I-Bonds vs. CD's

[tmm99]

Wouldn't I-bonds be a better idea instead of CD's? I see people recommending CD's for emergency funds etc, but wouldn't I-bonds act the same way, especially if the money is for emergency use only and you may not need it for years?(granted you can only get $10K worth of I-bonds a year, but it is inflation adjusted and you won't have to pay taxes until you sell them, plus interest rates on CD's are rather lousy... so buy 10K worth of I-Bonds every year and you won't need to take it out for 30 years if you don't need them)?



Just curious...

tmm

 

[mathjak107]

and the answere is:
Laddered CDs vs. Series I savings bonds

 

[shotgunner]

Things have changed since that article in that the Treasury has reduced the annual limit of I bonds you can purchase from $30,000 to $5000. You can double the limit buy purchasing $5K of paper bonds through a bank and $5K electronically through TreasuryDirect.com. There is no limit to the amount of CD's you can purchase.

Attractive features of I bonds to me were the ability to defer taxable interest, interest on U.S. Savings bond is exempt from my state's Interest and Dividend tax of 5% over $2400, and the interest accumulates annually but sione no 1099 is issued that income is not tallied up as part of child support calculations.

I also think they could be a good hedge against the future inflation many think is coming due to actions of the FED and Congress.

 

[roger r]

I have some I-bonds that are approaching their 5 year "maturity" and have debated whether to keep or hold. I bought these initially instead of CD's. It's been my general impression that at a 1% real rate they have outperformed going CD rates over that time, though I've never done a detailed analysis. My best guess is that this will continue to be the case, though the possibility of deflation and the going fixed rate of new issues may change that perspective.

Even at the new lower limits of maximum purchase, a plan to accumulate these over the years would still add up. I bonds and CDs are still a slightly different class of investment, and I like the idea of having a little of both as a part of my allocations.

 

[OAG]

I have some I-bonds that are approaching their 5 year "maturity" and have debated whether to keep or hold. I bought these initially instead of CD's. It's been my general impression that at a 1% real rate they have outperformed going CD rates over that time, though I've never done a detailed analysis. My best guess is that this will continue to be the case, though the possibility of deflation and the going fixed rate of new issues may change that perspective.

Even at the new lower limits of maximum purchase, a plan to accumulate these over the years would still add up. I bonds and CDs are still a slightly different class of investment, and I like the idea of having a little of both as a part of my allocations.

I have CD's purchased in 2007 and 2008 for 84 Months (7 years) PENFED paying 6.25% APY. Not sure if that beats I-bonds for the same period but they looked fine then and now since they do not mature until 2014 and 2015. BTW I have the option of pulling the interest monthly or letting it mature (pulling it reduces APY to the 6% APR).

 

[Dawg52]

I have CD's purchased in 2007 and 2008 for 84 Months (7 years) PENFED paying 6.25% APY. Not sure if that beats I-bonds for the same period but they looked fine then and now since they do not mature until 2014 and 2015. BTW I have the option of pulling the interest monthly or letting it mature (pulling it reduces APY to the 6% APR).

I have a 100k worth too. Seems like the only smart decision I have made over the last 2 years.

 

[roger r]

I think there are some folks on the forum that have older I bonds purchased back when the real rates were much higher, and have been smiling ever since. It might be tough to beat those Pen Fed rates, but sort of depends on timing and a little luck, too.

 

[deepc]

Those PenFed rates do look good now, but if inflation goes where many say it will (I don't necessarily agree that we'll see this) then that long term at 6 pct or so may be a hit to the pocket.

I Bonds are an adjunct to a CD ladder to us truly risk averse folks, one that will keep up (somewhat) with inflation--right now ours are over 6 pct non-taxed. Unfortunately that yield is going to plummet this May, down to the fixed rate, likely.

The route to happiness with a CD ladder is to determine what is the minimum return one wants/needs and then when rates are there, load up long term. Then if rates go over it's a non-issue and if rates go down, you've won.

 

[Bikerdude]

I think there are some folks on the forum that have older I bonds purchased back when the real rates were much higher, and have been smiling ever since. It might be tough to beat those Pen Fed rates, but sort of depends on timing and a little luck, too.

I'm still getting over 8% on my I-bonds. I expect that to change (down) after the May rate adjustment.

 

[burch64]

I Bonds are an adjunct to a CD ladder to us truly risk averse folks, one that will keep up (somewhat) with inflation--right now ours are over 6 pct non-taxed. Unfortunately that yield is going to plummet this May, down to the fixed rate, likely.

Actually I-Bonds may go to 0% interest, The fixed rate does not hold if the CPI for the 6 months is negative, which it currently is.

The interest on I-Bonds can never go below 0% interest though.

Jim

 

[tmm99]

Thank you all for thought provoking posts.

I am thinking of doing the CD ladder and I-bonds both after reading them.

tmm