Author Topic: Series I Savings Bonds for Emergency Fund - 3.54% interest rate  (Read 34579 times)

Gas-man

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I learned about series I savings bonds while listening to a podcast earlier today and am considering using this as an inflation-protected option for our emergency fund.  The current rate is 3.54% and adjusts twice per year (May and November) based on changes in the CPI-U.  Can't get this rate in any other safe place these days and I'm sure I haven't been made aware of these until now because the rate has been low until recently. 

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

A couple downsides are that the maximum purchase is $10k per year per person (could use my wife and kids' SS numbers for the remaining funds I suppose) and that they must be kept for a minimum of one year or else all interest earned is forfeited.  Three months of interest is forfeited if the bonds are cashed out before 5 years, but that's still not a bad deal if I can keep the money locked up for 12 months.  Certainly better than the 0.6% I'm getting with my current emergency fund account.

Federal tax is due when the bonds are cashed in but they're state and local tax exempt.  May also be federal tax exempt if used for education, which is cool.

This seems like a no brainer so where are my blind spots?

Edited to correct my comment about cashing in.  I Bonds cannot be cashed in before holding for 12 months, period.
« Last Edit: October 28, 2021, 03:40:21 PM by Gas-man »

EvenSteven

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #1 on: June 04, 2021, 07:34:32 PM »
I think these are fantastic for an emergency fund, and it is what I do myself. 10k per year is ok for me, because I can ladder the purchases a little and not keep my entire emergency fund tied up for a year.

I struggle to find downsides, so I came up with the annoying virtual keyboard for log in to treasury direct.

Gas-man

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #2 on: June 04, 2021, 09:44:16 PM »
Well I'm glad to hear that this was a good discovery, thanks!  I'll be jumping on this train asap.

tooqk4u22

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #3 on: June 05, 2021, 05:49:11 AM »
Remember that the 3.54% rate is not fixed. It is based on inflation which is hot right now but Fed wants to keep it that way.   The fixed portion is zero.  The variable portion resets every 6 months.

Crazy though that I have small amount of I bonds from 20 years ago that had a fixed rate of 3-3.5% so at the moment are earning 7% risk free.  Wish I had bought more.

Dicey

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #4 on: June 05, 2021, 06:08:13 AM »
PTF. This sounds intriguing.

Gas-man

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #5 on: June 06, 2021, 09:14:22 AM »
I just purchased my first Series I Savings Bond!  Pretty good win for cash savings and it'll be interesting to see how the interest rate moves in the future.  I'll probably end up buying more in June 2022 with another $10k.

McStache

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #6 on: June 06, 2021, 11:14:18 AM »
The TIPS watch blog (https://tipswatch.com/tracking-inflation-and-i-bonds/) keeps an eye on I bonds and what's happening with the rates.  I use I bonds as a sort of hybrid emergency fund/bond position in my AA.

Duchess of Stratosphear

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #7 on: June 07, 2021, 08:34:19 AM »
Thanks for this post reminding me to look at I bonds. How have you all found the Treasury Direct website to be? Is it easy to use? How long would it take to get to your money if you need to cash in the bonds?

Gas-man

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #8 on: June 07, 2021, 11:34:56 AM »
Thanks for this post reminding me to look at I bonds. How have you all found the Treasury Direct website to be? Is it easy to use? How long would it take to get to your money if you need to cash in the bonds?

I'm a new user of the website as of Friday and to me it's easy enough to use and the process for buying the bonds is straightforward.  The virtual keyboard for logging in is a bit annoying as EvenSteven mentioned earlier, but pretty decent otherwise.

seattlecyclone

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #9 on: June 07, 2021, 03:12:20 PM »
I've been maxing out my annual $10k quota of these for the past few years. I'm targeting a 5% allocation of these eventually. The website is clunky but functional. Not sure how long it takes to get cash out as I've never needed to do that yet.

Arbitrage

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #10 on: June 08, 2021, 08:04:35 AM »
I've been maxing out my annual $10k quota of these for the past few years. I'm targeting a 5% allocation of these eventually. The website is clunky but functional. Not sure how long it takes to get cash out as I've never needed to do that yet.

I had to redeem one a few months ago to drum up more cash for a down payment.  Nothing to it.

A few things about I bonds:

- Cannot redeem in the first 12 months after purchase
- 3 months' interest forgone if you redeem within 5 years of purchase
- $10k limit per year per SSN.  For power users, you can also purchase an additional amount up to $5k using your tax refund check if you're really that motivated.
- As noted above, the interest rate is not fixed but adjusted twice per year based upon recent measures of inflation.
- Interest is tax-deferred and not subject to state taxes upon redemption
- Even if deflation hits, you will not be penalized with negative interest rates
- Subject to income limitations, you can redeem for higher education payments tax-free
- I bonds will accrue interest for up to 30 years

Overall, I think they're a great option for those who (a) have some fixed income as part of their asset allocation and (b) have some taxable investments. 

tipster350

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #11 on: June 08, 2021, 08:45:17 AM »
This is very interesting. It seems like a great place to park some cash. I can't find any information about income limits on the web site.

