All America Bank 1.5%

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Re: All America Bank 1.5%

Post by dualstow » Mon Jul 24, 2017 11:26 am

MangoMan wrote:You guys crack me up. What makes you think Vanguard Prime is safer than a CD?
I don't. I wouldn't put 80% of my pp cash in CDs, and I wouldn't put it in Prime. Now, is it more probable that the bank would cause trouble than Vanguard would if I tried to redeem a CD/ transfer out of Prime during a crisis? I have no idea. When it comes to safety, I think of them both as simply inferior to Treasuries and "pretty safe." Beyond that, I don't know and I don't care, because 20% or less is in them.

I do find the money market convenient. Easy to transfer funds. Don't need to keep repurchasing new instruments.
RIP Marcello Gandini
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Re: All America Bank 1.5%

Post by jhogue » Mon Jul 24, 2017 12:02 pm

Dear Pugchief,

Eureka!

You said,

”As you noted however, this wasn't an investment account but small business checking, and last I checked, Treasury Direct does not offer a T-bill secured account for said purposes. So I really didn't have too many options.” (7/20/17)

and ,

“Also will again point out that a small business checking is not an 'investment account', but used for operating funds only. “ (7/23/17)


Great news!
Fidelity now offers a small business account with the option of a core Treasury money market fund (FZFXX). They also have half a dozen brick-and-mortar offices in the greater Chicago area for your convenience.

https://www.fidelity.com/customer-servi ... s-complete

Armed with this information, you need never again have to worry about being mistaken for a Holstein and milked by TBTF (but FDIC-insured) megabanks! I am so happy for you!!
“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: All America Bank 1.5%

Post by dualstow » Mon Jul 24, 2017 1:29 pm

During this thread, my participation in a t-bill auction executed.
Hope I got an OK rate.
RIP Marcello Gandini
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Re: All America Bank 1.5%

Post by thisisallen » Mon Jul 24, 2017 5:48 pm

Did I lose the plot here? This is a discussion in the Cash sub forum. Are people suggesting to use I bonds and CDs as cash in the PP?
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Re: All America Bank 1.5%

Post by Jeffreyalan » Mon Jul 24, 2017 7:58 pm

While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I sure would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
Last edited by Jeffreyalan on Mon Jul 24, 2017 8:24 pm, edited 1 time in total.
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Re: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 5:40 pm

Jeffreyalan wrote:While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I sure would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
Dear Jeffreyalan,
1. I am one of those who is of the opinion that the Treasury will not “outright default on their bonds.” Why? Because I am a historian. I can’t know it for certain—no one can—but I do have two centuries of consistent data that includes the dislocations of two world wars, the biggest depression in world history, bouts of high inflation, decades on and off the gold standard, a number of real estate bubbles, frequent stock market crashes, and a civil war that almost tore the nation in two and killed upwards of one million of its citizens. The U.S. Treasury is not perfect by any means, but Alexander Hamilton’s creation remains, to paraphrase Winston Churchill, the worst financial system in the world—except for all others.

2. I am also of the opinion that the Federal Reserve Open Market Committee (FOMC), which sets short term interest rates, has an inflationary bias. Why? Take Janet Yellen’s word for it, not mine. She regularly proclaims it from the mountain tops for all to hear. It is an article of faith for those of her academic stripe and her actions as Fed chair consistently match her words.

3. I do not believe that there is a “scheme” to underreport inflation. Why? See 2. above. The “inflationistas”—from Paul Krugman to Janet Yellen don’t hide their views because they believe inflation is good for the economy. Why should they mis-report inflation? Besides that, millions of Americans with Social Security, military, and federal pensions get annual inflation adjustments based on the Consumer Price Index (CPI). They also have powerful lobby groups in Washington who you can bet your bottom dollar would raise a ruckus from here to kingdom come if somebody tried to cook the books on the compilation of CPI.

