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Yes a permanent 1.3% added to the I-bond inflation rate is a good deal.
No, a permanent 1.3% real rate of return is not a good deal. Forget I-Bond as the instrument. A permanent 1.3% real rate of return for a risk free instrument (it is the US government and hence risk-free) is not a good deal.
the rates change every 6 months on i bonds while money markets change daily …that could be good or bad depending if rates go up or down.
right now i rather own money markets and short term bond funds that exceed the i bonds and can be easily traded , sold or spent.
perhaps if they allowed 5 to 10x the limits they have it would be worth it but as of now it s to much trouble for to little overall reward for me to bother
Agree. I have been buying t-bills for the first time in my life. I bought at this week’s auction and got 17 week bills at a 5.44%. My money market is at 5.1%.
As my first post stated: the interest rate of an I-bond rate bought now is 5.27%, that rate is guaranteed for 6 months from Nov 1.
Unlike other bonds, even other Treasury bonds, I-bonds are tax-free while accumulating interest.
And when they are cashed in they can be totally tax-free if used for education.
Or you can cash them when retired and you may be in a lower tax bracket.
If your bond is paying 4.5% interest and your taxes are 20% then your after-tax interest rate on your bonds is 3.6%.
I-bonds paying 5.27% for the win.
Forget I-Bond as the instrument. A permanent 1.3% real rate of return for a risk free instrument (it is the US government and hence risk-free) is not a good deal.
The 1.3% is not permanent. A savings bond owner is not subject to interest rate risk in the traditional sense. If rates go up the owner can redeem at the accrued value, pay the taxes and then reinvest at the higher yield. There's also a penalty of 3 months' interest if redeemed after less than five years.
Such a maneuver is not possible with marketable bonds. If interest rates go up, the price of the bond drops accordingly.
For taxable accounts there's nothing "safe" that will give a positive return after inflation and taxes. I-bonds might be interesting to someone who (1) has maxed out other tax-deferred offerings available to them, (2) does not want all of their long-term money in stocks.
Of course they have their limitations. They mature in 30 years, interest penalty applies if held less than five years, and no rebalancing into other assets without paying taxes. The positives are (1) exempt from state income tax, (2) federal taxes deferred until redemption, and (3) will never see a loss.
Yep. And the interest "penalty" is simply the last 3 months of interest. The LAST 3 months that has accrued. So if you cash in after the rate has dropped low- you are really not losing much. I can't imagine that I would not cash mine in after 5 years, or before, but who knows. If the rates go WAY up, I would cash out and repurchase, for sure. I have no tax-deferred options at all now, so have not added to my investments since I retired. The cash that I used to buy mine came out of a savings account that was earning next to nothing. I'm satisfied.
ChessieMom, I also keep 25k in IBond because they are easily accessible and I get more interest than a savings account. It’s perfect for this type of situation and not sure why people are so negative. Obviously it’s not a place for putting all your money.
ChessieMom, I also keep 25k in IBond because they are easily accessible and I get more interest than a savings account. It’s perfect for this type of situation and not sure why people are so negative. Obviously it’s not a place for putting all your money.
iBonds definitely have their place and time. For parking money in a "safe" place, it's one option to consider. Brokered CDs have their place, as do individual bonds.
For taxable accounts there's nothing "safe" that will give a positive return after inflation and taxes. I-bonds might be interesting to someone who (1) has maxed out other tax-deferred offerings available to them, (2) does not want all of their long-term money in stocks.
Of course they have their limitations. They mature in 30 years, interest penalty applies if held less than five years, and no rebalancing into other assets without paying taxes. The positives are (1) exempt from state income tax, (2) federal taxes deferred until redemption, and (3) will never see a loss.
Can you or someone explain how the interest penalty works? We have 10,000 each (husband) and are considering taking it out at 5 yr. mark. How much of a hit will we take?
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