New I Bond rates have increased!

[sophie]

I checked the new rates today and got a wonderful surprise:  Fixed rate is now 0.20%!!!!  The new inflation component is 1.18%, so the combined rate is 1.38%.

I had been debating skipping the rest of my I Bond quota this year, but...I would say it's a winner!  Better than nearly all the CDs out there, that's for sure.

Wonder why the change in fixed rate.  Is the Treasury suddenly deciding to play nice to savers?

[dualstow]

Nice!

[Bean]

Why am I so excited about this news? 

[Robert]

Thank you Sophie! I've been so depressed about the I Bond rates of late that I stopped looking. Appreciate your post. Cheers

[Early Cuyler]

Thanks for the news, Sophie! I definitely didn't see this coming, but I'm also not complaining.

[ns2]

You all have me wondering what I'm missing out on. I thought I-Bonds were similar to TIPS which Craig and (I think) MT don't recommend for the PP. Anyone care to give a mini-tutorial about the possible place in the PP for those of us who are unaware?

[dualstow]

Short answer is "deep cash", ns2, but I'll let someone else give details.

Lots of old threads, though: http://is.gd/MDUaYg

[ns2]

Short answer is "deep cash", ns2, but I'll let someone else give details.

Lots of old threads, though: http://is.gd/MDUaYg

Read through it all and it sounds like a good place to park cash, but I'm having a hard time with the simple mechanics.

Doesn't look to me like you can buy through Fidelity. I assume you have to set up an account with Treasury Direct?

Also, doesn't sound like it will work in an IRA account.

Modification P.S. - Opened up a Treasury Direct account and bought my first $1k I-bond in a matter of minutes. There was a survey along the way to rate your experience - excellent, good, bad, etc. and I clicked excellent mostly because I was truly impressed with how easy it was to set up the account. Unfortunately, my "excellent" response took me to a Page Not Found but still it was pretty amazing how well it was handled - even for the government.

[dualstow]

Modification P.S. - Opened up a Treasury Direct account and bought my first $1k I-bond in a matter of minutes.

I'm glad you had success. You are correct that you can't buy these instruments via Fidelity.
I think I started buying around 2001 when I was out of work and needed a substitute for a retirement account contribution.
Back then, the website was pretty clunky and would lose all my data if I was cavalier enough to use the browser's Back button.
(Right now, Reub's thinking, Strange, because government websites are usually so robust. ;-) )

Around '03, I was locked out of my account because I failed all my security questions. I had cleverly created fake answers and then not so cleverly neglected to record them.  It's a shame, because I think the maximum purchase was much higher then, maybe $100,000?

Sometime later, I received a Dick Tracy style decoder card to be used in conjunction with my password that I could no longer use.
I still haven't been able to get into my account since '03, but ten years later, I finally mailed in a form with my bank's medallion stamp.
Hopefully it'll be unlocked soon and I can see what progress the website has made and get some new I-Bonds.

[smurff]

When I get the time (really distracted right now by life events) I'm going to drum up a petition to require the Dept of the Treasury to provide, at least twice a year, an optional paper statement listing all of an owner's electronic treasury securities holdings, including Savings Bonds (I and E) and their earnings, maturity dates, etc.  As much as I want to continue with I-Bonds beyond the IRS availability, I can't bring myself to get a Treasury Direct account without that extra level of verification.

They don't even have to mail it--though doing so could help save the Post Office.  They can provide it through banks, which can do direct printouts under Treasury letterhead.

I have seen example after example of computer-mismanaged information.  I expect the day will come when critical information about Treasury Direct securities gets lost or corrupted, or otherwise cannot be accessed.  Even a  federal government website for something simple but critical like Obamacare won't allow users or potential users to get on.  For starters, what will happen if 500,000 people try to log on to Treasury Direct on the same day, but the system has long-term issues that will only allow 5000?

It's not just computer glitches I'm concerned about.  People die, and in a paperless, password-protected world, some of their accounts will be lost if their heirs don't know they exist or otherwise can't access them in time for states escheat (or unclaimed/abandoned property) laws to take effect.

[ns2]

Thanks for starting the thread.

My wife and I now own 20k worth of I-Bonds through Treasury Direct.

I had these confused with TIPS which Craig doesn't recommend but it seems like a very good place to park cash unless someone knows something about it I haven't learned yet.

I checked the new rates today and got a wonderful surprise:  Fixed rate is now 0.20%!!!!  The new inflation component is 1.18%, so the combined rate is 1.38%.

I had been debating skipping the rest of my I Bond quota this year, but...I would say it's a winner!  Better than nearly all the CDs out there, that's for sure.

Wonder why the change in fixed rate.  Is the Treasury suddenly deciding to play nice to savers?

[dualstow]

I owe a great deal of thanks to Sophie for this thread.

I was finally able to make my 10K purchase a few weeks ago. Definitely worth jumping through all the hoops and medallion stamps to get this account active again. It's been years. Thanks, Sophie!

I guess I didn't miss much in the past few years, though. Wasn't the fixed rate negative?

[Bean]

Fixed rate has been zero, never negative.

[smurff]

Rates are not allowed to go negative with savings bonds, like E- and I-bonds. 

The rates can go negative with some treasury securities, but I've forgotten which ones.