4. On the subject of I bonds, I was a sceptic too until I began reading and thinking about Medium Tex’s posts about I bonds on this forum. MT pointed out that THE ONLY THING that I bonds have to do to make them attractive for PP Cash is to beat the yield of a 1 year Treasury. A 1 year Treasury is a simple gauge of no-risk, guaranteed minimum return for PP Cash (Tyler, for instance, uses 1 year Treasurys for STT numbers in his wonderful graphics). One year is also, coincidentally the minimum time you must hold an I bond before you can redeem it. At that point, you can either keep your I bond (if you like the new rate) or sell your I bond (if you think the new rate stinks).

So how have I bonds done in practice, you may ask? Consider a concrete example:

If I bought an I bond purchased in November 2016, from Nov. 16 to April 17 the 6 month yield was 2.76%. From May 2017 to October 2017 the re-set 6 month yield was 1.96%, for an annualized yield of 2.36%, redeemable on 1 November 2017. That was the variable yield only; the additional fixed yield set at the time of purchase was a disappointing 0%. (The I bond yield is composed of both a fixed rate and a variable rate that automatically reset each 6 months based on the CPI-U inflation figures).

In comparison, a 1 year Treasury, sold on 11/02/2016 with a maturity of 11/02/17, has a yield when held to maturity of 1.08%. The best 1 year CD available (from Fidelity brokerage) in November 2016 had a coupon of 1.50%. That means my I bond handily outperformed my PP standard STT by 1.28 % and the “best deal” FDIC-insured brokerage CD by 0.86%!

THIS IS FREE LUNCH FOR THE MIDDLE CLASS, PEOPLE! GET YOURS NOW!!

So, Jeffreyalan, the first error in your post was your assumption that if there is an inflationary bias among economic officials, then there must be some kind of “scheme” to under report inflation. The Department of Labor bureaucrats who compile CPI-U figures would have a good laugh at that one. There is a lot of argument among professional and academic economists over tweaks in the formula used to compute the real rate of inflation (just as there is in the unemployment figures), but it is pretty much all out there in the open.

The second error in your post was misunderstanding how the I bond rate is computed. The I bond yield is composed of BOTH a fixed component and a variable component. It’s nice to have a fixed component that is higher than 0%, but the variable rate alone can still make I bonds attractive compared with a 1 year Treasury bill or a 1 year CD. I bonds have other attractive features for savers and investors, but those are just the icing on the cake.

You do eat cake, don’t you?
Last edited by jhogue on Tue Jul 25, 2017 7:26 pm, edited 2 times in total.
“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: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 6:34 pm

MangoMan wrote:
Jeffreyalan wrote:While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I should would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
As CraigR was fond of saying, "Don't buy fire insurance from the arsonist."
CraigR was referring to the mistaken use of TIPS as a substitute for gold, not for the use of I bonds in PP Cash.
“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: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 8:29 pm

Dearest Pugchief:

Of course I bonds are for sale right now! You can buy them 24/7/365 at Treasury
Direct.

You used to be able to buy I bonds over the counter at FDIC-insured banks like WaMu and TBTF mega bank JP Morgan Chase, both of which I gather you have some passing familiarity. WaMu also offered some really hot rates on CDs too, just before they went into receivership. Did you get any of those?

Jamie Dimon and his gang of thieves never did make much money on US savings bonds, however, since they carry a 0% expense ratio. Perhaps that is why Mr. Dimon ordered his minions to dump the bank’s advertising for the savings bonds program and focus on more lucrative ventures, such as milking small business accounts they acquired in the fire sale of WaMu assets. I believe I have heard, however, that some of the more pugnacious clients objected to this scheme and bolted for greener pastures, rather than being treated like one of Grandpa’s Holsteins.
“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: All America Bank 1.5%

Post by sophie » Wed Jul 26, 2017 7:22 am

Pugchief, be nice!

Of course these things (I bonds, CDs, T bills) are not similar and jhogue knows that perfectly well. He's just saying that if you're buying CDs purely for the higher yield, you should consider an I bond instead. That's a reasonable suggestion.

