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.
 

Attachments

  • I bond rate.JPG
    I bond rate.JPG
    52.7 KB · Views: 2
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%.
 
Last edited:
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.
Click to expand...

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.
 
The new Ibonds have reduce the fixed rate a bit from 1.3% to 1.2%. I think that's still a descent amount above the inflation rate. If we see more inflation, which I think is probable given the massive Federal deficit spending that has occurred and will continue to occur under both parties, having something that is secure and give you a return above the inflation rate is a valuable part of a person's investments. Sadly, we can only buy $10,000 a year of Ibonds. Still if you buy this year, and then next year and do the same year after year they will accumulate. Your purchases and their earnings will continue to earn a rate that is above inflation. This is all my opinion. I have no special knowledge or skills. Nothing is guaranteed.
 
Brookswood said:
The new Ibonds have reduce the fixed rate a bit from 1.3% to 1.2%. I think that's still a descent amount above the inflation rate. If we see more inflation, which I think is probable given the massive Federal deficit spending that has occurred and will continue to occur under both parties, having something that is secure and give you a return above the inflation rate is a valuable part of a person's investments. Sadly, we can only buy $10,000 a year of Ibonds. Still if you buy this year, and then next year and do the same year after year they will accumulate. Your purchases and their earnings will continue to earn a rate that is above inflation. This is all my opinion. I have no special knowledge or skills. Nothing is guaranteed.
Click to expand...
So 3.1% overall for new purchases.

Have you cashed in older bonds that had lower fixed rates and whose higher inflation rate made them very attractive a couple of years ago? Or are you letting them ride? I'm holding some from 2021 & 22 with 0% fixed rates, so they're now earning a paltry 1.9%.
 
StarSong said:
So 3.1% overall for new purchases.

Have you cashed in older bonds that had lower fixed rates and whose higher inflation rate made them very attractive a couple of years ago? Or are you letting them ride? I'm holding some from 2021 & 22 with 0% fixed rates, so they're now earning a paltry 1.9%.
Click to expand...
I am slowly getting rid of my 0% and 0.4% Ibonds. My 0.9% and 1.3% fixed rate bonds will be part of my investments. We’ll see about the new 1.2% Ibonds.

Right now I think adding them is a good idea. You get over 1% more than the inflation rate, which is good. But, they are meant for the long run, not shorter term. The $10,000 purchase limit means you can’t jump in and out based upon changing interest rates. I use them as an emergency fund. If the stock market goes to Helsinki for several years and I need cash, then I can sell an Ibond rather than sell stocks at a depressed price.

I wish they would increase the buying limit to keep up with inflation. It should be closer to $20,000 a year today to keep us even in real terms. Instead they did away with the option to buy and additional $5000 of Ibonds with your income tax refund. 😡
 
This is the first i heard of it too but this is straight from Treasury Direct…thx for the heads up, Brooks👍

“Starting January 1, 2025, you will no longer be able to buy paper Series I savings bonds with your tax refund.​

Why can’t I use my tax refund to buy paper series I bonds anymore?​

This option was costly and not frequently used. The mailing of physical savings bonds was also subject to fraud, theft, loss, and delays. Buying savings bonds online is simple, safe, and affordable.”
 
I own five I Bonds. Two of them I bought in 2001, and I've bought one each year for the past 3 years. The 2001 bonds are returning about 4.5%. The newer ones a bit less. I have a small amount in a mutual fund, which drives me crazy as it goes up and down, and currently the bonds are doing better, but the mutual fund has surged in the last couple of months. I know stocks are better long term, but the bonds are more comfortable. I have a bunch in a money market fund, which is paying more than the I bonds, and I'm considering moving much of that into stocks, as interest rates fall.
 
Aunt Bea said:
Be careful about chasing yields/returns, find an allocation that you are comfortable with and rebalance every year or so to maintain that allocation.
Click to expand...
I don't have much confidence in my ability to pick stocks, so I'll stay with my mutual fund, or maybe buy into a different one and have two.
 
Aunt Bea said:
Be careful about chasing yields/returns, find an allocation that you are comfortable with and rebalance every year or so to maintain that allocation.
Click to expand...
Sounds good. Widely advised. I don't do it.

But over the last 12 months (rolling) I got returns of over 39% on my 401(k). YTD only 24%, but that's the stock market for you.
 

You must log in or register to reply here.

Back
Top