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.
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.
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.
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...