[dualstow]

Sorry, that should have read real, not fixed. I misquoted boglehead englishgirl's post, which reads:
I might actually start buying I bonds again. Finally it's moved off 0% real.

Rates are not allowed to go negative with savings bonds, like E- and I-bonds. 

The rates can go negative with some treasury securities, but I've forgotten which ones.

TIPS?

[Green]

When is the best time to contribute to I-Bonds in 2014?  In 2013 my wife and I contributed the whole $20,000 at once at the end of January.  In 2014 would it be best to break it up in order to catch possibly better rates?  For example, contribute in January, May and November or all at once.  Thanks for your help.

[MediumTex]

Thanks for starting the thread.

My wife and I now own 20k worth of I-Bonds through Treasury Direct.

I had these confused with TIPS which Craig doesn't recommend but it seems like a very good place to park cash unless someone knows something about it I haven't learned yet.

I checked the new rates today and got a wonderful surprise:  Fixed rate is now 0.20%!!!!  The new inflation component is 1.18%, so the combined rate is 1.38%.

I had been debating skipping the rest of my I Bond quota this year, but...I would say it's a winner!  Better than nearly all the CDs out there, that's for sure.

Wonder why the change in fixed rate.  Is the Treasury suddenly deciding to play nice to savers?

There is also the nice feature of complete tax deferral of bond interest until redemption.

That gives you a cool 20+ year tax shelter if you want it.

[AdamA]

Don't forget EE bonds. 

They offer a guaranteed rate of 3.54% if you hold 20 years (they double after 20 year no matter the rate).

If you're someone who believes that interest rates will stay low for longer than some think, this isn't a bad route.

If you have enough money, EE and I bonds are both good places for "deep cash."

[PFG]

Maybe I'm missing something.

Straight from the book, cash is second in line behind bonds for tax consideration.
I can hold T-Bills in my tax-def accounts. I can hold SHV/SHY in a tax-def account.

Why would I entertain buying I-Bonds? They can't be had off the secondary market so I can't store them in a tax-def account.

Am I missing something?

I see the higher yield numbers. But I can't count the number of times I've read: Don't chase yield with your cash. Now in this instance it seems to not introduce extra risk, but I'm befuddled on how the I-Bond and its taxable interest when cashed is more attractive than the T-Bill.

Anyone have a moment to defend their I-Bond position? I'm all ears. And I'm all for having some non tax-def investments around for liquidity purposes, but why one with such tax implications? Maybe I'm missing something...

[AdamA]

...but I'm befuddled on how the I-Bond and its taxable interest when cashed is more attractive than the T-Bill.

I think this is mostly a recommendation for people who have to keep their cash in accounts that are not tax advantaged. 

Also, b/c the rate floats there will be times (like now) when the I-bond will give a better yield that a T-Bill (I'd rather pay taxes on something than not pay taxes on nothing). 

I don't think anyone is saying that I-bonds are better, just that they are safe way to secure some tax-deffered interest for the cash portion. 

Also, I think if you use I bonds to pay for education then you don't have to pay taxes on them at all (as long as your AGI isn't too high).

[PFG]

Thanks for the reply.

I guess another way to look at I-Bonds: They are like my ROTH. Deferring taxes until later.

I'm young. In the accumulation phase. Wouldn't be touching these for a long while.

Going to I-Bonds also means I could stop putting T-Bills in my tax-def accounts, opening more space for Treasury Bonds of the Long Term variety.

.

[AdamA]

I guess another way to look at I-Bonds: They are like my ROTH. Deferring taxes until later.

Yeah, but unfortunately only the interest is tax deferred (not the income you use to buy the bonds).

Going to I-Bonds also means I could stop putting T-Bills in my tax-def accounts, opening more space for Treasury Bonds of the Long Term variety.

Yes, but keep in mind that you have to own an I-bond for at least one year, and if you sell before five years, you lose 3 months of interest. 

So, it's good to have some T-bills too. 

[barrett]

Hey, I know I am picking up an old thread here, but I have a couple of questions on the I-Bonds...

Does anyone besides me get the willies that one can't hold paper bonds anymore? I really don't like just having it all set up electronically. 

The other question goes back to the issue of whether or not holding I-Bonds as cash in the PP is imprudent. I know US Treasuries are considered the safest for the "cash" position because the government can either raise taxes or print money to back them. Does the same hold true for I-Bonds?

Thanks in advance for your input.

[sophie]

I'm young. In the accumulation phase. Wouldn't be touching these for a long while.

If you expect to be still working in 30 years, you need to be aware that taxes will be due on the entire amount of compounded interest when an I Bond matures, whether you cash it in or not.  It will also stop accruing interest.  My mother discovered a $50 savings bond from the 1970's deep in her safe deposit box.  We're keeping as a souvenir because the penalties and interest on the unpaid tax would probably be more than what we'd get from cashing in the bond!

I count bonds older than 1 year as part of my emergency fund.  It's great that they are currently beating the pants off almost any cash vehicle out there including ones that aren't as safe.  Unlike TIPS, the bond will never lose money - the worst it can do in any given year is to earn nothing, if CPI goes negative and wipes out the fixed rate.  I think most here use them for up to 1/3 of the cash allocation, because you don't ever want to sell them in order to rebalance.

[dualstow]

For Sophie:
http://www.treasurydirect.gov/news/pres ... atespr.htm