Arbitrage

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #12 on: June 08, 2021, 09:19:08 AM »
Sorry, I must not have been clear.  There are no income limitations for purchasing.  The income limitation I mentioned was on whether or not the gains are tax-free when withdrawing for higher education (https://www.treasurydirect.gov/indiv/planning/plan_education.htm)

BicycleB

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #13 on: June 08, 2021, 02:03:18 PM »
I agree i-bonds are great for inflation-proofing cash, once they have seasoned for a year.

soccerluvof4

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #14 on: June 09, 2021, 04:08:33 AM »
Defiantly one of those things I have procrastinated to long about and need to start doing. Little more cash than need right now and I can ladder them from the sounds of it.

Duchess of Stratosphear

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #15 on: June 09, 2021, 09:51:27 AM »
I finally set up an account and parked a little money there as a second level emergency account. It was fairly easy. I've been putting this off for years, so thanks for this discussion. 

ambimammular

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #16 on: June 14, 2021, 09:03:36 PM »
This was perfect for parking some travel funds we'll be using in a semi-distant future. Thanks for the heads up.

FIREandMONEY

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #17 on: October 16, 2021, 10:44:56 PM »
The I Bonds adjusted rate just went up to 7.12%  Throw $10K in there before the end of October to guarantee a 1-year 5.33% return.

https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/

sonofsven

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #18 on: October 17, 2021, 07:18:48 AM »
Funny, I was just reading about these yesterday on the Doctor of Credit site. I've just been moving parts of my E fund around playing the bank bonus game.

magus

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #19 on: October 17, 2021, 07:28:38 AM »
Personally, I don't think inflation is going to drop anytime soon so I'll wait till 11/1 to fund. The owners rent equivalent will pick up towards reality and help keep the inflation rates higher.  7%+ yield is great

Edubb20

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #20 on: October 17, 2021, 07:53:20 AM »
Just started using these this last year. Once I have my EF's migrated to Ibonds and it all passes 1 year,  I'll lower my cash position to basically nothing unless I have a planned purchase.

boarder42

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #21 on: October 17, 2021, 08:32:13 AM »
https://www.google.com/amp/s/www.doctorofcredit.com/us-treasury-bonds-rate-set-to-increase-to-7-12-rate-i-bonds/amp/

Doctor of credit has an article on this now. Likely far better than 3.54 it is now. I'm planning to take some of my margin and buying these as it's a cost of 1.5% to get at least 5% guaranteed maybe more.

Holocene

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #22 on: October 17, 2021, 09:25:45 AM »
Thanks for sharing this!  The 3.54% rate had me tempted but I never pulled the trigger.  I will be making a purchase before the end of the month to guarantee 5.33% for the next year.  If inflation stays high or keeps going up, I'll earn that new better rate after a year.  I'm planning to FIRE next year so I've been starting to keep a little more money out of the market.  Also contemplating buying a new car but prices are crazy so keep waiting on that.  With this rate, it's a no brainer for me to buy $10k in ibonds now and probably another $10k in January.  Don't think any other fixed income will be able to match ibonds for the next year.

mistymoney

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #23 on: October 17, 2021, 09:34:05 AM »
The I Bonds adjusted rate just went up to 7.12%  Throw $10K in there before the end of October to guarantee a 1-year 5.33% return.

https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/

I was holding off! I read somewhere - can't find it now of course, that if you puschase in october you get the 3.45% rate for 6 months before it adjusts up, so was holding off for Nov whent he new 7% rate is effective.

seattlecyclone

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #24 on: October 17, 2021, 10:07:24 AM »
The I Bonds adjusted rate just went up to 7.12%  Throw $10K in there before the end of October to guarantee a 1-year 5.33% return.

https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/

I was holding off! I read somewhere - can't find it now of course, that if you puschase in october you get the 3.45% rate for 6 months before it adjusts up, so was holding off for Nov whent he new 7% rate is effective.

Your rate resets every six months. If you buy in October you get 3.45% for the first six months and 7.12% for the next six months. If you buy in November you get 7.12% for the first six months and an unknown rate for the next six months. Will that rate be higher or lower than 3.45%? Your guess may inform your decision on when to buy.

cannotWAIT

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #25 on: October 17, 2021, 10:45:27 AM »
I've got $20K in my emergency fund, so I'm going to do this both ways: $10K before the end of October, and then this morning I opened a Chase business checking account for the $750 bonus on keeping $10K in for 60 days, so that will carry me through almost to January, at which point I'll move the other $10K into I bonds. Talked to my mom about moving some of her moldering CD money into these, too.

mistymoney

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #26 on: October 17, 2021, 02:34:20 PM »
The I Bonds adjusted rate just went up to 7.12%  Throw $10K in there before the end of October to guarantee a 1-year 5.33% return.

https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/

I was holding off! I read somewhere - can't find it now of course, that if you puschase in october you get the 3.45% rate for 6 months before it adjusts up, so was holding off for Nov whent he new 7% rate is effective.

