I Bonds vs TIPS

[tdv2]

Just opened two treasury direct accounts, one for me and one for DW. Going to start by funding each with $10k of ibonds. It’s small potatoes but it’s still a good deal IMO.

 

[mrfeh]

Just opened two treasury direct accounts, one for me and one for DW. Going to start by funding each with $10k of ibonds. It’s small potatoes but it’s still a good deal IMO.

Yup. We've been throwing $20K at them since 2013.

The purchase limit is a bummer, but they're better than a sharp stick in the eye.

 

[Koolau]

Yup. We've been throwing $20K at them since 2013.

The purchase limit is a bummer, but they're better than a sharp stick in the eye.

A ringing endorsement, indeed. Perhaps you should offer US Treasury a "person on the street" commercial.

"I bonds. Better than a sharp stick in the eye. Sign up today. Be the first on your block."

But seriously, back in the early 00's when we bought our stash of I bonds (you know, back when they actually paid some interest ) we purchased ours at a BANK. IIRC one could also cash them back IN at a BANK. Does anyone know if that is still possible. My guess is "no." Not looking forward to setting up an account with Treasury just to cash them in within 10 years or so now. YMMV

 

[Ed_The_Gypsy]

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!

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

Chinese bonds IMHO, you would be better off buying VWOB, yield >4% with much more reliable creditors.

 

[retiredunder50]

But seriously, back in the early 00's when we bought our stash of I bonds (you know, back when they actually paid some interest ) we purchased ours at a BANK. IIRC one could also cash them back IN at a BANK. Does anyone know if that is still possible. My guess is "no." Not looking forward to setting up an account with Treasury just to cash them in within 10 years or so now. YMMV

My credit union has been cashing mine for years. When my older children were in school, twice a year I would cash in a stack (average of 2 bonds purchased every pay period). The interest is federal income tax free for qualified education expenses like tuition and fees. They are state income tax free as well. I still have a bunch of the 1998s to 2002s as they had the nice fixed rate components. My youngest starts college this fall. I'll be a little sad when I cash out the ones with the best rates. I also purchased some treasury direct bonds online and found it fairly easy to transfer amounts to a bank account.

 

[NoiseBoy]

I have $70k + accumulated interest in a $10k/yr I-Bond ladder. I stopped buying them a few years back when interest rates rose and money markets started paying a better, or at least easier, yield. I'm thinking of starting up again as I'm holding a lot of cash (hoarding pre-retirement) and it's earning nothing. Does anyone know if you can "back purchase" a 2021 I-Bond? In other words, if I have $20k to invest, can I still get a bond for last year + this year, or has 2021 sailed on by me?

 

[mrfeh]

I have $70k + accumulated interest in a $10k/yr I-Bond ladder. I stopped buying them a few years back when interest rates rose and money markets started paying a better, or at least easier, yield. I'm thinking of starting up again as I'm holding a lot of cash (hoarding pre-retirement) and it's earning nothing. Does anyone know if you can "back purchase" a 2021 I-Bond? In other words, if I have $20k to invest, can I still get a bond for last year + this year, or has 2021 sailed on by me?

I'm 98% sure you can't. You don't get the 1/1 -> 4/15 window for prior year contributions like you do with IRAs.

 

[big-papa]

I'm 98% sure you can't. You don't get the 1/1 -> 4/15 window for prior year contributions like you do with IRAs.

I'll go for 100% that you can't.
There also not marketable which means you can't buy them from somebody else either.

Cheers.

 

[NoiseBoy]

You don't get the 1/1 -> 4/15 window for prior year contributions like you do with IRAs.

Yeah, that is exactly what I was hoping for, but not surprised that it isn't allowed. Drat.

 

[Koolau]

My credit union has been cashing mine for years. When my older children were in school, twice a year I would cash in a stack (average of 2 bonds purchased every pay period). The interest is federal income tax free for qualified education expenses like tuition and fees. They are state income tax free as well. I still have a bunch of the 1998s to 2002s as they had the nice fixed rate components. My youngest starts college this fall. I'll be a little sad when I cash out the ones with the best rates. I also purchased some treasury direct bonds online and found it fairly easy to transfer amounts to a bank account.

Thanks, I'll ask my bank and CU when I get a chance. No desire to cash them at this time, but that was my original plan - to cash them as needed at a bank.

 

[mrfeh]

Thanks, I'll ask my bank and CU when I get a chance. No desire to cash them at this time, but that was my original plan - to cash them as needed at a bank.

My experience is that cashing them (wholly or partially) online is very easy.

 

[socaldonnan]

DH and I have about $50,000 in EE’s and I bonds. I bought the I bonds early 2000’s but EE’s were bought in the 1980’s through 1990’s. We now have two grandsons 4 years and 18 months and this topic got me thinking about buying $10,000 or $20,000 for each in I bonds towards college. Thoughts?

 

[twaddle]

DH and I have about $50,000 in EE’s and I bonds. I bought the I bonds early 2000’s but EE’s were bought in the 1980’s through 1990’s. We now have two grandsons 4 years and 18 months and this topic got me thinking about buying $10,000 or $20,000 for each in I bonds towards college. Thoughts?

As much as I love those i-bonds from 2000-ish, I think your grandkids would be happier if you put the money in a passive stock fund within a 529.

But if you must buy savings bonds, the EE looks like it might be better than the i-bond 20 years from now. Unless you're betting on CPI > 3.5%.

 

[audreyh1]

My experience is that cashing them (wholly or partially) online is very easy.

Yes. Very easy. Immediate deposit to your bank account already linked. I didn’t have to interact with the back. All done via treasurydirect.gov.

You have to go online the next year to get your 1099-INT.

