Comment by timr | Hacker News Reader

Comment by timr | Hacker News Reader

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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

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

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.

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.

Just a reminder, it's most likely 6% annualized return for the second 6 months.

One minor I-bond hack: It's generally better to only buy them a few days before the end of the month, since it counts the same as if you bought them at the beginning of the month. For all timing purposes (interest, 12-month lock-up, and 5-year penalty), only the purchase year and month matter. The day is irrelevant.

In other words, time it correctly and your money is only locked up for 11 months + a few days. And since interest accrues on the 1st of the month, this also helps the interest rate math slightly.

Just don't go too close to end-of-month, since (iirc) it takes a few days for the transfer/purchase to go through online, and you don't want to get bumped to the next month.

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.

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.

They were great when they had a fixed rate component. They are also nice in that tax liability is deferred until you redeem them.

A CD that returns almost 10%. You'd be crazy to pass that up.

4.081% is close to 5%?

No, I should have said "approaching 5%".

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