Why Aren't I-Bonds Getting More Attention?

[Chuckanut]

Wow, I think that is the first "celebrity" of any ilk to mention I-Bonds in the "mainstream" media. And only what, a year after I-Bonds rates started to jump?

I am waiting to see celebrity ads for I-Bonds air as frequently as celebrity ads for crypto .

Celebrity endorsements are my #1 sign that something is not right. #2 is using the phrase "You're worth it."

I first heard about I-bonds on Clark Howard's podcast. This was months before Suzie, the WSJ, and the rest of the financial media started talking about them. IIRC, he even beat out this auspicious site.

 

[RHONDAVE]

The strategy was discussed at length in the other, very long I-Bond thread here https://www.early-retirement.org/forums/f28/the-i-bond-thread-113668.html

But I'll recap:

In Dec 2021, the young wife and I each purchased $10k for our own account.
In Jan 2022, we each purchased $10k for our own account
In Feb 2022, we each purchased $10k as a gift for each other, to be delivered on 1/1/23.
In Mar 2022, we each purchased another $10k gift to be delivered on 1/1/24
In Apr 2022, we each purchased yet another $10k gift to be delivered on 1/1/25.

So a total of $100k for the two of us. For the first six months, each of those bonds will earn at a rate of 7.12%, for the next six months at a rate of 9.62%, for an annual return of 8.54% the first year. Yes, one must consider the 3 month early redemption penalty and the annual limits that cause the last of the gifts to be tied up until 1/1/25, but all-in-all, it is a very substantial return for minimal effort.

Is there a reason that the 3 gift transactions that start in Feb 22 are done in the following months? Could one fund them with only 1 day apart?

 

[pb4uski]

Is there a reason that the 3 gift transactions that start in Feb 22 are done in the following months? Could one fund them with only 1 day apart?

Actually you can buy the gifts all on the same day... that is what DW did for me... and I reciprocated.

While I bought them as separate $10,000 purchases, I think I could probably have done them as one purchase and then gift $10,000 each year beginning in 2023.

 

[Gumby]

Is there a reason that the 3 gift transactions that start in Feb 22 are done in the following months? Could one fund them with only 1 day apart?

Yes, you could do them all at once. I just wanted to set up a ladder to have maximum flexibility.

 

[RHONDAVE]

Actually you can buy the gifts all on the same day... that is what DW did for me... and I reciprocated.

While I bought them as separate $10,000 purchases, I think I could probably have done them as one purchase and then gift $10,000 each year beginning in 2023.

Thanks For Your Help.
EARN BABY EARN


I can see the pitfalls of the app/program that require you to "pay attention" as you work through the transaction requirements. I/WE only kicked in 10K today but Monday we do some giftin'!

 

[Sunset]

Thanks For Your Help.
EARN BABY EARN


I can see the pitfalls of the app/program that require you to "pay attention" as you work through the transaction requirements. I/WE only kicked in 10K today but Monday we do some giftin'!

Just remember it will take 1 year to give away each $10K I-bond.

We went out 3 yrs worth as it gets hard to predict the future farther than that.

 

[Gumby]

Based on today's CPI-U release, at the next I-Bond rate reset on November 1, 2022, the rate will be at least 6.13% APR. And there are still three more months of CPI increases to add to that.

 

[madatrub]

Based on today's CPI-U release, at the next I-Bond rate reset on November 1, 2022, the rate will be at least 6.13% APR. And there are still three more months of CPI increases to add to that.

I look forward to these updates, btw. Just in case you were thinking about stopping because noone looks.

 

[Eucerin]

Based on today's CPI-U release, at the next I-Bond rate reset on November 1, 2022, the rate will be at least 6.13% APR. And there are still three more months of CPI increases to add to that.

With the way it goes, it doesn't seem possible the CPI will be 0 in July, that means the November Ibond rate would be above 7% to say the least. Will buy in January again instead of push the gift

 

[Chuckanut]

I look forward to these updates, btw. Just in case you were thinking about stopping because noone looks.

Gumby does us a great service.

And my grand daughter loves his old TV shows, especially the one where he climbs to the moon on the fire truck ladder. He beat Neil Armstrong by several decades. And did it a lot cheaper.

