Are I Bonds the Best Place To Park Short Funds?

Pecos

Pecos

Well-known Member
Location
Washington State
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?
 

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.
 
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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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.
 
Myquest55 said:
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.
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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.
 
I use I-bonds as a hedge against my mutual funds and single stock losses, but right now, I have about 80% of my portfolio in cash at this time. My FA had strongly suggested to buy into I-bonds just a few months ago. I was watching Larry Kudlow on TV about a month ago and he also suggested using I-bonds as a means to replace putting money into a savings account. Whether you like Kudlow or not, he has been more right than wrong over the years when speaking about the economy.

The philosophy of buying bonds is to use money that you think you won’t be needing anytime soon.
Leann said:
I bought an I-bond a few months back. Fingers crossed.
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oldman said:
I use I-bonds as a hedge against my mutual funds and single stock losses, but right now, I have about 80% of my portfolio in cash at this time. My FA had strongly suggested to buy into I-bonds just a few months ago. I was watching Larry Kudlow on TV about a month ago and he also suggested using I-bonds as a means to replace putting money into a savings account. Whether you like Kudlow or not, he has been more right than wrong over the years when speaking about the economy.

The philosophy of buying bonds is to use money that you think you won’t be needing anytime soon.
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DH & I bought the max last November and again this year. I-bonds limit purchases to $10,000 per person per year.
 
StarSong said:
DH & I bought the max last November and again this year. I-bonds limit purchases to $10,000 per person per year.
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We had been buying bonds (EE) through work since 1977. You can keep an inventory on your computer using the database through Treasury Direct and then it will also track your interest accumulated. The site works best using either Edge or Firefox browsers.

EE bonds don’t pay much, but it was an easy way to have money taken out of your pay and then when we accumulated so much, we would cash them in and buy bonds that paid a higher return.
 
Interest rates are supposed to bump up another 1% in the near future, so maybe that will also push returns higher. What do you think?
 
oldman said:
Interest rates are supposed to bump up another 1% in the near future, so maybe that will also push returns higher. What do you think?
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The rate the ibond pays is adjusted every 6 months, so if inflation does go up, the rate your bond pays is adjusted to the higher rate. Of course it can also go down.
 
I also have moved part of my investments to cash. I did that back in April of 2020. The other account I have left in the market but in the safest low risk area. In the last two years I have not felt confident to go 100%.

I have a money market account that I can use for emergencies
 
As you know MDB, I can't invest in bonds personally, so I don't know anything about I-Bonds. But I have been thinking about what is the best move for those who can and want to avoid stock market volatility so I'll probably learn something new by reading through this thread.
 
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I Bonds sure beat the heck out of savings accounts and CDs. I just bought a $10,000 dollar I Bond last month. It's paying 7%. You can only buy that amount once a year. Had I waited another month, it would be up around 12% I think. I have three that I bought back in 2001, and they pay even more. The best payback is in the stock market long term, but that place drives me nuts.
 
I Bonds at 9.62%. I don't know where I got it in my head it was at 12. Maybe they will be by next year. Back in the 1980s when Paul Volker was raising interest rates to stop inflation, I was in a money market that paid 18% if I remember right. Then inflation was curbed and my market went down to some paltry payout and I dumped it. I just looked it up. It doesn't even exist anymore.
 
JustDave said:
I Bonds sure beat the heck out of savings accounts and CDs. I just bought a $10,000 dollar I Bond last month. It's paying 7%. You can only buy that amount once a year. Had I waited another month, it would be up around 12% I think. I have three that I bought back in 2001, and they pay even more. The best payback is in the stock market long term, but that place drives me nuts.
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I did something similar as you...same bond, same amount, bought it in April. Stock market makes me nuts, too.
 
Aunt Bea said:
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
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What math method or app did you use to come up with the total portfolio percentage? "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%."
 
Leann said:
Hi @OneEyedDiva. Why can't you invest in bonds?
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Muslims are instructed to stay away from Riba (interest). We are not to pay it or charge it. However, more progressive Muslim scholars who recognize it's almost impossible to avoid interest in todays society say that up to 5% of one's assets is acceptable, but we are advised to purge ourselves of interest we may accrue by donating it to non Islamic entities. During the time of Prophet Muhammad (PBUH) interest was seen as something that made the rich richer and helped keep the poor impoverished, thus was seen as haram (harmful). Sounds like what's going on in modern times doesn't it? We can collect dividends and capital gains, however, since they are seen as income from different sources as interest. For me they are significant enough that getting the paltry rate of interest on my bank savings accounts (which I wind up purging anyway) doesn't bother me. I had to be mindful when opening up one of my credit union accounts because what they were touting as dividends was really interest. I opted for an Islamic savings which doesn't pay interest.
 

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