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Comment by hsnewman | Hacker News Reader

Just go for I-Bonds instead.

The $10k limit makes I-Bonds mostly suitable for parking emergency funds. If you’re saving up more money (for buying a house etc), a savings account is still the best bet. I’m in this position and the interest rates are frustrating, but everything else is very risky IMO.

> If you’re saving up more money (for buying a house etc), a savings account is still the best bet

Open a TreasuryDirect account and buy bills, currently yielding about 50 bps for 4 weeks [1]. Or search out a high-yield online (FDIC insured) savings account, presently paying up to 80 bps [2].

[1] https://www.treasurydirect.gov/instit/annceresult/annceresul...

[2] https://www.bankrate.com/banking/savings/best-high-yield-int...

Thanks for the recommendation! I’ve never bought bills, I will check it out. I use Marcus savings which just increased its rate from 50 bps to 60 bps yesterday.

(PS: I always search for your comments in any finance-related threads as I learn a lot from them. Just an appreciation!)

Thanks!

You can buy CDs from a Vanguard brokerage account that are yielding about 50% more than the equivalent durations offered at gsbank/Marcus: https://personal.vanguard.com/us/FixedIncomeHome

Brokerage CDs are a pain if you need your money back early. Unlike a normal CD, which you can redeem early for a penalty, you can only sell brokerage CDs on a secondary market. They trade at huge discounts, and you have to pay fees to involve a broker because they are not liquid enough to trade yourself. At least this is how it was when I tried to do this a few years back.

It sounds like I-Bonds are not meant to subsidize the poor instead of the rich which is a nice change for once.

> go for I-Bonds instead

Series I bonds promise a 0% real yield. TIPs [1] are currently offering between 0.5% and 1.6% of real yield [2]. Plus, no cap.

[1] https://www.treasurydirect.gov/indiv/products/prod_tipsvsibo...

[2] https://www.treasurydirect.gov/instit/annceresult/annceresul...

Savings accounts are effectively giving you -8% right now

> Savings accounts are effectively giving you -8% right now

Savings accounts have always been of dubious value for preserving or accruing value.

I don't know the last time I had money in a savings account. Probably decades. Even when interest rates were higher I remember savings account interest was pretty paltry.

In US purchase power.

USD has been increasing against major foreign currencies in the last few months so there is some upside if you're planning on spending outside the US.

(For example, USD is 12% up against the euro in the last year and 20% vs the yen)

Actually Series I bonds are negative real yield because the interest is taxed federally.

Which is still better than the savings accounts that the comment above was comparing them to, which are taxed federally and often locally.

And if one happens eventually come under the IRS Form 8815 MAGI cutoff, it has a federal income tax exclusion for education [1]. Consistent with what you say, it is exempt from state income taxes, which savings accounts typically aren't.

[1] https://treasurydirect.gov/indiv/planning/plan_education.htm

Negative interest rates on cash would solve this problem by getting rid of inflation.

So better to park money in TIPs or in Bills from your other comment?

> So better to park money in TIPs or in Bills from your other comment?

The shortest term TIPs are sold in is 5 years. They can be sold earlier, but the price will depend on market conditions.

Series I bonds have a 30 year term, but they're redeemable with a penalty after 12 months and without a penalty after 5 years.

Bills have no inflation protection, but they're sold in terms as short as 4 weeks. They currently yield 50 bps, in line with Goldman Sachs' savings account, but lower than others in the market. (Savings accounts can change their rates on a whim; bills do not.)

Where are you seeing real yield on TIPS? There is certainly that 0.125% positive fixed coupon rate subject to that principal inflation adjustment. Looking at https://www.treasurydirect.gov/instit/annceresult/annceresul... TIPS tab, all the recent auctions had a high yield of < 0% with the exception of the 30-year TIPS on 02/28/2022 at a high yield of 0.195%. Secondary market does seem to show some deals on 20+ years with some getting close to 0.50%. TIPSWatch [1] runs the numbers on I Series and TIPS. TIPS yields are improving but I'm not sure it has quite changed the balance yet. Of course, especially in tax deferred/exempt accounts, TIPS have that great attractiveness of principal adjustment (depending on one's inflation view versus nominals) and no annual limits so the time will probably arrive soon enough.

[1] https://tipswatch.com/2022/04/21/new-5-year-tips-auctions-wi...

TIPSWatch also wrote up a comparison between I Bonds and TIPS [1] from September 2021.

[1] https://tipswatch.com/2021/09/07/i-bonds-vs-tips-whats-the-b...

You’re correct. Wish I could edit my original comment. Series I still beats TIPS.

Yes, these are becoming more popular. Unfortunately, there is an annual purchase limit that is pretty low ($10K per person plus maybe an extra $5K if you can use a large income tax refund).

There was a time not that many years ago (15?) where I was actually earning higher interest in a bank CD than I was paying on my mortgage. I was also able to get short term cash advance at low introductory rate on a credit card, like $20K, and invest it short term at a higher rate. Good times.

Interest is taxed as income. Debt does not cancel out income unless paid on a mortgage when itemizing deductions.

Yes, there is before-tax yield and after-tax yield. Tax rates are at historic lows right now and unlikely to stay that way long term (current rate cuts expire after 2025). Since tax applies to all kinds of income, I'm not sure why it should be a big factor in this discussion any more than it is in discussions of crypto, tech salaries, etc.

I Bonds might be a good alternative to CDs but are not comparable to a savings account. Your money is essentially locked in.

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