The thing is, you know what a money market fund is paying NOW. You don’t know what it will be paying 6 months from now, or 1 year from now, or 5 years from now.
You know that the current iBond will be paying 0.5% above inflation every six months for the next 30 years. It will pay 2.83% for the next six months, then 1.90% for the following six months. This ~2.36% average over 12 months does beat a lot of MM funds today.
I have never redeemed before 5 years so I’ve never paid the 3 month penalty.
It’s just a diversification play. I own some IBonds as well as MM funds, short-term CDs, and intermediate CDs and sometimes treasuries. My initial IBond purchase from 2003 is paying 1.1% plus inflation so currently paying 3.32%. I’m definitely holding onto that one until 2033.
There have been periods where IBonds paid more than money markets and short-term CDs.
I am just buying more to replace older IBonds that are paying a lower fixed rate (0.2%), currently 2.52%. When the rate on those older ones drop I may redeem them and redeploy into short-term CDs.
If it’s not a clear win for you I would recommend not to buy IBonds.
1) No state taxes on savings bond interest.
2) iBond interest is tax-deferred for up to 30 years
2) one year does not a lifetime make. The iBond will return 0.50% real over the life of the investment. (Well, somewhat of a lie in that federal taxes still need to be paid.)
A long long time ago there was a period where TIPS and iBonds had a near 4% REAL (plus inflation) return. I was smart enough to buy some of these, but not smart enough to buy a sh*t load of them.
Thanks. I think it makes sense especially for the education purpose I have in mind which will allow the appreciation to be 100% tax free...hopefully.