Your rate resets every six months. If you buy in October you get 3.45% for the first six months and 7.12% for the next six months. If you buy in November you get 7.12% for the first six months and an unknown rate for the next six months. Will that rate be higher or lower than 3.45%? Your guess may inform your decision on when to buy.

Thanks for the details!

I do plan to purchase in Nov and Jan.

TeeNixx

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #27 on: October 18, 2021, 08:18:09 AM »
PTF

Omy

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #28 on: October 18, 2021, 09:51:10 AM »
So if DH and I both buy $10k ($20k total) in November, can we both buy $10k more each in January 2022 at the same high starting rate? Or am I reading this incorrectly?

2Birds1Stone

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #29 on: October 18, 2021, 10:09:24 AM »
You can. They will pay the 7.1% through April. At that time the rate is reset to whatever the inflation based formula ends up being.

boarder42

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #30 on: October 18, 2021, 10:28:54 AM »
you also should wait til the end of the month to purchase these as you get the rate as if you bought them on the 1st

boarder42

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #31 on: October 18, 2021, 10:50:14 AM »
"Your rate resets every six months. If you buy in October you get 3.45% for the first six months and 7.12% for the next six months. If you buy in November you get 7.12% for the first six months and an unknown rate for the next six months."

I read it differently. If I buy in October, wouldn't those bonds get 3.54% for October...then 7.12% for November thru April...then who knows starting in May?

no thats not how it works. Youre guaranteed the rate you lock in for 6 months followed by whatever the active rate is for the next 6 months when your 6 months is up.  You can purchase 10k every 3 months.  Thats why buying at the end of this month is so valuable right now.

bacchi

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #32 on: October 18, 2021, 10:51:45 AM »
"Your rate resets every six months. If you buy in October you get 3.45% for the first six months and 7.12% for the next six months. If you buy in November you get 7.12% for the first six months and an unknown rate for the next six months."

I read it differently. If I buy in October, wouldn't those bonds get 3.54% for October...then 7.12% for November thru April...then who knows starting in May?

no thats not how it works. Youre guaranteed the rate you lock in for 6 months followed by whatever the active rate is for the next 6 months when your 6 months is up.  You can purchase 10k every 3 months. Thats why buying at the end of this month is so valuable right now.

$10k max per year.

Omy

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #33 on: October 18, 2021, 10:55:13 AM »
Thanks @boarder42! I removed my post after I just re-read the website, but you answered too quickly!

boarder42

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #34 on: October 18, 2021, 11:02:06 AM »
"Your rate resets every six months. If you buy in October you get 3.45% for the first six months and 7.12% for the next six months. If you buy in November you get 7.12% for the first six months and an unknown rate for the next six months."

I read it differently. If I buy in October, wouldn't those bonds get 3.54% for October...then 7.12% for November thru April...then who knows starting in May?

no thats not how it works. Youre guaranteed the rate you lock in for 6 months followed by whatever the active rate is for the next 6 months when your 6 months is up.  You can purchase 10k every 3 months. Thats why buying at the end of this month is so valuable right now.

$10k max per year.

you're right my bad - you can invest another 10k in 3 months b/c its a new calendar year*

fuzzy math

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #35 on: October 18, 2021, 01:26:30 PM »
Thanks for bumping this with the new info!! Going to deploy some dollars come Nov 1.

The thing I really like about this is that it defers my emergency fund's interest until the withdrawl date. At peak earning right now, all my future cash will hopefully be taxed at lower rates due to lower AGI.

2Birds1Stone

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #36 on: October 18, 2021, 01:32:07 PM »
Thanks for bumping this with the new info!! Going to deploy some dollars come Nov 1.

The thing I really like about this is that it defers my emergency fund's interest until the withdrawl date. At peak earning right now, all my future cash will hopefully be taxed at lower rates due to lower AGI.

This is one of the big benefits of I Bonds for sure!

EvenSteven

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #37 on: October 20, 2021, 02:03:15 PM »
Thanks for bumping this with the new info!! Going to deploy some dollars come Nov 1.

The thing I really like about this is that it defers my emergency fund's interest until the withdrawl date. At peak earning right now, all my future cash will hopefully be taxed at lower rates due to lower AGI.

Not only do they defer federal taxes on the gains, but they are state and local tax free. Depending on where you live that is also a nice bonus.

