I Savings Bonds

[miked]

Does anyone use Treasury Direct to buy I Savings Bonds? I just opened an account and bought $1k worth of Savings Bonds, but I'm thinking about eventually having most of our emergency fund and our down payment in there (as opposed to a bank savings account).

The emergency fund will slowly make it's way in as the bonds are illiquid for 1 year. I wanted to know how long it takes to get funds moved out of Treasury Direct.

[okashira]

Yes I have $5000 in I-Bonds, decent place for some emergency savings funds.

[Tetsuya Hondo]

Yep, I like these for my savings stache. Better rate than savings accounts and inflation protected.

Haven't withdrawn anything yet, so I don't know how quick it is, but it's all electronic so I would expect anywhere from a couple of days to a week. My regular savings is all online, so for me, I don't expect it to be much different to transfer the cash.

[Nothlit]

Yes, I have purchased quite a bit in I Bonds over the last 3 or 4 years, as part of my overall asset allocation. I don't have firsthand experience with the speed of withdrawals, but given how quickly inbound transfers and purchases can be made (1 business day) I would expect similar speed on the way out. The limiting factor may be your bank, if they are slow to make incoming ACH funds available to you.

[epipenguin]

I use TD for a kind of "second tier" emergency fund that I hope not to have to use. My emergency slush fund is at an online savings account.

I have transferred money out of TD, and it was fairly quick although I don't remember the exact time frame. A couple of days, I think. Most of my emergency spending goes on a credit card, though, so that gives a couple of weeks before you actually have to hand over the money, which is plenty of time to move things around to pay off the bill.

[sol]

The internet tells me that I savings bonds are tax-deferred until redemption, which has to be at least 12 months after purchase.  Does that mean you can purchase them with pre-tax dollars, or merely that you defer paying taxes on the earned interest (which is super low right now) until sale?

[Cheddar Stacker]

The internet tells me that I savings bonds are tax-deferred until redemption, which has to be at least 12 months after purchase.  Does that mean you can purchase them with pre-tax dollars, or merely that you defer paying taxes on the earned interest (which is super low right now) until sale?

The latter. Interest accrues and is taxed when the bond matures/is sold. Much like unrealized gains on marketable securities.

[sol]

The latter. Interest accrues and is taxed when the bond matures/is sold. Much like unrealized gains on marketable securities.

Le Sigh.  What's the point in deferring taxes on interest rates so close to zero?  If you could purchase them with pre-tax dollars I could see an advantage to buying a bunch in the year before you retire, to shield an extra $10k each from your highest marginal rate while working and then carry it forward to your near-zero rate while retired.  But on just the miniscule earnings?  No thanks.

[epipenguin]

The latter. Interest accrues and is taxed when the bond matures/is sold. Much like unrealized gains on marketable securities.

Le Sigh.  What's the point in deferring taxes on interest rates so close to zero?  If you could purchase them with pre-tax dollars I could see an advantage to buying a bunch in the year before you retire, to shield an extra $10k each from your highest marginal rate while working and then carry it forward to your near-zero rate while retired.  But on just the miniscule earnings?  No thanks.

There are a number of reasons. You can keep them for up to 30 years. So you can carry forward the earnings to a lower tax rate for much longer than a year before retirement. They are guaranteed not to return less than zero, and will keep up with inflation, which is a lot better than cash in the bank. Also, the interest rate on I bonds is made up of two components - a fixed component and a variable component. The variable component changes according to inflation. The fixed rate component is announced twice a year for bonds bought in the following 6 months, and then stays the same throughout the life of the bond. I'm hanging on to some bonds I have with a 2% fixed rate component. Inflation + 2% is a great deal! Unfortunately, lately it's been 0% or 0.2% fixed rate which is not nearly such a good deal, but they're still worth something.

[brooklynguy]

The fixed portion of the composite rate (which applies for the life of the bond) is very low right now, but in past years there were some good deals on ibonds.  I have some issued in 2001 that are currently earning 4.87% (and will earn more in higher interest rate environments).

The interest is also exempt from state taxes (and, at least under current law, federal taxes if used for qualifying education expenses).

[miked]

Thanks for all the answers. I was a little worried after I had to go to my bank and have a certificate stamped by them and then mail it to TD before they would authorize my account.

Transfers away!

[dodojojo]

Will the new rates be announced on November 1 (Saturday) exactly?  Or will they announce today or tomorrow?

[Nothlit]

Will the new rates be announced on November 1 (Saturday) exactly?  Or will they announce today or tomorrow?

The variable component can already be calculated; the fixed component is unlikely to change significantly from the current 0.2%, but that should be announced on Monday, Nov. 3rd.

[dodojojo]

The variable component can already be calculated; the fixed component is unlikely to change significantly from the current 0.2%, but that should be announced on Monday, Nov. 3rd.

Oh, so the rate decreased.  I wonder if I should quickly buy some bonds before 11/1?  This will be my first purchase.  I'm swamped at work so I likely won't get to it until Halloween night.  Would it count for the soon to be gone rate?  Or will Treasury wait until the bank transfer that will likely happen early next week and then I would get the new lower rate? 

[Nothlit]

The variable component can already be calculated; the fixed component is unlikely to change significantly from the current 0.2%, but that should be announced on Monday, Nov. 3rd.

Oh, so the rate decreased.  I wonder if I should quickly buy some bonds before 11/1?  This will be my first purchase.  I'm swamped at work so I likely won't get to it until Halloween night.  Would it count for the soon to be gone rate?  Or will Treasury wait until the bank transfer that will likely happen early next week and then I would get the new lower rate?

You'd be cutting it pretty close. If you put the purchase request in TODAY before close of business (like in the next hour or so) it MIGHT go through tomorrow (assuming you already have a bank account linked to TreasuryDirect). But no guarantees, so I guess it's at your own risk... If the transaction did go through before the end of October, you would get the old/current rate for the first 6 months of these bonds. But the difference may not be worth worrying about. Even if you bought the maximum $10k, we're talking about maybe $20 difference in interest earned over those first 6 months.

[dodojojo]

Thanks Nothlit.  I just registered for an account.  You're right, no sense in rushing and making a bad call.  I forgot I savings bonds are a composite of fixed and inflation rates.  I thought I was going to be stuck at 1.47% for the life of the bond. 

I guess the best rates are the ones where the fixed rate is high.

[dodojojo]

Oh, well.  All moot.  My registration did not go well and my account is on hold until I mail in a notarized form confirming my identity.  I wonder if it's the soon to be expired driver's id?

[miked]

I had to fill out this form: https://www.treasurydirect.gov/pdf/rs/acctauth.pdf and have it stamped at my bank. It couldn't be a public notary, needed to be a manager at the bank.