Are I Bonds the Best Place To Park Short Funds?

Pecos

Well-known Member
Location
South Carolina
I have a fairly large pot of money currently parked in a CD that is paying 3%. I am planning to use that money to move to Washington within a couple of years and I want to be absolutely sure that it will be there went we make our move.

Unfortunately, my CD is maturing in the next few weeks and the best interest rates I can find are about 1% or less and carry longer terms than I want. U.S. Government I bonds, which will pay slightly more, are starting to look like my best alternative for at least part of these funds. I will be limited to $10K each calendar year, and can park another $10K in an account for my wife. We can move another $20K into I bonds next year.

I have looked at short term corporate bond funds, but they still look more volatile than I want.

So what is your opinion about I bonds, particularly those bought directly from the Government Treasury Website? Has anyone encountered any difficulty getting their money back in a timely manner? Does anyone expect that regular CD's will start paying more than the inflation rate anytime soon?
 

Aunt Bea

SF VIP
Location
Near Mount Pilot
I'm old fashioned and more than a little bit insecure so I keep my short term money in rock-solid readily available money markets, CDs, etc...

It's tempting to look for higher returns but I try to go with the old adage that any money you will need in the next five years shouldn't be in the market.

It helps to take the sting out of the low yields on cash if you look at your portfolio's total return.

If ten percent of your portfolio is in cash with an annual return of 1.00% and the other ninety percent of your portfolio is invested in the market returning 7.50% your total portfolio is still returning a respectable 6.85%.

For me, the loss of a decent return on cash is the price of safety.

Good luck with your decision.
 

mathjak107

Senior Member
the total return on ibonds redeemed early is pretty low too. if you redeem earlier than 5 years you lose 3 months interest .


The fixed rate will be 0.00% for I bonds issued from May 1, 2020 through October 31st, 2020. The variable inflation-indexed rate for this 6-month period will be 1.06% The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in between May 2020 and October 2020, you’ll get 1.06% for the first 6 months.
 

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Myquest55

Member
Location
Happily in MAINE
StarSong - I saw that note about I-bonds. You buy in at the face value and they earn interest. They are 30 year bonds and you have to hold them for at least 5 years before you can cash them without a penalty. Still, I thought I could spare some $$ for one or two. (The minimum amount is $25)

I looked into opening a Treasury Direct Account so I could buy one but their set up was INSANE! They wanted so much information as well as passwords, secret photos, captions, etc.....I just closed the window and backed away. Gone are the days you could buy a bond at a bank. Sigh.
 

StarSong

Awkward is my Superpower
StarSong - I saw that note about I-bonds. You buy in at the face value and they earn interest. They are 30 year bonds and you have to hold them for at least 5 years before you can cash them without a penalty. Still, I thought I could spare some $$ for one or two. (The minimum amount is $25)

I looked into opening a Treasury Direct Account so I could buy one but their set up was INSANE! They wanted so much information as well as passwords, secret photos, captions, etc.....I just closed the window and backed away. Gone are the days you could buy a bond at a bank. Sigh.
I bought some. As for the info collected, they collect the same info as any new bank account or credit card. Standard ID including your SS# and state ID (driver's license) and for you to set up passwords, recognize a photo and answer secret questions.

They can be cashed out after a year. Yes, between 1 - 5 years there's a three month interest penalty. Like a CD.
Shrug
Even with that penalty, current rates still work out dramatically higher than CDs or other safe, very conservative investments.
 


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