RedmondStash

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #38 on: October 20, 2021, 03:09:58 PM »
ptf

I've read about I bonds, but never really explored them much. I appreciate all the info on this thread. May take the plunge next month.

RedmondStash

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #39 on: October 20, 2021, 03:11:22 PM »
One question, though -- if the new rate begins 11/1, why are folks talking about buying at the end of October? Wouldn't that lock you into the current lower rate?

dandarc

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #40 on: October 20, 2021, 03:17:50 PM »
One question, though -- if the new rate begins 11/1, why are folks talking about buying at the end of October? Wouldn't that lock you into the current lower rate?
See OMY's response upthread. You get 6 months known at 3.54%, followed by 6 months known at 7.12% by buying in October, and of course unknown interest rate after that. If you buy in November, you get 7.12% known for 6 months and then you're into the unknown already.

So you get a whole year of pretty good returns guaranteed by buying before 10/31, whereas you only get 6 months of guaranteed pretty good returns if you wait until November.

Zamboni

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #41 on: October 20, 2021, 03:39:56 PM »
PTF I'm going to park a chunk of cash in these. I will probably wait until Nov, though, and take my chance on the inflation uptick continuing. Thank you for keeping this thread going!

JJ-

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #42 on: October 20, 2021, 04:07:47 PM »
If we kept more than 2x monthly expenses in cash and/or had bonds part of the portfolio we would jump on this train. I've been talking about adding bonds to the portfolio next year so maybe this is the push I needed.

PDXTabs

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #43 on: October 20, 2021, 04:25:27 PM »
If we kept more than 2x monthly expenses in cash and/or had bonds part of the portfolio we would jump on this train. I've been talking about adding bonds to the portfolio next year so maybe this is the push I needed.

I have some cash and some I-Bonds. Is there anything stopping you from putting 1x monthly in I-Bonds? Other than 12 month lock up.

I'm in the same predicament. Very soon I might want to move more into I-Bonds but I need to be strategic about how to do it.

Omy

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #44 on: October 20, 2021, 04:56:57 PM »
PTF I'm going to park a chunk of cash in these. I will probably wait until Nov, though, and take my chance on the inflation uptick continuing. Thank you for keeping this thread going!
It's actually best if you purchase in late October since you get 3.54% for 6 months (and interest starts accruing from Oct 1), then 6 months at 7.12%, and then 6 months at the unknown rate. The only reason to wait until Nov 1 is if the money you are using to buy the bonds is making more than 3.54% now.

JJ-

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #45 on: October 20, 2021, 04:57:49 PM »
PTF I'm going to park a chunk of cash in these. I will probably wait until Nov, though, and take my chance on the inflation uptick continuing. Thank you for keeping this thread going!

These have a min 1 year holding period, and continually adjust. So if you bought now you'd get the current 3.5% and then in 6 months the 7% then 6 months later the new %. Might as well wait the two weeks to start at 7% but 3.5% isn't bad either.

I have some cash and some I-Bonds. Is there anything stopping you from putting 1x monthly in I-Bonds? Other than 12 month lock up.

I'm in the same predicament. Very soon I might want to move more into I-Bonds but I need to be strategic about how to do it.

It's the 12 mo lock up plus the fact that I went part time, it takes a bit longer to get to that 2x metric. With holidays going to be travel for us this year and a HDHP plan deductible reset in 2 months it's a bit too much of a stretch. Might feel differently in February.

dandarc

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #46 on: October 20, 2021, 04:59:32 PM »
Does this approach generalize? If you're inclined to buy I-bonds, best to time at the end of October & April - you'll know what the interest will be for a full year vs. half a year? Or is this a unique situation due to the recently increased inflation?

JJ-

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #47 on: October 20, 2021, 05:12:09 PM »
Does this approach generalize? If you're inclined to buy I-bonds, best to time at the end of October & April - you'll know what the interest will be for a full year vs. half a year? Or is this a unique situation due to the recently increased inflation?

My understanding is they adjust every 6 months and you buy during the current window and get that rate for 6 months. Then the new rate for 6 months on principal + interest. So on and so on. The rates are adjusted based on inflation

If you sell before 5 years you forfeit 3 months of interest. So you could lock in 3.5% then 7% and then if the next interest rate is lower, wait a few months then sell to realize ~4.5% in interest.

I'm not sure if they ever paid below 3.5% in the last two decades which is why they are appealing. Also, hence the $10k limit.

PDXTabs

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #48 on: October 20, 2021, 05:24:28 PM »
I'm not sure if they ever paid below 3.5% in the last two decades which is why they are appealing. Also, hence the $10k limit.

They have, but I still like them:
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#past
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf

JJ-

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Re: Series I Savings Bonds for Emergency Fund - 3.54% interest rate
« Reply #49 on: October 20, 2021, 05:33:14 PM »