I Bonds!

Discussion of the Cash portion of the Permanent Portfolio

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vnatale
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I Bonds!

Post by vnatale » Sun Sep 20, 2020 12:56 pm

When Savings Bonds Make Sense

Series I savings bonds are safe options, but don’t go all in.


https://www.kiplinger.com/article/credi ... sense.html




As you survey safe options to eke out interest on your savings, one that may catch your eye is the Series I savings bond. I bonds are issued by the U.S. Treasury Department (buy them at treasurydirect.gov) and backed by the full faith and credit of the government. Such a low-risk investment has appeal for savers, “particularly when there’s so much turmoil and uncertainty in the economy,” says Greg McBride, chief financial analyst for Bankrate.com. But I bonds are likely suitable for only a portion of your savings.
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Re: I Bonds!

Post by sophie » Sun Sep 20, 2020 8:06 pm

Vinny, you read it here first. Not news to us!!
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vnatale
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Re: I Bonds!

Post by vnatale » Sun Sep 20, 2020 8:07 pm

sophie wrote:
Sun Sep 20, 2020 8:06 pm
Vinny, you read it here first. Not news to us!!
Oh, yes, for certain!

That was the reason for the exclamation point in the Subject title. To point out that it was now being recognized elsewhere (although with a caveat).

Vinny
"I only regret that I have but one lap to give to my cats."
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Re: I Bonds!

Post by boglerdude » Sun Sep 20, 2020 10:46 pm

Shame the rate re-adjusts before the election.
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Re: I Bonds!

Post by jhogue » Tue Sep 22, 2020 11:38 am

I think that I bonds will never get much recognition.

The very fact that they carry a 0.00% expense ratio means that banks and brokerage firms will never have any incentive to advertise them. In fact, they have every reason to instruct their legions of financial advisors NOT to advertise them.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: I Bonds!

Post by Kevin K. » Thu Sep 24, 2020 9:43 am

Exactly right about iBonds.

It seems to me that CDs from online banks and places like Navy Federal Credit Union suffer from the same treatment. The 250K FDIC/NCUA limits make them useless for institutional investors and of course brokers can't make money selling them, but at this point earning a safe ~.80-1.0% on short-term CDs beats the hell out of even 10 year Treasuries.
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Re: I Bonds!

Post by vnatale » Thu Sep 24, 2020 10:29 am

The major drawback with I bonds is the annual purchase limit.

Yes, if you start early and do the limit each year it can eventually add up to an appreciable amount.

But if you want to go I Bonds today and have none it is going to take a while to get there.

Is there ANY other investment where there are annual purchase limits?

That is a a MAJOR distinction of I Bonds compared to every other investment.

Vinny
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Re: I Bonds!

Post by jhogue » Thu Sep 24, 2020 2:54 pm

Savings bonds and CDs both have purchase limits.

In the case of CDs, the purchase limit ($250,000) is a function of FDIC and NCUA insurance policies. Those limits are periodically adjusted (always upward), primarily because of the effect of inflation.

In the case of savings bonds, annual purchase limitations are imposed at the discretion of the U.S. Treasury. The Treasury can change the limitations whenever they want, and it has done so frequently in the past. Not so long ago, you used to be able to buy savings with a credit card and the limit was $30,000 per person. Not anymore. The Treasury is conflicted about the program. It wants people to save, but it acts like it is afraid that you might get rich at Uncle Sam's expense.

I don't think that Trump's current Treasury Secretary is a particularly bad guy compared to most bankers (who are modern day pirates in nice clothing). However, a simple google search of his official statements reveals that he has no interest in the savings bond program whatsoever. None. Zip. Not a single mention that I can find. The conclusion I draw from that is that he lacks a basic understand that saving money is a habit formed over time, and that savings bonds are one of the few government programs that actually might encourage people to become thrifty and prodigious savers-- as they once were.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: I Bonds!

Post by Lonestar » Wed Oct 07, 2020 11:45 am

Ah..........the good old days. ibonds $30K per year and tons of frequent flyer miles on the credit card. At times the fixed portion was over 2.5%. Maybe 3%.

At my advanced age I'm facing some issues with my remaining Ibonds. At death they do not reset the cost basis to the heirs like equities. The heir must pay the accumulated deferred interest. It even gets a little complicated in transferring ownership to the spouse.
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Re: I Bonds!

Post by Kriegsspiel » Wed Oct 07, 2020 7:11 pm

Lonestar wrote:
Wed Oct 07, 2020 11:45 am
At my advanced age I'm facing some issues with my remaining Ibonds. At death they do not reset the cost basis to the heirs like equities. The heir must pay the accumulated deferred interest. It even gets a little complicated in transferring ownership to the spouse.
Why don't you start redeeming them early, paying whatever taxes there are, and buy something else with that capital that won't have those issues for your heirs?
I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. Who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. . . Nothing is better for a man than to eat and drink and enjoy his work.
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Re: I Bonds!

Post by Lonestar » Wed Oct 07, 2020 11:01 pm

I have done that recently, cashing in some of the bonds with low fixed rates. Most of the others I'm holding are paying much higher rates than anything I can replace them with. Some in the 2.5% range.

I'm going to talk with my CPA and see if there is any other solutions before selling the rest.

All my Ibonds are paper and it's really cool to have them as extreme emergency funds. If all else fails I can take them to local bank and redeem. Also, I've really enjoyed the tax deferred aspect. All good things must come to an end.
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Re: I Bonds!

Post by jhogue » Mon Oct 12, 2020 12:41 pm

1. The older I get, the more I appreciate 30 years of federal tax deferral and 30 years of state and local tax exemption. BTW that federal tax exemption continues even if you have reached the age of Required Minimum Distributions. Why redeem your I-bonds now, if they still fulfill their original intended role. Has your situation has changed and now you need the cash?

2. Even without that great fixed rate that you had back in the good old days, the current I-bond yield looks pretty good right now. I-bonds are currently sell for 1.06%, handily beating a 10 year Treasury (0.76%) and Ally’s 5 year on-line bank CD (1.00%). Have you got something better in mind?

PS: I'm sorry that your heirs might have to pay some taxes some day in the future, but somebody will have to pay for my Social Security and Medicare.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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