What do you guys think about Series I Bonds?

[laterallyshaking]

Those who are already aware of them, how do you feel about them? Those who are not yet aware, see below.

I bonds — TreasuryDirect

www.treasurydirect.gov

 

[TopHook]

More of the peirce brosmond bond fan.

 

[Rebarcock.]

Those who are already aware of them, how do you feel about them? Those who are not yet aware, see below.

I bonds — TreasuryDirect

www.treasurydirect.gov

Bonds are good when times are bad. I bonds are different then normal treasury bonds.
I'm not a treasure trove of info but the feds pegged a min rate of return on them this week I think. That could make them more attractive then cds at a bank.
I believe w I bonds you have to have a sizeable chunk to throw in. Not for 10k investors iir

 

[Rusty Student]

I've got some. You can't beat the interest rate, so it's a great place to park some cash. You can only buy $10k per year, but can apply tax refunds to increase that number.

The only bad thing appears to be if you need access to your funds sooner than anticipated. Depending on how long they've been in Ibonds, you will forfeit some or all of the interest.

 

[VosFrost]

They’re 30Y notes but the breakage fee is minimal. If you got cash lying around it’s better than it sitting in a checking account

 

[laterallyshaking]

I've got some. You can't beat the interest rate, so it's a great place to park some cash. You can only buy $10k per year, but can apply tax refunds to increase that number.

The only bad thing appears to be if you need access to your funds sooner than anticipated. Depending on how long they've been in Ibonds, you will forfeit some or all of the interest.

From what I've read, you can't access them for 1 year, but after that, if you cash them before 5 years, you lose the last 3 months interest, and that's all. Seems like a super low penalty.

 

[Rebarcock.]

I've got some. You can't beat the interest rate, so it's a great place to park some cash. You can only buy $10k per year, but can apply tax refunds to increase that number.

The only bad thing appears to be if you need access to your funds sooner than anticipated. Depending on how long they've been in Ibonds, you will forfeit some or all of the interest.

I had it backwards. Thanks

 

[Rusty Student]

From what I've read, you can't access them for 1 year, but after that, if you cash them before 5 years, you lose the last 3 months interest, and that's all. Seems like a super low penalty.

Correct. Interest rate changes every 6 months

 

[laterallyshaking]

Correct. Interest rate changes every 6 months

Indeed. It changes based up on the fixed rate they set, and based upon the current level of inflation. The higher inflation goes, the higher the interest rate goes. The attached chart shows the current interest rate as of 1/11/22, and every interest rate dating back to 1998.

I dipped my toe in the water back in September and bought $1050 in i-bonds when the interest rate was 9.62%. If I'm understanding correctly, that should add $606.06 to my bonds in March 2023 ($101.01 per month, paid out every 6 months), and then the new interest rate will take over and add another $684.62 in September 2024 ($114.10 per month), totaling $2340.68 on my $1050 investment after just one year. I'm doubting my math, though, because this seems insane... What could the government possibly get out of this deal?

 

[Rusty Student]

Indeed. It changes based up on the fixed rate they set, and based upon the current level of inflation. The higher inflation goes, the higher the interest rate goes. The attached chart shows the current interest rate as of 1/11/22, and every interest rate dating back to 1998.

I dipped my toe in the water back in September and bought $1050 in i-bonds when the interest rate was 9.62%. If I'm understanding correctly, that should add $606.06 to my bonds in March 2023 ($101.01 per month, paid out every 6 months), and then the new interest rate will take over and add another $684.62 in September 2024 ($114.10 per month), totaling $2340.68 on my $1050 investment after just one year. I'm doubting my math, though, because this seems insane... What could the government possibly get out of this deal?

I think your math is off. I believe the rate is based on a year time frame, so you wouldn't be getting a full 9.62% each month. You'd have to divide it by 12.

 

[laterallyshaking]

I think your math is off. I believe the rate is based on a year time frame, so you wouldn't be getting a full 9.62% each month. You'd have to divide it by 12.

Ahhhhh, see that makes so much more sense. Thank you for helping out a finance noob!

 

[fschmidt]

Hyperinflation would make I-Bonds worthless because reported inflation is about half of real inflation. I would stick to productive real assets like stocks, real estate, etc. These can drop in the short run but will ultimately hold their value.

 

[ChicagoFats]

Hyperinflation would make I-Bonds worthless because reported inflation is about half of real inflation. I would stick to productive real assets like stocks, real estate, etc. These can drop in the short run but will ultimately hold their value.

This is probably the correct answer for the masses. Everyones situation is a little different but in general the stock market will return ~6% after inflation and the ibonds only 1-2% after inflation.

SO if you have a long term time horizon you probably want to stick with stonks.

Ibonds are better than cash. Stonks are better than ibonds. For the long term investor.

 

[VosFrost]

Hyperinflation would make I-Bonds worthless because reported inflation is about half of real inflation. I would stick to productive real assets like stocks, real estate, etc. These can drop in the short run but will ultimately hold their value.

I’d argue you’re right, don’t put all eggs in one basket, but it’s a unique was to securely diversify.

 

[fschmidt]

As a disclaimer I do own the maximum allowed I-bonds, but I bought them in 2000 when the fixed rate was 3.60%. Right now the fixed rate is 0.40% which is too low. I will sell my I-bonds if inflation stays high.