Anyone Like Savings Bonds?

[Marcretire]

A friend of my family is a very conservative, safety-minded investor, and, he puts most of his investment dollars in Savings Bonds and has built up a pretty good retirement fund that has helped enable him to retire early. Wondering what your thoughts are on them. Thanks.

 

[ziggy29]

I love my 2000-issue I-bonds that earn a fixed real 3.4%, tax-deferred. I'm not too much of a fan of savings bonds being issued today. There are worse places you can put "safe" money, but I think long term there are better places.

 

[bbbamI]

I've been buying bonds for over 20 years. This is a part of my investment direction that I have never regretted.

 

[deepc]

Have I Bonds doing about 6 pct non-taxed right now. Was a good deal when one could buy enough annually to actually call them investments. Pretty certain the inflation numbers are going to drive their yield down to nothing for the next 6 month period, but that beats losing 33 pct.

Amazing how we can go from high inflation numbers to deflation overnight. While the government pours cash into the mix.

 

[tightasadrum]

I've got a little pile of those EE cardboard engravings in my SD Box. Some were small gifts; some I purchased through some mega corp program that I gathered was to help secure more government contracts; and a few I inherited from my late father. I never thought much about them as an investment though. But some are now paying around 4.5%, and they didn't lose a cent during the 2008 debacle. Hum, maybe I should rethink the role they can play. Let's call them the last bastion of refuge when everything else goes to hell in a hand basket. I think I'll just continue to hold on to them.

 

[Khan]

I've got a little pile of those EE cardboard engravings in my SD Box. Some were small gifts; some I purchased through some mega corp program that I gathered was to help secure more government contracts; and a few I inherited from my late father. I never thought much about them as an investment though. But some are now paying around 4.5%, and they didn't lose a cent during the 2008 debacle. Hum, maybe I should rethink the role they can play. Let's call them the last bastion of refuge when everything else goes to hell in a hand basket. I think I'll just continue to hold on to them.

They stop earning interest at 30 years.

 

[freebird5825]

I have 2 gov't bond ladders:
$13k of EE series, vintage 1995-7, actual paper certificates, via p*yroll deduction.
$3.3K of I bonds, vintage 2004-6, via Treasury direct.

these babies will be there when I need them, much much later down the road.
they are destined to be used for some $ emergency I can't handle otherwise.

 

[JPatrick]

Got some I's from circa 2000-2001 that are kicking out 8% plus returns.
Watch out come the May reset though--not so good.

 

[Maurice]

I've been buying ibonds for 5-6 years, I have several hundred grand worth. I still buy them but the max is so low now its more of a token purchase. I'm also a fan of TIPS.

 

[shotgunner]

I have a some EE and I bonds in my portfolio I have had for several years. The I bonds in particular have given some periods of good returns and some bad. I had an additional motive for purchasing them at the time, divorce and child support. Right or wrong I came out of the marriage with less % of our estate but going in I had a much greater %. I inherited some money shortly after divorce and wanted to minimize my annual taxable income and savings bonds were the only vehicle that deferred interest and produced no taxable interest. Since these monies were on top of my regular earnings the calculations would have caused me to turn over about .50 net on every gross dollar earned in interest or dividends, getting to keep all the interest improved their performance in my portfolio tremdously. Of course now you can't buy enough bonds annually to make much of a difference. The days of paying CS are over but I still like and hold the bonds. Again they were about the only thing I owned in 2008 that went up.

 

[Maurice]

I also bought iBonds for the tax deferment. At the time I started acquiring them, I had insufficient monies (and options) in tax-deferred accounts for my bond allocation, so it seemed like the way to go. I was also long-term bearish on the dollar and appreciated the inflation hedge.

 

[deepc]

The bonds are also decent tax avoidance assets if you use them for education. We're not there yet, but look forward to cashing them in tax free to help pay for college.

On that note, anyone use them for this purpose yet? Pitfalls?

 

[yakers]

The bonds are also decent tax avoidance assets if you use them for education. We're not there yet, but look forward to cashing them in tax free to help pay for college.