Jhogue, an I Bond isn't automatically more appropriate for a given situation than a CD or T bill. There is a higher bar to selling one especially as time goes on, because the deferred taxes would all be due at the time of sale and you give up future tax deferment on that bond. There is also the little matter of not being able to sell an I Bond at all for the first year.
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Re: All America Bank 1.5%

Post by jhogue » Wed Jul 26, 2017 9:46 am

I don’t quite understand why Desert (and you Pugchief) seem to regard a comparison of an I bond to a 1 year CD for PP cash to be “not relevant” or “ridiculous.” Why is that?

So, here are my calculations for a contest between a 5 year CD (“typically the sweet spot” according to Desert’s post) and a standard-issue I bond. Both securities sold/issued 5 years ago in July 2012. Sources are shown, By all means check my math and data:

5 year CD : July 2012 to July 2017
5 year CD rate at purchase: 1.1% (compounded annually)
Sale price: $1,000.00
Interest: $56.22
Value: $1,056.22 (matures 7/2017)
Source: bankrate.com website: (chart of 6 mo., 1yr., and 5yr. CD rates)
http://www.bankrate.com/banking/cds/his ... 6/#slide=1

I bond : July 2012 to July 2017
I bond rate issue: 07/2012 – final maturity 07/2042 (30 years)
Issue price: $1,000.00
Interest: $72.80
Current interest rate: 1.96% (No early withdrawal penalty. Next reset 1 Nov. 2017)
Value: $1,072.80 (as of 7/2017).
Source: Treasury Direct website:
https://www.treasurydirect.gov/BC/SBCPrice


- Over the last five years inflation has been low. If inflation should ramp up over the next five years, the inflation-protection of I bonds’ resets will really kick in. When that happens I imagine that some CD investors may start kicking themselves for not scooping up I bonds instead.

-I bonds are such a good deal for the middle class that the Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust. That’s $35,000 per year, MFJ. If you can afford more than that for your annual cash contribution to your PP, you ought to think about adding some EE bonds to your savings bond ladder. EE bonds are limited to $10,000 per SSN, for a total of $55,000 per year in US savings bonds. I bonds won’t make you rich, but they do let you sleep at night and avoid the many temptations and pitfalls that come with buying muni bonds or lower quality short term fixed instruments available from government-insured agencies.

If you can afford more than that for the next 30 years, you are definitely into Groucho Marx club territory!
“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: All America Bank 1.5%

Post by grapesofwrath » Wed Jul 26, 2017 1:02 pm

Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust.
Sorry, for hijacking this conversation off at a tangent, but the above caught my eye. My wife and I each have personal TD account sand buy I-bonds into each account. Additionally, we also have a trust account at TD, the current trustees of which are both of us. Does this indeed qualify for an additional purchase given we are the trustees ? Wouldn't the limit be 10k per SSN ?
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Re: All America Bank 1.5%

Post by jhogue » Wed Jul 26, 2017 9:29 pm

grapesofwrath wrote:
Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust.
Sorry, for hijacking this conversation off at a tangent, but the above caught my eye. My wife and I each have personal TD account sand buy I-bonds into each account. Additionally, we also have a trust account at TD, the current trustees of which are both of us. Does this indeed qualify for an additional purchase given we are the trustees ? Wouldn't the limit be 10k per SSN ?
I do not have a trust, so I must caution you that I have no personal experience in this area.

Treasury Direct FAQ says:

What is the annual purchase limit for U.S. Savings Bonds?
“Effective January 4, 2012, the annual (calendar year) purchase limit applying to electronic Series EE and Series I savings bonds is $10,000 for each series. The limit is applied per Social Security Number (SSN) or Taxpayer Identification Number (TIN). For paper Series I Savings Bonds purchased through IRS tax refunds, the purchase limit is $5,000 per SSN.”

So, if your trust has its own TIN, that means that your trust can purchase $10,000 worth of I bonds per year.

There was a discussion of this point and other legal questions concerning titling of US savings bonds that you might find useful on bogleheads. I regard Mel Lindauer, who participated in the thread to be the best authority on US savings bonds. He also wrote a series of columns for Forbes that every investor in savings bonds should read. See:
https://www.bogleheads.org/forum/viewtopic.php?t=78341

Hope that helps.
“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: All America Bank 1.5%

Post by jhogue » Thu Jul 27, 2017 7:09 am

MangoMan wrote:Sophie & jhogue,
Sorry if my last post came off as snarky or snotty; that was not my intention. I love and respect most everyone here! Was just looking for an answer / trying to make my point.
Pugchief,

No offense taken.

