i-Bonds How-to Q&A as of 2021 November

[dualstow]

(I put this in the Bonds section because it has the word “bond” in it, but newcomers should be aware that this particular type of instrument, the savings bond known as the i-Bond, is not for the Bond portion of a permanent portfolio. Many use it for deep cash, i.e. a subset of the cash portion that is not to be touched for a long time. Hat tip to jhogue. Now read on).

This is a thread about some of the logistics and mechanics of maneuvering through the website, and a bit more. Not so much about i-Bond rates, nor about their role in a VP or even PP. I had posted a few times about difficulties with the site, (e.g. finally learned that the Back Button breaking the site is a feature and not a bug. Thanks, guys. I learned that you have to have your ZIP+4 ready, not just your general zip code).

I thought I'd make a separate thread rather than gunk up the threads that are about the great value of i-bonds and their role in the portfolio.

Also, things have changed, so I don't know that the old threads would help me, e.g. that business-card sized plastic decoder thing is defunct.

Just some quick and dirty Q&A.

_ I see no info about my paper bonds. On a now long gone PC, I used to type in the digits of the paper bonds and build up a list. Eventually, I had a spreadsheet file that I could upload and get the list each time I visited (though the official website would not save it). Is that still doable?

_ I copied and pasted some notes from the site about converting paper to digital. Is that the way to go now? I don't have to take my paper bonds to the bank? (My bank is still linked to my TreasDirect account, ready to go). {Ans: Yes, print form, mail bonds. See Kriegs’ details below}.

_ I can probably look this up eventually, but when the hell does one redeem I-Bonds? {Ans.: Can hold 30 years, as they will pay interest}. (I'm a little frazzled right now having been booted off my account even though I successfully logged in. Fixed it with a phone call this time). I have a vague memory that my EE bonds double at 17 years and then they still pay interest but it may not be worth it. I seem to remember Sophie finding a relative's bonds and saying she wasn't even going to cash them. I'm drawing a blank on I-bonds.

Thanks in advance. I'll check in later.

[pp4me]

Every morning when I get up I tell myself I'm going to call TD at the number they gave me when I emailed them about why the website says my account was closed, which it was, but when I try to open up a new one they say I already have an account.

Then I ask myself why ruin a perfect day when I have so few left?

So I will do it tomorrow.

[dualstow]

So I will do it tomorrow.

Good luck. My wait time was only about 10 minutes this time.

[dualstow]

…
_ I can probably look this up eventually, but when the hell does one redeem I-Bonds? (I'm a little frazzled right now having been booted off my account even though I successfully logged in. Fixed it with a phone call this time). I have a vague memory that my EE bonds double at 17 years and then they still pay interest but it may not be worth it. I seem to remember Sophie finding a relative's bonds and saying she wasn't even going to cash them. I'm drawing a blank on I-bonds.

ok, I found the answer to this one. From the site:
I*Bonds earn interest for 30 years if you don't cash the bonds before they mature.

So the answer is, never. Or at least when I’m really old.

[Kriegsspiel]

_ I copied and pasted some notes from the site about converting paper to digital. Is that the way to go now? I don't have to take my paper bonds to the bank? (My bank is still linked to my TreasDirect account, ready to go).

Yup. I converted some paper bonds my grandparents had given me into a Conversion Linked Account. Now I can just see them on the website. You don't take them to the bank, you print out a form, fill it out, then mail the bonds to the Treasury in Parkersburg, WV. It takes a week or two IIRC, then they show up in the Conversion Linked Account on TD.

_ I can probably look this up eventually, but when the hell does one redeem I-Bonds? (I'm a little frazzled right now having been booted off my account even though I successfully logged in.

That happens sometimes.

Fixed it with a phone call this time). I have a vague memory that my EE bonds double at 17 years and then they still pay interest but it may not be worth it. I seem to remember Sophie finding a relative's bonds and saying she wasn't even going to cash them. I'm drawing a blank on I-bonds.

Thanks in advance. I'll check in later.

20 years for EE doubling. They both earn interest for 30 years.

[dualstow]

Many thanks, Kriegs.

[pp4me]

So I will do it tomorrow.

Good luck. My wait time was only about 10 minutes this time.

Well, so much for that. Apparently Veterans Day is a federal holiday.

[dualstow]

Well, so much for that. Apparently Veterans Day is a federal holiday.

Yeah, today the stock market was open but the bond market is closed.

[dualstow]

I probably shouldn’t post this without logging back in to recheck things, as I’ve forgotten most of what I learned about i-bonds since I bought these but whatever …

I see I have some bonds from 2013. Next to them it says 3.74%. I’ll have to log back in and recheck if that stated yield was lowered by a negative variable rate or if it’s the current combined rate for that bond, because WolframAlpha says my true CAGR is a mere 1.88%. That’s not so great (although certainly better than cash in my local bank).

