I Bond’s variable rate will rise to 9.62% with the May reset
tipswatch.com
tipswatch.com
Fun fact - you can still get paper I Bonds if you request your tax refund be sent that way. https://www.irs.gov/refunds/using-your-income-tax-refund-to-... - this is the ONLY remaining way to get paper I bonds.
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).
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.
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.
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.
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.
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.
Someone living paycheck to paycheck will likely need 100% liquidity, and someone who is wealthier might only need a single-digit percent liquidity.
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.
You’d have to do it preemptively though as the last opportunity to over is via a Jan 15th estimated tax payment. You can’t retroactively overpay, the money needs to be there before you file your taxes.
To do what I’m suggesting correctly, you’d calculate your tax liability or surplus before the last estimated tax payment date (Jan 15th) and make an estimated payment for the difference between that and the amount of I series bonds you’d like to purchase.
Tax overpayments, only -- the limit of $10000 of electronic bonds per recipient, from whatever source.
> The purchase amount of a gift bond counts toward the annual limit of the recipient, not the giver. So, in a calendar year, you can buy up to $10,000 in electronic bonds and up to $5,000 in paper bonds for each person you buy for.
https://treasurydirect.gov/indiv/research/indepth/ibonds/res...
>While waiting for the May 1 reset might look tempting to launch directly into the 9.62% rate, I still strongly recommend buying I Bonds before April 30, which will lock in a 7.12% rate for a full six months, followed by 9.62% for six months. That’s an annual rate of about 8.4%, and there is no other very safe investment that can match that return.
>I Bonds must be held for 12 months before you can redeem them. If you redeem them before five years, you will forfeit the last three months of interest. But if you buy near the end of April 2022, you will get full credit for April and can redeem 14 months and a few days later, avoiding taking the interest penalty on the 9.62% rate.
>However, I always recommend buying I Bonds every year up to the purchase cap of $10,000 per person per year and holding them until you actually need the money. People who have been buying I Bonds for years — like many of my readers — are very happy right now, collecting an annual rate of 8.4%, plus any fixed rate attached to the original purchase.
- United States citizen, whether you live in the U.S. or abroad
- United States resident
- Civilian employee of the United States, no matter where you live
https://treasurydirect.gov/indiv/research/indepth/ibonds/res...
> Will the I Bonds’s fixed rate rise on May 1?
> I still say “no,” but conditions are getting better for a fixed rate higher than the current 0.0%. The real yield of a 10-year TIPS has now “surged” to -0.12%, an impressive rise of 85 basis points since the beginning of the year. But until it gets to at least 0.25%, I think it’s unlikely the Treasury will increase the I Bond’s fixed rate. We might see the rate rise in November, which would be available to grab when the calendar resets in January.
> My advice: Don’t be waiting for a higher fixed rate that might never come, and miss out on the chance to make $840 on a $10,000 investment in one year. Invest up to the cap before May 1.
* Passwords must be at least 8 chars, but can't be longer than 16 (they don't tell you the max length though
* Passwords can't have \
* Passwords are case-insensitive
* When you actually try to log in they make you use a virtual keyboard - meaning you have to use your MOUSE to click each individual character which is shown on screen in plain text. The keyboard does not work on purpose, and password manager don't work either.
From their security FAQ - > Virtual Keyboard: The virtual keyboard is one of many security features introduced in TreasuryDirect as part of our on-going commitment to heightened password and account security. The advantage of using the virtual keyboard is that others are deterred from learning your password.
It reminds me of that video from a while back of UX designed by the devil. I know its government, but what an awful experience.
Of course the real insecurity is they assign you a fixed numeric 6 digit PIN.
To enter password via keyboard/paste: right click password element -> inspect -> remove the `readonly="readonly"` attribute.
It's still annoying, but I think it beats using their virtual keyboard.
Created this bookmark:
javascript:(function(){document.querySelector(".pwordinput").removeAttribute("readonly")})();They're still using security image!! (which to this date I still don't know what it does)
... and then they sent me an email saying my account needs additional verification. They want me to fill out https://www.treasurydirect.gov/pdf/rs/acctauth.pdf - which somehow doesn't load in the browser, but works with wget - which would require me to sign it in the presence of a "certifying officer".
