I Bonds vs TIPS

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mystang52

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Rather than initiate a thread creep, I thought I'd ask this in a new thread. Full disclosure, I'm not changing my approach so I'm just curious what others think.

I have some $60,000 in Savings Bonds, most in I Bonds. Owning and buying I Bonds are so simple, interest rate for this Cash-type security is pretty good. There seems to be more downsides to TIPS, be it individual or TIPS Fund. So, why not just own I Bonds? I don't see that great a differential even with higher interest rates. Am I missing something?
 
I don't know about TIPS, but the interest rate for I-bonds has not been "pretty good" for well over a decade. I have some with a 3% fixed rate that I bought in 2001, their average rate over the years is about 5.1%. But May 2001 is the last time the fixed rate was 3% on new bonds, May 2002 was the last time it was 2%, and Nov 2007 was the last time it was 1%. Since 2007, it's been 0 more often than not.
 
Also, the annual limit on IBond purchases may be one reason why people look behind them.
 
RVplusDog said:
Also, the annual limit on IBond purchases may be one reason why people look behind them.
Click to expand...

You can also get somewhat around this limitations by opting for up to a $5000 income tax refund issued as paper I bonds. Back in 2012 I "engineered" a $5000 refund by over paying my estimated taxes. But the rates have not prompted me to repeat the exercise in subsequent years.

All my other I bonds date from before 2004
 
LarryMelman said:
I don't know about TIPS, but the interest rate for I-bonds has not been "pretty good" for well over a decade. I have some with a 3% fixed rate that I bought in 2001, their average rate over the years is about 5.1%. But May 2001 is the last time the fixed rate was 3% on new bonds, May 2002 was the last time it was 2%, and Nov 2007 was the last time it was 1%. Since 2007, it's been 0 more often than not.
Click to expand...

OP here. One of my Bonds matured, so I just bought a new I Bond. Posted interest rate is 1.68%. That's 3 times Ally's rate, and at least I Bonds aren't taxable by my State. Seriously, not being argumentative but that looks good to me.
 
I'm trying to decide if IBonds adds an unnecessary complexity to my investments and estate. I just bought my first in 2020 and plan to hold for 20 years. That puts me at 79, so I should still be around, but no guarantee. If I add more every year, there's more chance my heirs will have to deal with this. Is it easier to redeem and transfer than I'm worried about?

Then there's the question of whether I should buy them with my tax refund. Then I'm dealing with a paper bond. In 20 years that may be another burden to figure out where to redeem it.

Even if I did this every year it wouldn't be that significant of an amount, and I or my heir would have to redeem 20 year old I Bonds every year.

Would appreciate hearing any experiences or knowledge on the redemption and transfer processes.
 
I use I bonds as the second year of a 3-year emergency fund. The other years are in a municipal money market and a stable value fund. I don’t think much about it but I’m glad it’s there.
 
RunningBum said:
...Then there's the question of whether I should buy them with my tax refund. Then I'm dealing with a paper bond. In 20 years that may be another burden to figure out where to redeem it...
Click to expand...

as far as redemption goes....we bought series e and ee bonds for roughly 20-years starting when we first were married waaaayyyyy back in 1970...at least one a month. i've been redeeming the matured bonds every january at our retail bank. can't imagine why any retail bank couldn't handle an I-bond.
 
mystang52 said:
Rather than initiate a thread creep, I thought I'd ask this in a new thread. Full disclosure, I'm not changing my approach so I'm just curious what others think.

I have some $60,000 in Savings Bonds, most in I Bonds. Owning and buying I Bonds are so simple, interest rate for this Cash-type security is pretty good. There seems to be more downsides to TIPS, be it individual or TIPS Fund. So, why not just own I Bonds? I don't see that great a differential even with higher interest rates. Am I missing something?
Click to expand...

I first bought I-Bonds back in the day when the fixed rate was 3.4%. I’ve bought some since then, at lower fixed rates obviously, and may be using some of the proceeds of a just-matured CD to buy another shortly. I like them better than TIPS because, for me at least, they’re easier to understand. (I’m a KISS guy.) I may buy a TIPS fund with a portion of my IRA at some point but have no plans to buy any individual TIPS bonds.
 
RunningBum said:
I'm trying to decide if IBonds adds an unnecessary complexity to my investments and estate. I just bought my first in 2020 and plan to hold for 20 years. That puts me at 79, so I should still be around, but no guarantee. If I add more every year, there's more chance my heirs will have to deal with this. Is it easier to redeem and transfer than I'm worried about?

Then there's the question of whether I should buy them with my tax refund. Then I'm dealing with a paper bond. In 20 years that may be another burden to figure out where to redeem it.

Even if I did this every year it wouldn't be that significant of an amount, and I or my heir would have to redeem 20 year old I Bonds every year.

Would appreciate hearing any experiences or knowledge on the redemption and transfer processes.
Click to expand...
They are easy to redeem, even partially.

Ours are titled with the spouse which makes them the beneficiary.
 
mystang52 said:
Rather than initiate a thread creep, I thought I'd ask this in a new thread. Full disclosure, I'm not changing my approach so I'm just curious what others think.

I have some $60,000 in Savings Bonds, most in I Bonds. Owning and buying I Bonds are so simple, interest rate for this Cash-type security is pretty good. There seems to be more downsides to TIPS, be it individual or TIPS Fund. So, why not just own I Bonds? I don't see that great a differential even with higher interest rates. Am I missing something?
Click to expand...

Because there's a limit on how much IBond you can buy.
 
