The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: 2023Dreaming on June 05, 2023, 03:15:50 PM
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Hi! I bought 2 Series I bonds. 1 at the end of last year and 1 at the beginning of this year. I did so because the return was high but I am not really sure when I should sell them. I think that I have to wait at least a year? I am now putting everything into VTI and VTSAX but this was before I decided to go that route. So I guess I am looking for advice on next steps.
When to sell?
Tax implications?
Appreciate this community so much. Y'all help me in ways you can't imagine. Any advice would be fantastic. Thank you!
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I don't think it is possible to cash out the bonds before 1 year. After 1 year, you can cash them out but will be penalized for 3 months of interest that you earned. You will also have to pay taxes on the gains that you cash out with.
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So how long do you wait to sell I-Bonds? What is the length of time for the least penalties? Do you have to wait until they mature?
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https://www.treasurydirect.gov/savings-bonds/i-bonds/
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I would wait until my three-month penalty was on the lower rates.
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I would wait until my three-month penalty was on the lower rates.
That's what I'm doing. You have to wait until 5 years to have no penalty, but if the three-month penalty is on a low interest rate it's no big deal. We've got $40,000 that I'll pull if / when the rates drop.
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Perfect! Thank you! Exactly what I needed to know!
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Generally agree with above. Wait until the 3 month penalty is a 0 interest rate - say if we go into deflation.
One point to mention on the taxes - especially for Mustachians with low income (i think the amount is $186k per year), If you use the i bond for a college education you can exempt all the income from federal tax.
If your kid isnt in college yet and you want to get rid of your i bond - you can roll your ibond and interest into a 529 plan and invest it however you want, and avoid tax on the interest.
A new trick with the secure act 2.0 may be to earn the optimum on ibond, roll it into a 529, keep it in there in an index mutual for a long enough period to get the tax free $35k roll over into a roth ira.....
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It's just me, so no kids.
Do I just keep checking the interest rate? I am not sure how to do that. I think it is 4.30% right now. So I just check back after each period ends?
I don't think I qualify for the Roth Ira because of my income. Can you roll it over into the traditional IRA, $6500 at a time or do I just not qualify at all and should stick with trading it at the 0% method?
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I don't think I qualify for the Roth Ira because of my income. (http://I don't think I qualify for the Roth Ira because of my income.)
This is a good problem to have.
To answer you question: I don't think what you are saying about rolling into a regular IRA works, because the Roth IRA roll mentioned about is for a child from a 529 in their name. But I am not an accountant and this is not tax advice, lol.
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Do I just keep checking the interest rate? I am not sure how to do that. I think it is 4.30% right now. So I just check back after each period ends?
The interest rate changes on your bonds every 6 months, based on the month of purchase. So if you made a purchase in July, the next change would be in January.
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Has anyone done the math recently on moving out of I Bonds? Money markets such as SPAXX are around 5% now, and the floating I Bond rate as of May 1st is 3.38% annualized.
Assumptions: 0% fixed rate and would lose 3 months of interest (not aged 5 years).
Seems close--taxes are maybe a tie-breaker? I could move into 529 but lately I am thinking of ways to dodge EFC in 18 years so maybe don't want to.
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Has anyone done the math recently on moving out of I Bonds? Money markets such as SPAXX are around 5% now, and the floating I Bond rate as of May 1st is 3.38% annualized.
Assumptions: 0% fixed rate and would lose 3 months of interest (not aged 5 years).
Seems close--taxes are maybe a tie-breaker? I could move into 529 but lately I am thinking of ways to dodge EFC in 18 years so maybe don't want to.
You still have to pay taxes on ibonds when pull the money out.
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Has anyone done the math recently on moving out of I Bonds? Money markets such as SPAXX are around 5% now, and the floating I Bond rate as of May 1st is 3.38% annualized.
Assumptions: 0% fixed rate and would lose 3 months of interest (not aged 5 years).
Seems close--taxes are maybe a tie-breaker? I could move into 529 but lately I am thinking of ways to dodge EFC in 18 years so maybe don't want to.
You still have to pay taxes on ibonds when pull the money out.
Unless used for qualified education expenses or rolled into a 529...
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I am now putting everything into VTI and VTSAX but this was before I decided to go that route. So I guess I am looking for advice on next steps.