I have some bonds from 2005. Next to them it says 4.76%. WolframAlpha says my CAGR so far is 3.39% over those 16.25 years. Not as thrilling as 4.76% but pretty great compared to the bank.

All my other bonds are paper EE bonds.

[barrett]

Dualstow, I’ll try to answer what I think you are asking. Your bond that shows 3.74% has a fixed rate of .2%. Your bond that shows 4.76% has a fixed rate of 1.2%. They are not yet showing a higher composite rate because of the months of purchase. When the six-month period where the variable rate is 7.12% kicks in, those bonds will show up as roughly 7.32 & 8.32% respectively. Hope this helps!

[dualstow]

Dualstow, I’ll try to answer what I think you are asking. Your bond that shows 3.74% has a fixed rate of .2%. Your bond that shows 4.76% has a fixed rate of 1.2%. They are not yet showing a higher composite rate because of the months of purchase. When the six-month period where the variable rate is 7.12% kicks in, those bonds will show up as roughly 7.32 & 8.32% respectively. Hope this helps!

In other words, the overall rate was very low until recently, right? That’s why the CAGR is bad? I haven’t been following i-bonds at all, for years, but I have been following inflation, and it feels like a short while ago the inflation rate was nearly zero and after that still very low for a long time.
Thank you, Mr B!

[barrett]

In other words, the overall rate was very low until recently, right? That’s why the CAGR is bad?

That is correct, dualstow. Below are two links that should answer a lot of your questions. This is from Treasury Direct:

https://www.treasurydirect.gov/indiv/re ... dterms.htm

Scroll down a bit and you can see all the fixed rates on I-Bonds since they were first issued in September of 1998. Remember that both the fixed rate and the variable (inflation) rate are only changed on May 1st and November 1st, so it's not a ton of data to sift through.

Next, have a look at this great work by Numbers Chuncher from Bogleheads:

http://eyebonds.info/ibonds/home1000.html

That one lets you click on any start date and then see the inflation rate, composite rate and total value of any I-Bond ever issued. NOTE that the inflation rates that Numbers Cruncher uses on that site are all for six months only. So, for example, even though everyone is talking about the current "annual" yield of 7.12%, on that site is will show up as 3.56% because the inflation rate will reset again on 5/1/22.

Lastly, every I-Bond will get that 7.12% annualized rate for six months, but depending on what month you purchased a bond, it might not necessarily show up right away. So far I am only seeing that 7.12% (plus the fixed rate) for bonds purchased in either May or November. Starting on 12/1 I will see that 7.12% kick in on all bonds purchased in June or December. And so on.

From the first link you'll see what a great deal I-Bonds were for roughly the first fours years when the fixed rate was at least 2% and as high as 3.6%. Just an educated guess that if the US Treasury wanted anyone to buy these things, they had to offer something that could compete with both roaring stock and real estate markets.

As always, if I have bungled anything, I will hope that jhogue chimes in to mop up my mess!

[jhogue]

The only thing I would quibble about is that this thread belongs with Cash, rather than Bonds.

[dualstow]

The only thing I would quibble about is that this thread belongs with Cash, rather than Bonds.

I struggled over that, JHogue. :-) You’re right. Even though i*Bonds are often used for deep cash and certainly not for what we know as the Bond portion of the pp, I figured “Bond” is right in the name, so it felt right to put it in the Bonds §.I edited a note into the top of the first post.

[jhogue]

The only thing I would quibble about is that this thread belongs with Cash, rather than Bonds.

I struggled over that, JHogue. :-) You’re right. Even though i*Bonds are often used for deep cash and certainly not for what we know as the Bond portion of the pp, I figured “Bond” is right in the name, so it felt right to put it in the Bonds §.I edited a note into the top of the first post.

It’s not a big deal, but I try to emphasize that I-bonds and EE-bonds are not the same thing. I-bonds are for “Deep Cash.” EE-Bonds are for “Deep Bonds.” Think of opposite ends of the barbell.

[dualstow]

I bought my 10K worth of i-bonds this week. Really wanted to do it earlier but I was out of town and Treasury Direct is not something I can do (nor want to do) from my phone.

I have no idea where rates are going but it feels good to make another purchase. I have drunk the i-bond koolaid.

[barrett]

I bought my 10K worth of i-bonds this week. Really wanted to do it earlier but I was out of town and Treasury Direct is not something I can do (nor want to do) from my phone.

I have no idea where rates are going but it feels good to make another purchase. I have drunk the i-bond koolaid.

Buying toward the end of the month is an old Boglehead strategy because the eventual interest is paid the same whether you buy the first of the month or toward the end of the month. And buying anytime starting 11/1/21 and before 5/1/22, you still get that annualized 7.12% for the first six months you hold them. And good call not trying it from your phone!