 

[Gumby]

With the way it goes, it doesn't seem possible the CPI will be 0 in July, that means the November Ibond rate would be above 7% to say the least. Will buy in January again instead of push the gift

I have been thinking about that issue.

There are two key limitations that drive my thinking. 1) A gift bond cannot be cashed in unless and until it is delivered; and 2) there is a one year minimum holding period for any newly purchased bond.

So, here's my conclusion:

The young wife and I are each holding in our gift box a $10k gift bond that can be delivered to the other on January 2023 (and immediately cashed in if we need money). If we do not deliver the gift in 2023 and instead each buy another $10k bond for our own account, the gift bond is still frozen and cannot be delivered and cashed until 2024 AND the new bond we buy for ourselves in 2023 cannot be cashed until one year after purchase (i.e. also 2024).

On the other hand, if we deliver the current gift bond to each other in January 2023 and simply buy a new gift bond for each other to be delivered in 2024, then we have only one half as much money locked up during 2023. We probably won't cash the gift bond we receive from each other in January 2023, but it does give us more flexibility should a need for cash arise.

 

[madatrub]

I have been thinking about that issue.

There are two key limitations that drive my thinking. 1) A gift bond cannot be cashed in unless and until it is delivered; and 2) there is a one year minimum holding period for any newly purchased bond.

So, here's my conclusion:

The young wife and I are each holding in our gift box a $10k gift bond that can be delivered to the other on January 2023 (and immediate cashed in if we need money). If we do not deliver the gift in 2023 and instead each buy another $10k bond for our own account, the gift bond is still frozen and cannot be delivered and cashed until 2024 AND the new bond we buy for ourselves in 2023 cannot be cashed until one year after purchase (i.e. also 2024).

On the other hand, if we deliver the current gift bond to each other in January 2023 and simply buy a new gift bond for each other to be delivered in 2024, then we have only one half as much money locked up during 2023. We probably won't cash the gift bond we receive from each other in January 2023, but it does give us more flexibility should a need for cash arise.

Are we sure that the gifts can be cashed immediately after delivery? Technically, they aren't holding it for a year, they are holding it for a day. Does the year you hold it count? Im not sure?

 

[Dash man]

Are we sure that the gifts can be cashed immediately after delivery? Technically, they aren't holding it for a year, they are holding it for a day. Does the year you hold it count? Im not sure?

Yes, the one year begins when the bond is purchased.

 

[pb4uski]

I have been thinking about that issue.

There are two key limitations that drive my thinking. 1) A gift bond cannot be cashed in unless and until it is delivered; and 2) there is a one year minimum holding period for any newly purchased bond.

So, here's my conclusion:

The young wife and I are each holding in our gift box a $10k gift bond that can be delivered to the other on January 2023 (and immediately cashed in if we need money). If we do not deliver the gift in 2023 and instead each buy another $10k bond for our own account, the gift bond is still frozen and cannot be delivered and cashed until 2024 AND the new bond we buy for ourselves in 2023 cannot be cashed until one year after purchase (i.e. also 2024).

On the other hand, if we deliver the current gift bond to each other in January 2023 and simply buy a new gift bond for each other to be delivered in 2024, then we have only one half as much money locked up during 2023. We probably won't cash the gift bond we receive from each other in January 2023, but it does give us more flexibility should a need for cash arise.

+1 If rates are still attractive... and I think that is likely... then transfer $10k out of the gift box to spouse in Jan 2023 and buy a replacement in the gift box.

 

[foxfirev5]

Although I've been buying I bonds for years I can't help myself from thinking about those jumping on the bandwagon. What was your plan prior to this anomaly?

 

[Gumby]

Why do I need a plan? I had a spare $100k in cash in my checking account just sitting there idly earning about 0.01% interest. I learned about I-bonds last fall and recognized an opportunity to make a little money, so I took it. When it is no longer a good deal, I may do something else with that money, or not. One way or the other is not essential to my retirement success.

 

[foxfirev5]

Why do I need a plan? I had a spare $100k in cash in my checking account just sitting there idly earning about 0.01% interest. I learned about I-bonds last fall and recognized an opportunity to make a little money, so I took it. When it is no longer a good deal, I may do something else with that money, or not. One way or the other is not essential to my retirement success.

Of course you don't need a plan with 100k in spare cash. I love the arrogance!