On that note, anyone use them for this purpose yet? Pitfalls?

Don't know yet but in 2010 I will be cashing in my all of $3,500 ibonds for part of younger sons college education. Don't know what tax bracket I'll be in then but its time to stop managing this small block of funds.

 

[Maurice]

On that note, anyone use them for this purpose yet? Pitfalls?

I'm not there yet, but will use much of them for education.

So I have no experience, but the potential pitfalls I see -

1 - you can only use them for tuition, not r&b, fees, books, etc.

2 - The 'granularity' problem. I don't think you can do partial redemptions. That could be a pain if all your bonds are 30k+ and you need, say, 15k for tuition.

 

[brewer12345]

Savings bonds used to be a good deal. They no longer are, IMO. I think TIPS and CDs are a lot more attractive.

 

[charlie]

I inherited a bunch of EE bonds from my dear Mom who passed in August.

The bonds issued in 1994 and later were only drawing a paultry interest since they are indexed to U.S. Treasury rates, so I sold them. All the older bonds are drawing 4% which is pretty good in this environment.

The biggest knock against EE bonds is that they DO NOT step up in tax basis when inherited. Mom went to her grave thinking I would not have to pay tax on them ..... I never told her the truth.

Cheers,

charlie

 

[Alan]

I have over $100K in I-Bonds but didn't start until 2003 so don't have any of the high fixed rated bonds. I'll buy the max $10K again in April before the expected rate slash in May ( $5K each ). That will give 6 months at current rate of 5.64%.

 

[Maurice]

Alan - I'm going to buy 10k this year also, but was thinking that the flat rate might be better in May 1 than the current rate (0.7%). SO my plan has been to wait until then.

Of course, the way they set that flat rate is pretty opaque, but why do you think it'll be lower in May than now?

 

[Alan]

Alan - I'm going to buy 10k this year also, but was thinking that the flat rate might be better in May 1 than the current rate (0.7%). SO my plan has been to wait until then.

Of course, the way they set that flat rate is pretty opaque, but why do you think it'll be lower in May than now?

Of course I don't know what they will do but I figured if I bought in April I'll lock in 6 months of the current high rate. If it sucks in a year's time I'll sell and forgo 3 month's interest. By then I'll be looking to spending cash to fund my retirement anyway.

 

[Maurice]

Fair enough. I'll be holding these for a long time so I'm holding out for a better fixed rate than 0.7%

 

[Alan]

Fair enough. I'll be holding these for a long time so I'm holding out for a better fixed rate than 0.7%

I would do the same if looking to the long term as well. Good luck.

 

[slouch]

I like skimming the 'Savings Bond Alert' site @ US Savings Bonds Advisor occasionally to decide if its an OK time to buy more I-Bonds. It seems that people holding I-Bonds right now may be looking at a 0% rate of return over the next 6 month period:

Inflation update for January 2009: US Savings Bonds

Unless there is a sharp price rebound during the next three months, the next I bond inflation component will be negative. A negative inflation component can wipe out the I bond's fixed rate, but the composite rate cannot go below zero.

I am hoping this means the next offering period will have a substantially higher fixed rate component. If that happens, I'll be buying and if not, I'll let my cash sit in its high yield mma for a while longer.

 

[Alan]

I like skimming the 'Savings Bond Alert' site @ US Savings Bonds Advisor occasionally to decide if its an OK time to buy more I-Bonds. It seems that people holding I-Bonds right now may be looking at a 0% rate of return over the next 6 month period.

I am hoping this means the next offering period will have a substantially higher fixed rate component. If that happens, I'll be buying and if not, I'll let my cash sit in its high yield mma for a while longer.

Thanks for the link, and I am now thinking about waiting 'til May to see what the fixed rate becomes.

 

[Maurice]

I very much expect the inflation-portion of the iBond rate to be negative. I actually suspect that they'll raise the fixed rate somewhat in recompense. Its the reason I'm waiting until May.

 

[FIRE'd@51]

There's an auction of new 20-year TIPS tomorrow, if anyone is interested.