Yeah, jumping through all these hoops isn't worth even 10% interest on $10k.
1. They store your plaintext password and then compare to_upper() of your stored password against what you enter on the virtual keyboard (which only supports uppercase letters).
2. They to_upper() your initial password, before they salt/hash, and test the salted hash against the salted hash of whatever you type on the virtual keyboard
3. Either one of the above but with an additional to_upper() on the password you enter at login so that if you do manage to type the password using your keyboard instead of the virtual keyboard it's still case insensitive.
That's $220 billion per decade. Surely they can shell out a crazy $5 million every ten years for a usable site refresh?
Then I kind of wanted to learn the history of how this was created for a guaranteed head-shaker.
I’m not defending the “good enough for government” mentality but merely suggesting some workarounds (FWIW it works on my computer.)
Also, better not forget your security questions twice, or you’re going to be on the phone with an absolutely atrocious hold experience.
Honestly it's a PITA (I need to keep said PDF vaguely handy, and it's stored less securely than in my password manager).
After logging in again and seeing $0.00 everywhere, I found a transaction list showing that a purchase request went through. Hopefully the amounts will update tomorrow!
(Here's something from Forbes when they lowered the limit from $30,000/person/year to $5,000: https://www.forbes.com/2010/02/25/i-bonds-purchase-limits-ti... )
This does beg the question - is there any other “safe, relatively liquid” option that has even close to the same yield as I Bond? Seems like traditional bank savings and short term CDs are still well below 1% everywhere.
Still worth getting the yearly $10k though.
Also, assuming a government bailout will come to the rescue is a pretty risky strategy.
>Also, assuming a government bailout will come to the rescue is a pretty risky strategy.
Of course, this is just my opinion, but I feel like it is risky to not assume a government bailout. As far as I can see, the options are bailout of public markets, or revolution.
Everyone should have some emergency plan or fund if at all feasible.
Compare this with a 529, which serves a similar purpose. Then this just reduces to a stocks vs. bonds argument, but for your kid's education. Do you value safety or STONKs then?
Also, I find changing beneficiaries for an I bond is easier than a 529, in the event whatever beneficiary doesn't pursue college (a decision I understand more these days), but IANAIA (I am not an investment advisor?)
Also, I am not exactly sure what you mean by "STONKs", but if one's investment timeline is on the order of years, all the history I see shows broad market equity index funds to be pretty safe.
So this doesn’t allow you to avoid the income phase-out, it just lets you time-shift the educational spending to an earlier year (in which your income may be below the threshold).
If your family income is above the threshold in every year until you need the money for tuition, then there will not be an opportunity to get the tax benefit.
From your link, emphasis mine:
> Taxpayers can bypass the income phase-outs on savings bonds by rolling them over into a 529 college savings plan before their income increases beyond the income phase-outs.
EDIT: Thanks for the replies. TIL.
There's some rules on if you cash out before 5 years (you give up the last 3 months of interest) and you MUST hold for 12 months.
You can ladder them too and have different amounts / times of purchase.
I like it for planned emergency funds that would otherwise be cash, ladder into it so you always have your EF available.
https://www.thebalance.com/tax-advantages-of-series-i-saving...
1) No state tax on I-bonds
2) You can defer and pay tax on the interest only when you sell the bonds (which means you can time the sale to when you have lower income)
> or do they retain the 8% for however long you hold the bond?
No, the interest rate is updated every 6 months, see the sibling comment.
As the parent comment stated - this isn't meant to get anyone rich. This is the government providing a service that allows (working-class) individuals to keep a rainy-day fund relatively insulated from risk. If you're able to save more than 10k per year, you're not the primary target for this service.
https://institutional.vanguard.com/iam/pdf/ISGCTIPS.pdf?cbdF...
https://www.google.com/finance/quote/VTAPX:MUTF?sa=X&ved=2ah...
The longer they exist, the more it feels TIPS are a sucker's bet.
The Funds will decline because you have to sell old Bonds at a discount to buy up the new higher interest payout bonds. But if you held on to the original bond, then you'd still get the fixed payout. You'd just miss out on the opportunity of the new higher payout bonds on the market.
