the cash in the near future. Also, do not treat I-bonds like investments. If you have a long time horizon and you want an investment return, you should just invest the money. If your goal is to time the market and wait for a buying opportunity (why?) then you'd be better off just keeping your cash in a regular treasury. Even parking your money in a 1 year treasury will yield you close to 5% right now (again, not inflation-indexed), but you'll still be liquid: https://www.cnbc.com/quotes/US1Y https://www.cnbc.com/quotes/US1Y If that is still too high a market risk for you, even a 3-month bill is yielding over 3%: https://www.cnbc.com/quotes/US3M https://www.cnbc.com/quotes/US3M I-bonds are a great place to put cash for things like emergency funds, assuming you keep the 1-year lockup in mind. Beyond that, they have fairly limited utility.

thrtythreeforty 4y ago
I-bonds are also a great option if your alternative is holding nothing but cash. This isn't really advisable, but I know people that do, largely due to fear of a decline in value. A guaranteed number-go-up product, even if all it does is tread water in real dollars, is a lot better than a product (bank account) that loses real value every year. For those people, I heartily recommend I-bonds.
- timr 4y ago
  I'd argue if you want the equivalent optionality of "cash" and you're buying today, you'd do better to just ladder into short-duration treasuries, or keep it in a high-yield savings account. I-bonds are really only optimal if you plan on keeping medium-sized chunks of cash around in cold storage for time periods of longer than a year.
sf_rob 4y ago
The penalty point is an important one for the above. If you only plan on holding them for the minimum of 12 months and the second half interest rate is 3% then your effective annualized return is 5.48% (1.0962^.5*1.03^.25). >I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Yes and no, I-bonds use a trailing inflation definition so you receive a real advantaged proportionally to the difference in current and past inflation rates; this is of course speculative.

kagitac 4y ago

> Must be a US Citizen. That is incorrect. As long as you are a US resident for tax purposes you can purchase them. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm https://www.treasurydirect.gov/indiv/research/indepth/ibonds... https://www.irs.gov/individuals/international-taxpayers/introduction-to-residency-under-us-tax-law https://www.irs.gov/individuals/international-taxpayers/intr...

mNovak 4y ago

I find it easiest right-click>inspect the password field in chrome, and paste my password directly into the html value field. Another thing to note, if you're particularly trying to load up, is you can buy I-bonds as a 'gift', separate of your individual limit. Specifically you and your spouse can buy $10k each directly, plus each buy $10k as a gift to the other (thus $40k total). You can actually buy >$10k as a gift for someone, but you can't transfer beyond $10k a year to that person, effectively increasing the minimum hold period. Also a general note - you can enter your payment account electronically, but ever changing it requires mailing a form! So choose wisely.

mister_tee 4y ago
I might be wrong but don't gifts count against the recipient's annual $10k limit? That is, you could only give $2k to someone who has purchased $8k for themselves, all within the same year? Though, here is a Bogleheads thread where people suggest buying gift bonds even beyond 10k as you mention, to get higher interest rates now, storing them in the TreasuryDirect "gift box" until a year where the recipient comes in under the limit and they can be transferred. https://www.bogleheads.org/forum/viewtopic.php?t=306297 https://www.bogleheads.org/forum/viewtopic.php?t=306297 edit, adding: https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-purchase-limit https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-pur...
- mNovak 4y ago
  Yes, but buying and 'delivering' the gift are two separate actions. So I can buy $30k in bonds for you today (which benefit from the current rates), held in the gift box until I transfer them to you. But as you said, I can only transfer $10k/year less any purchases you make that same year. In the 1 year hold case (buying direct + gifts for 1 year only) you can transfer and immediately sell the gifts alongside the original bonds, in the new year.
adabyron 4y ago
If I recall the right click & enter password as HTML didn't work. Neither did selecting the input element & modifying the value. Those are my first 2 I usually try. I'm assuming they're doing some crazy silly state/event tracking with their virtual keyboard elsewhere. I didn't dig into it that close. I just grumbled & shook my head.

gilch 4y ago

I think a trust can also buy $10,000. You can also gift I-bonds (say to family). I think they can only receive up to the $10k worth of gifts per year, less what they've bought themselves, but (and this is important) the bond itself starts earning interest immediately, when they are gifted, not when they are received. So the family member can just take it next year, after it's already started earning at this year's higher rate. I'm not a CPA or financial advisor, so please double-check me on this.