When to sell?
Are you changing asset allocation to become more aggressive? If so, what's the rationale? I ask because you're not talking about replacing bonds with bonds, and it seems you've lost interest in treasuries after a significant stock market rally.
I like SGOV for this phase of the rate-hiking cycle. You're at the peak of the inverted yield curve, have no duration risk if sudden cuts happen, and have no significant credit risk. Yield is 5.5% and rising, with extremely high safety. When rates start going down the other side of the hill, TLT and ZROZ will do very well.
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Has anyone done the math recently on moving out of I Bonds? Money markets such as SPAXX are around 5% now, and the floating I Bond rate as of May 1st is 3.38% annualized.
Keep in mind that your bonds probably didn't change rate on May 1st. They won't drop til 3.38% until your next 6 month milestone. You would likely want to have at least 3 months at the lower rate before cashing out and going to Treasuries or whatever, since you are probably going to lose the last 3 months of interest.
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I have 75% of my E-fund in Ibonds, and I don't intend to cash out to chase the transient, short term higher rate that is currently offered in MMF. IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
Personally, my Ibonds that I purchased over the course of last year have already increase in value more than 10%, which is allowing my e-fund to keep pace with inflation. I would have much less money had I been in MMF the whole time. TD is not same day access so I do have 25% of my e-fund in MMF.
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Keep in mind that all fixed treasuries are now yielding noticeably more than iBonds, including all the way out at 30years.
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202309
I plan to keep some iBonds, but expect to change a portion over to other fixed income over the next year or so.
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Anybody else having trouble loading Treasury Direct? I've tried both FF and Chrome. Treasury.gov loads fine, just not Treasury Direct.
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Anybody else having trouble loading Treasury Direct? I've tried both FF and Chrome. Treasury.gov loads fine, just not Treasury Direct.
Do you not see this message when you try to log in?
“The TreasuryDirect application will be unavailable starting Friday, September 1, 2023, at 6:00 p.m. ET and is expected to remain unavailable until Sunday, September 3, 2023, at 6:00 p.m. ET due to system maintenance. We apologize for any inconvenience.”
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Anybody else having trouble loading Treasury Direct? I've tried both FF and Chrome. Treasury.gov loads fine, just not Treasury Direct.
Do you not see this message when you try to log in?
“The TreasuryDirect application will be unavailable starting Friday, September 1, 2023, at 6:00 p.m. ET and is expected to remain unavailable until Sunday, September 3, 2023, at 6:00 p.m. ET due to system maintenance. We apologize for any inconvenience.”
Thanks! The message I got was just "This site can't be reached"
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Anybody else having trouble loading Treasury Direct? I've tried both FF and Chrome. Treasury.gov loads fine, just not Treasury Direct.
Do you not see this message when you try to log in?
“The TreasuryDirect application will be unavailable starting Friday, September 1, 2023, at 6:00 p.m. ET and is expected to remain unavailable until Sunday, September 3, 2023, at 6:00 p.m. ET due to system maintenance. We apologize for any inconvenience.”
Thanks! The message I got was just "This site can't be reached"
I was getting just a blank screen yesterday. Today, it is after 6pm ET. Now getting a generic "unavailable due to system maintenance" message.
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
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Here is the calculator to figure out best time to redeem
https://eyebonds.info/ibonds/index.html
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
In response to the bolded....not really. It takes a year to be able to access money put into Ibonds, so you can't really hop in and out of them with money that you need access to in an emergency. That's why, for now, I'm ok with sitting tight with my I-bonds. I think they are a better place to park cash for the long haul.
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
In response to the bolded....not really. It takes a year to be able to access money put into Ibonds, so you can't really hop in and out of them with money that you need access to in an emergency. That's why, for now, I'm ok with sitting tight with my I-bonds. I think they are a better place to park cash for the long haul.
I don't think so. My older I bonds have a 0% base rate, and so are rolling into a~3.5% rate now. While my savings account yield 4.3%, and MM funds > 5%. I will liquidate some I bonds soon and put them in HYSA, at least for a while. If the base rate on the bonds goes up I might get some some more. But I also don't put the max in every year, as I don't want that much in bonds/cash.