In fact, I welcome your sharp questioning of my argument. If I can convince you to buy I bonds, I think I could convince anybody. If I can't, there is probably some weakness in my argument.
“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: All America Bank 1.5%

Post by Jeffreyalan » Thu Jul 27, 2017 8:19 am

when comparing cds vs treasury bills, should we put any emphasis on cds giving you the ability for compounding interest? When opening a cd I can just let the interest stay in the cd and compound whereas with a treasury bill I buy it at a discount and then have leftover interest that I have to then figure out something to do with. Over time the compounding interest could really add up.
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Re: All America Bank 1.5%

Post by sophie » Fri Jul 28, 2017 7:34 am

There's also the issue of different tax treatments. A 100 basis point difference between, say, CDs and Treasuries means I would pick the Treasury every time. That's because Treasuries and savings bonds are exempt from state/local taxes. There's also my little tax trick of buying secondary Treasuries nearing maturity at very high interest rates, which increases the benefit still more. Of course, this doesn't apply if you don't have city/state taxes to contend with.

Also see my recent comment on tax deferral of savings bonds - imho the biggest reason to buy them.

Good point on compounding though. Savings bonds and CDs have compounded interest, but Treasuries don't. You're on your own to reinvest interest.
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Re: All America Bank 1.5%

Post by jhogue » Fri Jul 28, 2017 10:27 am

Beyond their underlying suitability for PP Cash, the appeal of I bonds to me is their unbeatable combination of 30 year tax deferral PLUS 30 year inflation protection PLUS 30 year compounding.

OVER TIME—and that is always what investment is about-- the CD investor will turn into the hare sprinting after short term yield and the I bond investor will turn into the plodding but persistent tortoise that started slower out of the gate but won the race anyway.

To put it another way, ask yourself which you would rather buy:

A 30 year ladder of I bonds?
or,
A 30 year ladder of 5 year CDs?

I challenge Pugchief or Desert (or anyone else) to provide a concrete example of why they prefer the latter over the former.


PS:
Sophie, as for your previously expressed concern about the problem of what happens to your taxes when your 30 year I bonds reach maturity, I hope you realize that this is most definitely a First World Problem!

I hope I have this problem 30 years from now. I hope you have this problem 30 years from now. I hope Pugchief has this problem 30 years from now when he is drowning under a great big pile I bonds.
Last edited by jhogue on Sat Jul 29, 2017 1:13 am, edited 2 times in total.
“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: All America Bank 1.5%

Post by jhogue » Sat Jul 29, 2017 11:20 am

MangoMan wrote:
jhogue wrote:
MangoMan wrote:Sophie & jhogue,
Sorry if my last post came off as snarky or snotty; that was not my intention. I love and respect most everyone here! Was just looking for an answer / trying to make my point.
Pugchief,

No offense taken.

In fact, I welcome your sharp questioning of my argument. If I can convince you to buy I bonds, I think I could convince anybody. If I can't, there is probably some weakness in my argument.
Glad to hear that.

And so another issue is that pesky $10k limit. Not married. Then what?
If you have $10K or more per year to invest in fixed income or PP Cash, I think you should consider a long term strategy of building your own savings bond ladder.
(Cue up “Stairway to Heaven”, with cameo appearance by Sophie):

HOW DO I BOOST MY ANNUAL SAVINGS BOND ALLOCATION TO MY LADDER?
1. “Deep cash”:
$10K per SSN for electronic I bonds
$5 K with tax return (cool paper I-bonds)
$10K with trust

2. “Deeper cash”:
$10 K EE bonds (doubles in 20 years, or 3.53% guaranteed)

Total : $35K per year.

-$350K for a 10 year ladder.
-$700K for a 20 year ladder.
-$1.05 M. for a 30 year ladder.