Before 5 years, you forfeit interest from the previous 3 months which isn't terrible, assuming the variable rates remain competitive.
An i-bond needs to have a fixed rate of at least 0.27% to cover the interest on the 2% target rate of inflation, assuming a 12% income tax rate. If inflation was sustained at 9% the i-bond fixed rate would need to be 1.2% to make it not lose value.
I-bond is an interestingly alternative when you'd otherwise just hold cash, but with the fixed rate of 0 it's not that exciting. Other than cash few other investments are guaranteed to lose money relative to inflation.
I would avoid buying I-bonds with a fixed rate under 0.5% and certainly under 0.2%.
... and that's entirely without getting into the argument that the government systematically underestimates inflation e.g. by CPI-U having an open-loop correction for substitution.
CDs, tbills, etc all are worse.
State taxes are a bigger difference but really just for the few states that have higher income tax rates... and even those they're only really high for high incomes.
We should expect the dollar denominated value of non-cash-heavy investments to have its returns increase by inflation. So if someone is looking at 9% ibonds and mentally comparing it 12% equities and thinking the ibonds sound amazing-- thats the wrong analysis. Instead they should back out inflation on both sides of that comparison and be comparing slightly negative yield ibonds to 10% equities yields.
So essentially one should only own ibonds to the extent that one's portfolio needs something cashlike to improve its sharpe... and IMO one should try to load up on their ibonds when they're at a higher base rate. (How high? I dunno, but 0% is not high)
Update: so according to this site looks like it is possible but we will be taxed on the interest (50% capital tax!!!)
https://www.thestreet.com/investing/funds/can-canadians-have...
Is there a way to avoid this by putting it in TFSA or RRSP?
You need SSN to buy I-series bond.
Just put the $10K in VOO instead and forget about it for a few years.
No.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
So $900 USD * 0.75 = $675 USD risk rate return after 50% capital gains tax ain't that bad. Wish wise I might be able to get back $840 CAD on a ~$12000 CAD investment.
Would be great if I could get the extra 5k limit increase by going the paper option like somebody mentioned in the comments but unsure how that plays out for Canadians.
Then why not short it?
I understand the risks of shorting but its not clear to me say what I stand to lose with $SPXU for instance, is it designed to lose value with time due to the underlying futures contracts?
[1]: https://www.wsj.com/articles/investors-turn-cautious-on-cons...
(B) did the Wall Street journal article also talk about the effects of the chip shortage and the subsequent new car shortage that hit last summer? If not, it is willfully misleading.
(C) another hint on where all that money went is the increase in fuel costs, rent costs, and food costs. The increased demand is exacerbated by the supply chain troubles including the decrease in US oil wells provoked by Biden's war on American-sourced fossil fuels.
There are a lot of people for whom a used car is much more useful than bonds, shares of a company, etc.
At the bottom of an industrial, technological, geographic, or demographic S-curve, opportunities are plentiful to forego consumption today in order to create wealth tomorrow. Investment is useful. Rates of return are positive, incentivizing it. Cool. What happens at the top of the S-curve, though? Those opportunities dry up, relative to available capital. There's nothing inherently bad about this. Quite the opposite, it's a good thing! "Our work here is done." It's a big problem if you make your money by investing, though, and everyone at the top of the social pyramid does, so they exercise their immense political power (they're the top of the pyramid, remember) to ensure that the "growth" continues at all costs. It doesn't matter if it's artificial growth, it doesn't matter if it comes at greater expense to someone else, it doesn't matter if it causes social problems -- they keep pumping all the same because it is in their interest to do so, and they keep pumping until something bursts.
In this framing, encouraging financial investment is not an unqualified moral positive. If financial rates of return are low, I'd expect quite the opposite, with investment in financial instruments as a moral negative while investment in, say, better food or used cars would be net positives.
Morality aside, I'd also expect this dynamic to be reflected in rates of return: if rich people can satisfy all of the market demand for financial investment, the best rates of return will be in non-financialized investments, like buying a new used car to replace an increasingly expensive clunker.
Look at asset prices, rent, food, home values, and basically anything that actually matters.