 

[pb4uski]

Why do I need a plan? I had a spare $100k in cash in my checking account just sitting there idly earning about 0.01% interest. I learned about I-bonds last fall and recognized an opportunity to make a little money, so I took it. When it is no longer a good deal, I may do something else with that money, or not. One way or the other is not essential to my retirement success.

+1 except the money that is now in i-bonds was in a 0.5% online savings account and the amount ended up being $135k... I suspect the difference being $5k tax refund and $10k each in his, her and joint trusts.

 

[Mulligan]

Although I've been buying I bonds for years I can't help myself from thinking about those jumping on the bandwagon. What was your plan prior to this anomaly?

I was in them for a couple years a decade ago when CDs were descending to 1% and inflation was still 3% range. Once they rolled over, I exited until last summer when the 3.56% cycle was going. I am gifted out through next year but will stop there. Circumstances are changing. CDs are now rising giving a possible exit option instead of being hung out several years waiting for gifts to unwind at possibly lower yields than CDs which one could lock into.

 

[steelyman]

I started buying I bonds with the intention of funding one year of a three year emergency fund. That’s still their purpose for me.

[ADDED] With a $10K annual limit, that can take a while.

 

[HarryHawk]

THanks to the kind folks here who share their collective wisdom, I first learned about iBonds and have a fair idea of how they work in today's environment.

Was hoping someone could educate me on how they would work if things were to swing around 180 degrees. Let's say the fed gets aggressive and the interest rates go up to five or seven percent, causing the inflation rate to fall to one percent. (Obviously a purely theoretical scenario, only for sake of discussion)

What would iBonds (theoretically) pay for interest? Would there be a base rate that reflects the then current interest rate (5-7%)? Or would the iBond interest rate be more reflective of the then current inflation rate (1%)? Or some combination/permutation of both?

As always, thanks for sharing your collective sage wisdom.

 

[Gumby]

There is a fixed component of I-bond rates (which is discretionary and currently zero) as well as the inflation adjustment (which is not discretionary). If general market interest rates go up as a consequence of Fed tightening, I would expect the fixed component to go above zero, as deemed necessary by the Treasury to attract buyers. And if inflation decreases as a consequence of fed tightening, the inflation component will decrease in lockstep.

 

[Jerry1]

Although I've been buying I bonds for years I can't help myself from thinking about those jumping on the bandwagon. What was your plan prior to this anomaly?

Of course you don't need a plan with 100k in spare cash.

I didn't have a plan or $100K cash. Since you've been buying I-Bonds, you know that the inflation rate was low and they did not stand out as a particularly good deal. Up jumps inflation and the I-Bonds now are a great deal for a secure investment. Sounds good so I bought some. I guess my plan is to get a good deal when I can. So I did.

 

[HarryHawk]

There is a fixed component of I-bond rates (which is discretionary and currently zero) as well as the inflation adjustment (which is not discretionary). If general market interest rates go up as a consequence of Fed tightening, I would expect the fixed component to go above zero, as deemed necessary by the Treasury to attract buyers. And if inflation decreases as a consequence of fed tightening, the inflation component will decrease in lockstep.

Do existing iBonds receive the same interest rate in the future as is being applied to newly purchased iBonds?

 

[pb4uski]

Do existing iBonds receive the same interest rate in the future as is being applied to newly purchased iBonds?

Yes. The treasury declares the rate for the inflation component each May and November. That inflation component the applies to all i-bonds that are purchased or have 6 month anniversaries between May-Oct or Nov-Apr. So the rate changes every six months.

So for example, in May 2022 the Treasury declared the inflation component of 9.62%... so all bonds issued from May 1 to Oct 31 will get 9.62% for the first six months... for the next six months they will get the inflation component declared in Nov 2022.

Same thing for existing i-bonds... the i-bonds that I bought in Jan 2022 paid 7.12% for Jan-June and will pay the new 9.62% rate for July-Dec and then the rate declared in Nov 2022 for Jan-Jun 2023.

The rates are currently very attractive and more attractive than comparable term CDs or UST, but CDs and UST are catching up. If CD or UST become more attractive, then I'll transition to them as they are much easier for me administratively and Treasury Direct is a bit of a pain-in-the-a$$.