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Lock in the best risk-free rate in a longgg time. Max amount=$10,000 per Social Security Number. Purchase through treasurydirect.gov

Details provided by Jim Sloan, one of the best contributors at SA: https://seekingalpha.com/article/4460097-i-bond-yield-beats-...

I just now did it for DW and me. Kind of a PITA to open the account, but once it's done, it's done.
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Lock in the best risk-free rate in a longgg time.

What do you mean by 'locked in'? I-bonds are variable rate bonds that pay interest that is recalculated every 6 months based on the inflation rate. Sure, the return is high now, because of the current inflation. And because the calculations look at inflation rates over the prior year, there is a floor that you can assume for the rate that will be set in 6 months. But that rate certainly isn't 'locked in' for the 30 year life of the bond - especially considering that the base rate on current bonds is 0%, which means if we return to lower inflation rates, they'll pay little or nothing. And if you cash them in before you've held them at least 5 years (like because the inflation rate and consequently, the interest paid dropped) you will lose the last 3 months of interest. Of course, depending on the inflation rate, that might not be a very large penalty.

I'm not saying don't buy them - I'm just saying that thinking you have a 'locked in' rate doesn't square with how the rate is actually calculated.

AJ
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But that rate certainly isn't 'locked in' for the 30 year life of the bond

Yes, you're right, AJ. But I'd say it's still a good deal. I'm thinking the 0% days are behind us, but that's just my opinion.
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I'm thinking the 0% days are behind us, but that's just my opinion.

Of course, if the recession that a lot of people are predicting happens, we might end up with deflation again.

AJ
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Of course, if the recession that a lot of people are predicting happens, we might end up with deflation again.

My understanding (from reading the Sloan article) is that I-bonds can't drop below 0% rate, at least.
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My understanding (from reading the Sloan article) is that I-bonds can't drop below 0% rate, at least.

Correct. But that's different than having the 0% days behind us, which was my point.

Look - I'm not saying that I-bonds are a bad thing. I'm just saying that characterizing them as a 'locked in high yield' isn't correct either. They need to be purchased with the understanding that the rate they pay can and does vary, and can go as low as 0%. If that fits in your portfolio, great. But if you are looking for a bond that produces a set amount of income, or a minimum of what they are currently producing, then they probably aren't so great.

AJ
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Look - I'm not saying that I-bonds are a bad thing. I'm just saying that characterizing them as a 'locked in high yield' isn't correct either. They need to be purchased with the understanding that the rate they pay can and does vary, and can go as low as 0%. If that fits in your portfolio, great. But if you are looking for a bond that produces a set amount of income, or a minimum of what they are currently producing, then they probably aren't so great.

Agreed. It works for me (and DW). While I have your attention, AJ (and I value greatly your generously provided expert advice here in TMF), do you happen to know whether the interest payments are deposited automatically into the bank account linked to the treasurydirect account I created? I'd think so, but I haven't tracked down the answer yet.
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While I have your attention, AJ (and I value greatly your generously provided expert advice here in TMF), do you happen to know whether the interest payments are deposited automatically into the bank account linked to the treasurydirect account I created? I'd think so, but I haven't tracked down the answer yet.

<blushes>Thanks!

Actually, since I-bonds are savings bonds, I believe that the only way to collect the interest is to cash a bond out, after the minimum 12 month holding period. The interest will accrue, compounding your return. That's kind of the beauty and a large selling point for savings bonds. And that's also the reason that you are allowed to defer paying taxes on the interest that the I-bond accumulates until you actually cash a bond - since the payment of interest is deferred, so are the taxes. If you want to, you are allowed to pay taxes on the interest each year. But that involves some extra work in documenting that interest each year, and dealing with the 1099-INT that shows ALL of the interest in the year you cash the bond in. There's a whole section in IRS Pub 550 https://www.irs.gov/pub/irs-pdf/p550.pdf that deals with US Savings bonds, including how to report the interest and then how to deal with the 1099-INT you get when you cash them in.

The bank account that's linked to your Treasury Direct is for you to be able to purchase more bonds and where the money will land when you cash out bonds. I will say - I haven't owned any savings bonds for a while (back when I owned them, I got paper bonds through my employer's plan), so I'm going off memory and a bit of googling. But that's my understanding of how savings bonds work vs. how regular Treasury bonds/bills/notes work. If you purchased a regular Treasury bond, you could indeed direct the interest to be paid to your linked account. But your interest rate would be pretty pathetic in comparison right now.

AJ
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I believe that the only way to collect the interest is to cash a bond out, after the minimum 12 month holding period.

Yes. That's what I see now on treasurydirect. (I'm obviously new at buying individual Treasuries directly.)

https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
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I've purchased Treasury Bills and I-Series Savings Bonds via TreasuryDirect.gov (TD) in recent years. To me, the system is not as user-friendly and not as straightforward as most of the discount brokers that invest a good deal in technology (Fidelity, Schwab, etc) but after a few purchases you will get a pretty good hang of it. The site design has been unchanged for 10 years if not more. :) I've never heard of any security breaches but have read some online bloggers noting TD's security as a potential concern. (I do not know how secure the Web site is really - not something I can comment on as I'm no technical expert in that area.)

When you buy T-Bills, funds get pulled from your bank account based on the results of the auction, a day or two after its completion. Then the face value gets deposited once the bill matures. So after the initial purchase there is nothing for the buyer to do. No way to sell early via TD web site either but I knew that upfront and that did not bother me.

The process to buy I-Bonds is similar to T-Bills but I've never waited until maturity so not sure about the redemption process at that point. I've redeemed one or two bonds early. The first 12 months are a no-go as AJ mentioned earlier. Funds are not available for withdrawal. Then redemption is possible -- have to go to TD's site and go through the process there -- but with a three-month interest penalty starting the 13th month. After year five the penalty is removed. Feel free to check TD's Web site as I might have gotten some that wrong. :)

A few other things/tricks to keep in mind:
- If you buy on Oct 1 or Oct 19 ... the interest you earn will be the same as the bond will be dated Oct 1
- Some people wait until late in the month to make the deposit although what's the alternative now, a 0.05% high-yield savings account? :)
- If you try to buy on the LAST day of the month... chances are very good that the bond will be dated next month so keep that in mind if timing is important
- the TD site will not clearly and easily specify your penalty if you choose to redeem early; I believe value of a specific bond should have that factored in when you go through the early redemption screens on TD's site
- if you choose to redeem the I-bond early, the process will be pretty simple and the funds will land in your linked bank account within a couple of business days of you hitting the submit button
- one neat feature of TD is that Bills, Notes, Savings Bonds, etc can be purchased in small dollar amounts ($25 or $50 minimum?) which is helpful for some people that are just starting out in their savings/investing journey and need a low "MOQ"

Hope this helps!
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I bought an Ibond yesterday (10/29/2021) and Treasury Direct list the purchase date as 10/01/2021.
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Ga1Dawg : Wow, that's fast! Didn't know purchases posted that quickly. I think they would normally take several business days. But if the Current Holdings » Summary page lists your new bond with the 10-01-2021 issue date then you are good to go!
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Wow, look at that... Wall Street Journal likes I-Bonds too! :)
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-i...
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