 

[JoeWras]

Yes. Very easy. Immediate deposit to your bank account already linked. I didn’t have to interact with the back. All done via treasurydirect.gov.

You have to go online the next year to get your 1099-INT.

Agree!!

Back in the 90s, my megacorp offered automatic savings bond purchases. I decided to do this for a few years and accumulated about 30 paper bonds. I also had childhood bonds given as birthday presents and the like.

Going to the bank was a pain. Once I got on Treasury Direct, I created a linked account for Savings Bonds Conversions. Yes, there was one up-front process to send them in and wait. This was a pain. But it only has to happen once.

Now that my paper bonds are on Treasury Direct, it is automatic! Those 90s bonds are now maturing and they automatically cash out without collecting dust. (Once mature, no more interest, you really need to cash them.) I don't have to do a thing except anticipate my income for the next few years of conversions for tax planning purposes.

Finally, I see I can apparently do this with I-Bonds too. I need to look into this and potentially do the tax return trick. I don't want my I-Bonds on paper, if I can put them in the system, that's cool.

 

[retiredunder50]

DH and I have about $50,000 in EE’s and I bonds. I bought the I bonds early 2000’s but EE’s were bought in the 1980’s through 1990’s. We now have two grandsons 4 years and 18 months and this topic got me thinking about buying $10,000 or $20,000 for each in I bonds towards college. Thoughts?

Just so you know, amongst the requirements for a tax advantage on the interest for college expenses, the savings bond should not be held in the name of the child and it should be for a dependent. (see https://www.treasurydirect.gov/indiv/planning/plan_education.htm for additional clarification)


Additionally, if your grandsons might be eligible for financial aid, the savings bonds amounts in their names will negatively impact their eligibility, at a higher rate than if it was held in the parents' names. Given the times of a good fixed rate component for I bonds is over (for about 20 years), and the gain would only be tied to twice a year inflation adjustments, a 529 route might be a better path.

 

[NoiseBoy]

I am working on my estate plan and for my first pass I'm thinking of giving the portion of my savings that are in tax advantaged accounts, to charity. That got me to wondering about the taxes due on my I-bonds. If I leave them to charity, do they have to pay the tax on the accrued interest?

 

[lucky penny]

DH and I have about $50,000 in EE’s and I bonds. I bought the I bonds early 2000’s but EE’s were bought in the 1980’s through 1990’s. We now have two grandsons 4 years and 18 months and this topic got me thinking about buying $10,000 or $20,000 for each in I bonds towards college. Thoughts?

It's my understanding that EE bonds reach maturity & stop earning interest at 30 years. I have some that are getting close to that -- too bad, since they're still earning a nice rate.

 

[tdv2]

Does anyone know how long it takes for tax refund to show up in treasury direct account if you choose to purchase Ibonds with your refund? I had the small deposit based on having to buy in $50 increments show up in my bank account yesterday.

 

[RunningBum]

Does anyone know how long it takes for tax refund to show up in treasury direct account if you choose to purchase Ibonds with your refund? I had the small deposit based on having to buy in $50 increments show up in my bank account yesterday.

No experience but I thought you get paper I Bonds with tax refunds, so they won't show up in your account.

 

[lucky penny]

No experience but I thought you get paper I Bonds with tax refunds, so they won't show up in your account.

Yes, that was my experience. Paper bonds in the mail. You can then register them with your treasury direct account.

 

[OldShooter]

DW and I believe that serious inflation protection is a "Go big or go home" kind of thing. I don't know what real protection people get with the 5%-10% kind of holdings that are sometimes mentioned.

With that philosophy, although I think there are good reasons that I-Bonds are financially superior to TIPS, the inability to invest serious money in I-bonds puts them effectively off-limits for us. Not complaining about it, but I think that is exactly Treasury's intent. I-Bonds are positioned for smaller retail investors, where TIPS are available to the whole spectrum of buyers.

 

[audreyh1]

Yes, that was my experience. Paper bonds in the mail. You can then register them with your treasury direct account.

That alone is enough for me to avoid this route. Besides I avoid large tax refunds. I don’t want to chance major delays getting my refund due to tax fraud.

 

[RunningBum]

DW and I believe that serious inflation protection is a "Go big or go home" kind of thing. I don't know what real protection people get with the 5%-10% kind of holdings that are sometimes mentioned.

Sure, but you can say that for almost every investment type. Maybe some people want to hedge their bets somewhat on inflation protection. Or maybe they want to get their feet wet. Certainly 10% TIPS is better than 0% for inflation protection. Meanwhile, stocks provide some hedge on inflation as well, so it's not like TIPS and I Bonds are the only inflation hedge.

That said, I'm well over 10% TIPS.

 

[OldShooter]

Sure, but you can say that for almost every investment type. Maybe some people want to hedge their bets somewhat on inflation protection. Or maybe they want to get their feet wet. Certainly 10% TIPS is better than 0% for inflation protection. Meanwhile, stocks provide some hedge on inflation as well, so it's not like TIPS and I Bonds are the only inflation hedge.

That said, I'm well over 10% TIPS.

Well, bonds don't provide inflation protection. And the connection between stocks and inflation is laggy and tenuous. For example, consumer discretionary is not going to do well if we get high inflation but agriculture and natural resources probably will if our exports become cheaper. Gold and PMs over the very long term are proven inflation protection but their volatility is high even in calm times. I have no interest in trying to ride that bucking bronco if we get the late 70s, early 80s inflation. But I don't see any reason to rely on laggy and tenuous options when I have TIPS serving up much more reliable protections (sans the tax bite of course.) So yes, TIPS are not the only inflation hedge but I think they are arguably the best because they are the most reliable. We have about five years' spending in TIPS, so we can ride out a storm pretty well I think. And we have a lot more in equities so if that horse starts to run well we are already aboard.