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.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats."
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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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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
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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?
"You haven't, I suppose, ever mixed with politicians at close quarters. They're awful. I think some of these must have been the dregs anyhow, but I've discovered, what previously I didn't believe possible, that politicians behave in private life and say exactly the same things as they do in public. Their stupidity is inhuman.
- John Maynard Keynes
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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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Re: I Bonds!

Post by ppnewbie » Thu Dec 31, 2020 12:55 am

jhogue wrote:
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.
I also wonder if the treasurydirect.gov website is kept looking like it was constructed in 1990 on purpose to keep individual investors away. Years ago I stumbled on the site and thought there was no way that the treasury site of the most powerful country in the world could be such an amateur operation (at least in appearance). So I stayed away until a few years later I found out it was legitimate.
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Re: I Bonds!

Post by jhogue » Thu Dec 31, 2020 8:33 am

I don't see anything particularly sinister about the clunky nature of the TreasuryDirect website. I think it has, roughly speaking, the efficiency of your average state department of motor vehicles. Nobody is enthusiastic about it, but nobody wants to put up the money it would take to make substantial improvements in how the system operates.

The Treasury Department faces cross-cutting pressures to both reduce spending and serve the general public. Once upon a time you could buy a 30 year Treasury bond with detachable paper coupons. Not any more. They continued to be serviced, but no more of them were sold at some point. Now they have been completely phased out. That is the common history of these programs.

A number of years ago Treasury wanted to end paper savings bonds in favor of e-bonds only. Some members of Congress objected that this would disadvantage their lower-income constituents who did not have ready access to computers or did not have bank accounts. They ordered a GAO study that recommended the continuation of the legacy program of paper I bond sales through IRS refunds as a compromise solution. That is how we got the current hybrid system of paper bonds and e-bonds. Be sure to send a thank you note to all the sausage makers up on Capitol Hill.
“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 barrett » Sat Jan 09, 2021 11:30 am

For those of you who have bought I-Bonds from the Treasury Direct website, do you pay with a credit card, do a transfer from a bank account or use some other method?

Up till now I have been a bit overweight savings bonds (a good problem to have) but will be redeeming a bunch of EEs over the next three years and want to stay ahead of the curve.

Thanks in advance for any help!
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Re: I Bonds!

Post by vnatale » Sat Jan 09, 2021 11:41 am

barrett wrote:
Sat Jan 09, 2021 11:30 am

For those of you who have bought I-Bonds from the Treasury Direct website, do you pay with a credit card, do a transfer from a bank account or use some other method?

Up till now I have been a bit overweight savings bonds (a good problem to have) but will be redeeming a bunch of EEs over the next three years and want to stay ahead of the curve.

Thanks in advance for any help!


I just bought a few weeks ago. I cannot remember if there was a credit card option. But I'm sure that if there was there would have been a fee associated with it.

I gave them my bank's routing number / my bank account number and had the purchase withdrawn from that account.

Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats."
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Re: I Bonds!

Post by jhogue » Sat Jan 09, 2021 11:52 am

barrett,

1. There used to be a credit card purchase option for savings bonds
at TreasuryDirect, but that program expired a number of years ago.

2. Savings bonds can be redeemed in two ways now. The first is by electronic transfer from your Treasury Direct account to your bank account. My local bank still redeems paper bonds for me. Some banks still do that; some don't.

3. Depending on the year you bought them, EE bonds double in value at a date specified at the time of purchase. EE bonds stop paying interest at 30 years, so there is no point in holding them any longer than that.
“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 barrett » Sat Jan 09, 2021 5:44 pm

Thanks Vinny & jhogue. Much appreciated with the Treasury Direct info!
jhogue wrote:
Sat Jan 09, 2021 11:52 am
3. Depending on the year you bought them, EE bonds double in value at a date specified at the time of purchase. EE bonds stop paying interest at 30 years, so there is no point in holding them any longer than that.
Just one thought that applies to my situation. It may be advantageous to hold some EE bonds past the 30-year mark if it allows one to push some interest back a few months into another calendar year. I bought a bunch from 1991 to 1993. A few from 1991 I cashed in a bit early. Some that I bought in 1993, I may hold off on redeeming until January of 2024.

Incidentally, I have never had an issue redeeming paper bonds at a bank. My experience is that the funds are available in my checking account immediately.
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Re: I Bonds!

Post by jhogue » Sun Jan 10, 2021 2:26 pm

barrett wrote:
Sat Jan 09, 2021 5:44 pm
Thanks Vinny & jhogue. Much appreciated with the Treasury Direct info!
jhogue wrote:
Sat Jan 09, 2021 11:52 am
3. Depending on the year you bought them, EE bonds double in value at a date specified at the time of purchase. EE bonds stop paying interest at 30 years, so there is no point in holding them any longer than that.
Just one thought that applies to my situation. It may be advantageous to hold some EE bonds past the 30-year mark if it allows one to push some interest back a few months into another calendar year. I bought a bunch from 1991 to 1993. A few from 1991 I cashed in a bit early. Some that I bought in 1993, I may hold off on redeeming until January of 2024.

Incidentally, I have never had an issue redeeming paper bonds at a bank. My experience is that the funds are available in my checking account immediately.
barrett,

1. An EE bond reaches final maturity at 30 years. When it matures, it results in a taxable transaction that generates an IRS form 1099-INT for that year of maturity. TreasuryDirect will report your interest earned to the IRS. You can spread out your bond redemptions before 30 years, but not after.
See:
https://www.treasurydirect.gov/indiv/he ... rnMore.htm


2. My local bank has always redeemed my paper savings bonds too. I like dealing face-to-face with my local banker, rather than some interchangeable drone at MegaBank.
“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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