RunningBum said:
I'm trying to decide if IBonds adds an unnecessary complexity to my investments and estate. I just bought my first in 2020 and plan to hold for 20 years. That puts me at 79, so I should still be around, but no guarantee. If I add more every year, there's more chance my heirs will have to deal with this. Is it easier to redeem and transfer than I'm worried about?

Then there's the question of whether I should buy them with my tax refund. Then I'm dealing with a paper bond. In 20 years that may be another burden to figure out where to redeem it.

Even if I did this every year it wouldn't be that significant of an amount, and I or my heir would have to redeem 20 year old I Bonds every year.

Would appreciate hearing any experiences or knowledge on the redemption and transfer processes.
Click to expand...

Easy way around the paper bonds coming from your tax refund - you can convert them to electronic format on TreasuryDirect. Some online paperwork to fill out to create a manifest, then you mail the bonds in to TreasuryDirect and within a week or two they show up. I do this every year. No idea why there isn't just a direct path from your refund to TreasuryDirect, but it is what it is.
 
RunningBum said:
I'm trying to decide if IBonds adds an unnecessary complexity to my investments and estate. I just bought my first in 2020 and plan to hold for 20 years. That puts me at 79, so I should still be around, but no guarantee. If I add more every year, there's more chance my heirs will have to deal with this. Is it easier to redeem and transfer than I'm worried about?

Then there's the question of whether I should buy them with my tax refund. Then I'm dealing with a paper bond. In 20 years that may be another burden to figure out where to redeem it.

Even if I did this every year it wouldn't be that significant of an amount, and I or my heir would have to redeem 20 year old I Bonds every year.

Would appreciate hearing any experiences or knowledge on the redemption and transfer processes.
Click to expand...

I share the same concerns. However I've been buying 10k for 6 years now. I plan to buy at least 40k more before I'm 69 yo. At that point I'll either hold as a reserve or start cashing in as required when RMD's start. Those combined with variable Roth withdrawals should give me flexibility while managing taxes. I don't see the Series I bonds making a ton of interest so the taxes should be minimal. But if the interest rates do shoot up I'll take it. Just another little insurance policy.
 
mrfeh said:
Because there's a limit on how much IBond you can buy.
Click to expand...
That really ends up being the biggest deterrent.

I almost bought some last Nov plus Jan since the current payout is quite decent even with 0% fixed rate, and during periods like right now with Fed rates at 0% yet CPI running above 1% IBonds tend to pay higher rates than treasuries or high yield savings accounts. This same situation occurred during mid 2010s - after bought with deflation were over, but before the Fed started raising their funds rate again. History for both fixed and inflation rates here near bottom. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

But it’s still such a small incremental amount I decided it wasn’t worth the bother at the time. I have already accumulated a base of IBonds in my retirement cash allocation. Maybe with some more CDs maturing I’ll change my mind. IBonds are locked in for 1 year, and you forfeit 3 months of most recent interest if withdrawn before 5 years.
 
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Still kicking myself for not buying more I-bonds back when they actually paid decent interest. Now, I consider them in the "why bother" category, but YMMV.
 
Koolau said:
Still kicking myself for not buying more I-bonds back when they actually paid decent interest. Now, I consider them in the "why bother" category, but YMMV.
Click to expand...

Current rate of 1.68% is pretty nice. As long as CPI stays above 1% and Fed funds rate stays at 0%, IBonds will handily beat treasury bills and high yield savings accounts/short-term CDs IMO.
 
DH and I have finally reached $500k in total i-bond stash... it's taken a long time. I worked out around 15 years ago that as only a small %age of our assets are tax-deferred - around 17% at that time - we would struggle for tax-preferred fixed income options. Slow and steady, we have finally reached a sensible amount.

I buy for the inflation protection, the fixed-income diversification, and as we have slowly eaten into our IRAs with Roth conversions, the extra 'safe' space.

Buying i bonds is a breeze, I only hope that redeeming is as simple in reverse. I don't see any reason why it wouldn't be.
 
Excellent recent article on iBonds on Tipswatch:

https://tipswatch.com/2021/01/06/an-i-bond-strategy-for-2021-buy-them-whenever-just-do-it/

It seems to me the small annual purchase limit and minor hassle of opening a Treasury Direct account are the only downsides. I can't be bothered with the overpay your taxes trick but DW and I will buy our 10K per person limit annually for the foreseeable future. Heck I'd have our entire bond and cash allocation in them if I could.
 
aja8888 said:
I looked at BPRIX and saw that Schwab indicates a $2,000,000 minimum purchase amount. Yikes! Did you buy this or the investor classes?
Click to expand...

Many institutional funds show minimums like that - probably just means it's held in something like a 401K.
 
aja8888 said:
I looked at BPRIX and saw that Schwab indicates a $2,000,000 minimum purchase amount. Yikes! Did you buy this or the investor classes?
Click to expand...

It is what is available to me in my 401k, so I guess a pooling of all my former goombahs at Megacorp have $2,000,000. My amount is a little bit less than $2,000,000.:LOL:


But what do you think? A keeper?
 
Winemaker said:
It is what is available to me in my 401k, so I guess a pooling of all my former goombahs at Megacorp have $2,000,000. My amount is a little bit less than $2,000,000.:LOL:


But what do you think? A keeper?
Click to expand...

The funds have a nice performance record and use derivatives as part of their portfolio. Probably options (low percentage of total) to hedge, and the fact sheet I looked at even had some Chinese bonds (1.99% coupon).

The A & C Investor funds have about the same construction and nearly the same performance and are OK for slugs like me as the minimums are reasonable.

I'm looking for ballast such as this. Thanks for posting the link! :cool:

I'm going to spend some time looking harder at the funds this weekend.
 
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