[snedgar]

@JHogue, could you expand on your comment, below, regarding ”EE-Bonds are for “Deep Bonds"? I have not previously heard that perspective.

[jhogue]

@JHogue, could you expand on your comment, below, regarding ”EE-Bonds are for “Deep Bonds"? I have not previously heard that perspective.

@snedgar:

Harry Browne originally prescribed a Treasury Money Market mutual fund for the Cash quadrant of the HBPP. The idea of “Deep Cash” originated with Medium Tex. He used it to describe using I-bonds as an improved cash alternative. MT argued that I-bonds are as safe and liquid as a Treasury Money Market, but they offer superior yield and tax treatment. To get full value from I-bonds, though, you must hold I-bonds for a minimum of one year; 5 years to avoid any penalty; and 30 years for maturity.

EE bonds can play an analogous “deep” role in the Bond quadrant of the HBPP. They are as secure as a 20 or 30 year Treasury bond. When held for 20 years, EE bonds double in value, producing an impressive tax-deferred annualized yield of 3.53%. At present 20 year T-notes yield 2.19%. Thus, similar to I bonds, EE bonds offer a superior long-term yield as well as the advantages of federal tax deferral for the life of each bond.

The catch comes in actually holding EE bonds. The annual yield is quite low (0.1% p.a.). Since you cannot get the doubling yield effect unless you hold them for the entire 20 year period, they are not as effectively liquid as I-bonds or regular Treasurys. Many investors also argue that they can beat the 3.53% fixed yield by using stocks instead of bonds. That may be true for some investors some of the time, but it is also beside the point: Holding EE bonds offers the possibility of improving the long term yield for the Bond quadrant.

[Xan]

I agree that I-bonds are a fit for deep cash. If you need to cash them out before 5 years the penalty is really minimal, and you're ahead of where you'd have been with a money market account anyway.

I'm not sold on EE-bonds as deep bonds. If the 30-year Treasury starts yielding, say, 5%, then you can't just sell your EE-bonds you've had for, say, 8 years. You're stuck.

[snedgar]

Thank you, JHogue.

I appreciate the clarification, although I was hoping you had discovered some kind of magical, one-way capital appreciation aspect of EE bonds.

Interestingly, I think there actually is another magical hack for the cash quadrant. For those of us who are federal employees, the G-fund pays "interest" that is based on the 10-year T Bond but with no risk to principle. Gotta pick up nickels and dimes when we find them, right?

[jhogue]

I agree that I-bonds are a fit for deep cash. If you need to cash them out before 5 years the penalty is really minimal, and you're ahead of where you'd have been with a money market account anyway.

I'm not sold on EE-bonds as deep bonds. If the 30-year Treasury starts yielding, say, 5%, then you can't just sell your EE-bonds you've had for, say, 8 years. You're stuck.

1. I agree that the audience for EE bonds is smaller than that of I bonds. I would also add that if you buy EE bonds after you turn 65, you are probably buying them for your heirs.

2. It would take a 300+basis point burst of inflation in order to raise the 30 year T bond from its current 2% yield to 5%. I think that would require enormous structural changes in terms of a reversal of the current demographic trends and inflationista-style monetary policies. Given the Japanese deflationary example of the last 30 years, I can't foresee a scenario demonstrating how that might happen.

[jhogue]

Thank you, JHogue.

I appreciate the clarification, although I was hoping you had discovered some kind of magical, one-way capital appreciation aspect of EE bonds.

Interestingly, I think there actually is another magical hack for the cash quadrant. For those of us who are federal employees, the G-fund pays "interest" that is based on the 10-year T Bond but with no risk to principle. Gotta pick up nickels and dimes when we find them, right?

@snedgar:

1. No magic in US savings bonds, just a limited free lunch for the middle class.

2. The only problem I can see with the G-fund is that the rest of us can't buy it.

[barrett]

The catch comes in actually holding EE bonds. The annual yield is quite low (0.1% p.a.). Since you cannot get the doubling yield effect unless you hold them for the entire 20 year period, they are not as effectively liquid as I-bonds or regular Treasurys.

It's hard to overemphasize this point. So much of EE-Bonds' oomph comes in that one magical day AFTER they have been held for 19 years and 364 days. I-Bonds are almost always a good deep cash deal even if they are only held for one year. Holding EE-Bonds for all those years before the doubling takes place feels like a long sunk-cost exercise. Not saying they absolutely don't have a place in some folks' portfolios, but it's hard to really understand what that 20 years of waiting feels like until one has actually been through it. If circumstances change dramatically and an investor needs to use that money after, say, 17 or 18 years, they probably could have done better elsewhere.

I think it's fair to say that I-Bonds are WAY easier to understand and way more liquid.

[jhogue]

I-bonds are way easier to understand when there is a major upswing in inflation (like right now).

The appeal of EE bonds would be easier to understand if we experienced long-term deflation.