Ibonds for the longer term

Brookswood

Brookswood

Senior Member
It’s hard to know for certain what will happen in May when the new rates for Ibonds are set, but it now appears that the current Ibond fixed rate of 1.3% probably won’t get much if any better starting May 1. But, that is not certain and anybody who tells you they know for certain what the Treasury Dept will do is a fool or a liar, IMO.

I picked up this years allocation of Ibonds. I think 1.3% plus inflation is a pretty good rate these days for a long-term stash of cash. I keep Ibonds for emergency and/or big needs sometime in the future. I don’t care them for short term money since they can’t be sold for one year from the date of purchase. And, the seller forfeits three months of interest if the bonds are sold before being held five years. But, for a long term stash of cash to put towards the new deck you will need or as an emergency fund, I think they are find in a well diversified portfolio.

IOW, if you agree with me that earning 1.3% plus the rate of inflation is desireable for some of your longer term savings, then you might want to purchase your Ibonds before the end of the month.
 

You can also buy TIPS, but they are more complicated and have the potential to lose money if you have to sell them at the wrong time. Ibonds, never go backwards in value.
 
Current rate for I bonds is a combined 5.27%. I've been buying them for DH, me & our trust since their rate zoomed three years ago.

I'll start unloading them if/when I can do better with CDs. Since I buy them every year, if I absolutely needed to (which seems unlikely), I could liquidate all but the those bought over the previous 12 months.
 

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As the topic title says I view Ibonds as a long term inflation hedge. Short term rates can vary a lot. Remember rates under 2% just a few years ago? THE current Ibonds have a fixed rate of 1.3%, and then you add in the current inflation rate. (Not the current short term rate Which may be different from inflation). That’s a descent deal for an extremely safe investment IMO.
 
The annualized rate dropped to 4.28% for bonds bought today through end October. Glad to have bought them last week at 5.27%!

Some banks are offering 1 year CDs at 4.50%, but given that Ibond interest isn't subject to CA taxes, I'd still be better off with Ibonds even at 4.28%.
 
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I've got a couple of 9 month CD's, one at 4.8% and the other at 5%. The cool thing about the 9 month CD's that my Credit Union offers is that they give you one penalty free withdrawal which can be any amount up to all of it, in other words you can close it out at any time penalty free.
 
Clark Howard says it well IMHO:

“Putting money in an I bond is not investing. It’s a method of saving and it gives you a way of knowing that inflation isn’t eating your money up — because you’re kicking past inflation.”
 
Trade said:
At my age, 77 next week, I'm not looking to make any long term investments.
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I'm 68, but already I don't feel like I would benefit much from buying any more i-bonds, I'd probably be reluctant to sell them if inflation was high and they were earning a good rate, and I'd be reluctant to sell them before the 5 yr mark, and by that point I'll be starting to have RMDs. So I really don't see what would be a good time to use them, I think they'd wind up being left to my daughter.
 
The fixed rate on newly purchased Ibonds is staying at 1.3% for another six months. Purchasers keep that rate for the life of the bond which is 30 years unless the purchaser sells the bond early. Of course, also add in the current inflation rate on top of the fixed rate.
 
I'll cash them in when/if the rates drop significantly. If I hold onto them for at least 5 years there's no interest penalty. Less than 5 years carries a loss of 3 months of interest.

Should the overall bond rate drop to 2%, on a $10K bond we're talking a $50 penalty. I can live with that.
 


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