UNIQUE AND AMAZING I BOND LADDER QUALITIES:
-Earned interest compounds for 30 years (no CD has that)
-Automatic tax deferral outside IRAs for 30 years (no CD has that)
-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)

WHAT DO I DO WITH ALL MY CDs LOCKED UP IN IRAs (Desert might ask)?

Note that I am NOT saying you should run out and sell all your CDs tomorrow.

- A ladder of 5 year CDs (regardless of how many rungs you put in it) has a 20% turnover every year. As your CDs mature, start transferring these funds to your I bond annual allocation instead of rolling them over, in or out of an IRA.
-Yes, you may feel a pinch to pay the taxes on interest earned when you unwind a CD ladder inside of an IRA. This too shall pass. When you reach age 70 ½, the IRS will force you to take distributions from that IRA in the form of RMDs anyway. In fact, investing new money in US savings bonds after age 40 ½ is an excellent way to legally circumvent the RMD rule on traditional IRAs (for a while). CDs in traditional IRAs can’t do that. Lastly, remind yourself that taxes are a first world problem with first world solutions (i.e., retire and move to tax-friendlier Florida or open carry-friendly Texas/Arizona.)
-Don’t forget the long term effect of inflation on fixed income assets. If Janet Yellen and her ilk get their constant 2% inflation rate, your 5 year CD will lose nearly 10% of its original value by its maturity date. Compounded over 30 years, even a historically low average of 2% inflation rate could easily eat up 50-60% of your investment. I bonds lose 0% to inflation.
-If you still have money left over in Short Term Treasuries (“shallow cash”) after buying your full savings bond annual allocation, use Sophie’s “tax trickery” technique to boost your effective yield. For amounts over $250K, I would still practice institutional diversification as Craigr and Medium Tex described in their book.
-My simple rule is that if you have savings to set aside from ordinary income, you should fill up your savings bond annual quota first. It is kind of analogous to filling up your Roth IRA before your 401k, 457b, SEP-IRA, etc.
“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: All America Bank 1.5%

Post by Jeffreyalan » Sat Jul 29, 2017 4:09 pm

-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)


Why the assumption that a rate reset is always in your favor? Inflation has only ticked up .47% in the last 3 months. If that continues the the ibond rate reset coming up may be half of my cd rate. And if deflation hits you could be looking at a 0% rate for a period.
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Re: All America Bank 1.5%

Post by jhogue » Sun Jul 30, 2017 8:15 pm

Desert wrote:
Jeffreyalan wrote:-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)


Why the assumption that a rate reset is always in your favor? Inflation has only ticked up .47% in the last 3 months. If that continues the the ibond rate reset coming up may be half of my cd rate. And if deflation hits you could be looking at a 0% rate for a period.
Exactly. I bonds are a decent diversified in a cash allocation, but nobody knows how their future return will compare with CD's. I do know that their recent returns have not kept pace with good CD's. Both are good investments. And so are treasuries! And heck, even a total bond fund has performed similarly to the treasury barbell over the past 40 years. There are many options for the fixed income side, and it depends very much on one's personal situation and available investments.
Desert:
We agree that we do not know for certain how future I bond yields will compare with “good CDs.” We do not know for certain what future inflation will be. We also do not know if the superior credit quality of Treasury-backed versus FDIC-backed securities will be tested again. After watching the FDIC in action as recently as the 2008 WaMu bank failure I hope that we will not have to find out. Risk is everywhere and certainty is elusive. After Grandpa lost his first farm because of the so-called Iowa “bank holiday” of 1933, he didn’t trust banks anymore and —no kidding— his “cash portfolio” consisted primarily of greenbacks rolled up and clipped to the inside pocket of his overalls. My memories are a little hazy but I believe he diversified between federal reserve notes and silver certificates. In the end, decisions about risk assessment are personal and made under conditions of uncertainty.

Can we be more certain about death and taxes? Everyone’s personal situation is different, but IIRC, you are in your mid-fifties. Under the current tax code if you buy a 5 year CD in your IRA today, 15 years from now, when you reach age 70 ½, you must begin taking required minimum distributions from the investments in your IRA—including your CD. You will also be required to start paying ordinary income taxes to the IRS on any gains you have at that time.

On the other hand, if you buy an I bond today, that I bond could continue to grow for an additional 15 years after you reach age 70 1/2, with its interest compounded, tax deferred, and inflation protected. You could redeem the I bond without any penalty after you reach about age 60, if you wanted or needed more income. But you don’t have to sell it if you don’t want to or don’t need the money until it matures when you are about 85. Can’t do that with a CD in an IRA.

I am not saying that CDs in IRAs are a bad investment for cash or fixed income. But when uncertainty over inflation is added to the certainties of compounding and tax deferral over the next 30 years, an I bond ladder is much more appealing to me than a CD ladder for fixed income, whether it is in PP Cash or the Desert Portfolio. So, go ahead and buy more high yield FDIC-insured CDs if you want—just make sure your Treasury-backed savings bond ladder is filled up first.
“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: All America Bank 1.5%

Post by jhogue » Wed Aug 02, 2017 9:38 am

Jeffreyalan wrote:-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)


Why the assumption that a rate reset is always in your favor? Inflation has only ticked up .47% in the last 3 months. If that continues the the ibond rate reset coming up may be half of my cd rate. And if deflation hits you could be looking at a 0% rate for a period.
Jeffreyalan,

1. All you want from the I bond semi-annual rate reset is to track the current inflation rate as closely as possible. If you buy a 5 year CD from FDIC-insured Desert Friendly Bank in an era of flat 2% inflation, your CD is guaranteed to lose 10% of its value at maturity to inflation. Buy an I bond and you will lose 0% to inflation in 5 years.

2. If deflation should suddenly hit, I bonds are guaranteed not to go negative in value. That downside protection from deflation is one of the reasons why I bonds are a better deal than TIPS. If we should enter a longer period of deflation with ultra-low or even negative interest rates (like Japan, Switzerland, or Denmark), US investors will be kicking themselves for not scooping up EE bonds, which are guaranteed to double in value in 20 years (3.53%).
“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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jhogue
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Re: All America Bank 1.5%

Post by jhogue » Thu Aug 03, 2017 8:18 am

Desert wrote:
jhogue wrote:
Jeffreyalan wrote:-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)


Why the assumption that a rate reset is always in your favor? Inflation has only ticked up .47% in the last 3 months. If that continues the the ibond rate reset coming up may be half of my cd rate. And if deflation hits you could be looking at a 0% rate for a period.
Jeffreyalan,

1. All you want from the I bond semi-annual rate reset is to track the current inflation rate as closely as possible. If you buy a 5 year CD from FDIC-insured Desert Friendly Bank in an era of flat 2% inflation, your CD is guaranteed to lose 10% of its value at maturity to inflation. Buy an I bond and you will lose 0% to inflation in 5 years.

2. If deflation should suddenly hit, I bonds are guaranteed not to go negative in value. That downside protection from deflation is one of the reasons why I bonds are a better deal than TIPS. If we should enter a longer period of deflation with ultra-low or even negative interest rates (like Japan, Switzerland, or Denmark), US investors will be kicking themselves for not scooping up EE bonds, which are guaranteed to double in value in 20 years (3.53%).
Ok, now you're just being dishonest. I was temporarily under the impression that you were bringing some value to the conversation, but obviously you are not.
Oh horsefeathers!

Reread my post. I take it for granted that most people on this forum understand the insidious effects of inflation that can drag down a 3% advertized CD rate to a mere 1% annualized real rate of return over 5 years.

Is something else bothering you in our discussion of the relative merits of CDs vs. I bonds? You did not respond to my example of the inferior tax treatment of CDs in an IRA at age 70 ½ versus a 30 year tax deferred I bond.
“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: All America Bank 1.5%

Post by Xan » Thu Aug 03, 2017 10:44 am

Desert, I believe he was looking only at the inflation losses, not the interest gains. He's trying to say that at the end of a 5-year CD, regardless of what you've gained, take out 10% of the total value of the CD for inflation.
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