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
In response to the bolded....not really. It takes a year to be able to access money put into Ibonds, so you can't really hop in and out of them with money that you need access to in an emergency. That's why, for now, I'm ok with sitting tight with my I-bonds. I think they are a better place to park cash for the long haul.
I don't think so. My older I bonds have a 0% base rate, and so are rolling into a~3.5% rate now. While my savings account yield 4.3%, and MM funds > 5%. I will liquidate some I bonds soon and put them in HYSA, at least for a while. If the base rate on the bonds goes up I might get some some more. But I also don't put the max in every year, as I don't want that much in bonds/cash.
When you say "I don't think so", is this in regards to my bolded "I think they(I-bonds) are a better place to park cash for the long haul"? You mentioned that the current rate on MMF is >5%. Is it your contention that the current rate on MMF being >5% makes them a better place to hold cash *long term* than I-bonds?
Looking back:
Initial $10,000 purchase in either I-bonds or a MMF 20 years ago, here is the ~present value:
I-bonds: $23,692
MMF: $13,156
Obviously, we have no way to predict the future value of $10k purchased in both at todays rates. But, we invest in index funds based on the historical return of the stock market. I-bonds seem to have faired significantly better since their inception compared to MMF's.
2006 to present:
Ibonds $18,916
MMF $12,459
Unless I am mistaken, Ibonds come out further ahead than this since MMF returns are taxed yearly both federal and state. Ibonds are state exempt, and federal deferred.
Maybe it makes sense to transition into the higher fixed rate I-bonds rather than holding 0% forever?
To be clear, I'm not definitively arguing that I-bonds are the uncontested winner for where to park one's EF. I do think folks may be over simplifying and perhaps missing the forrest for the trees? 5% IMO is not a clear advantage when it is transitory, subject to state and federal withholding, subject to a penalty of cashing out Ibonds in order to get the MMF rate, and based on all of recorded history, will *not* provide inflation protection on cash over time.
I'm not dead opposed to changing where my EF is held i.e. cashing out I-bonds, but I'll only do so if I'm confident of a *better* long term alternative. I'm not convinced a year or two of temporary good rates in a MMF is the better option.
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
In response to the bolded....not really. It takes a year to be able to access money put into Ibonds, so you can't really hop in and out of them with money that you need access to in an emergency. That's why, for now, I'm ok with sitting tight with my I-bonds. I think they are a better place to park cash for the long haul.
I think the bigger question is what is your emergency fund even for? I keep about $5k in my checking account because I have several mortgages and credit card payments that come out and rent and paychecks that come in, so that covers the volatility throughout the month. Is that my emergency fund? If you have $100k or more invested in the stock market, wouldn't that be your emergency fund, ie if you lost your job, you would sell $10k of stocks to live off of until you started a new one? Once you have $500k in stocks, then selling $20k because you got laid off means only selling 4% of your investments. So what if 4% of your investments are down 20% and you are selling at a low point? Odds are you will be selling at a high point and in the meantime you would be probably much better off getting 7% equity returns than inflation returns in ibonds or money markets. I think its all relative to where you are in your investment journey. If you are just starting out, sure keep 20k in ibonds or mm. Once you are in the mid six figures, 20k is not meaningful in the big picture, or a few months expenses aren't meaningful compared to your investments.
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IMO, I-bonds will keep up with or exceed inflation long term...MMF will not. So IMO, consider if you are willing to keep some/all/most of your EF in Ibonds. If so, you can't hop in and out of them frequently due to the aging required for access. They are a better place to park cash long term IMO. Interest is deferred as well, so another benefit.
I suppose it depends on the amount of cash one is looking to have in the EF. In the vicinity of 20k or 40k for a couple you can hop in/out relatively quickly. If you can get some with a fixed rate in the 2-3% range someday then hopping out becomes significantly less attractive, but I'm guessing 95% of people have 0% ones at the moment. As inflation fades, those 95% are at some point going to be literally throwing away money by staying in I-bonds instead of moving to risk-free MMF.
In response to the bolded....not really. It takes a year to be able to access money put into Ibonds, so you can't really hop in and out of them with money that you need access to in an emergency. That's why, for now, I'm ok with sitting tight with my I-bonds. I think they are a better place to park cash for the long haul.
I don't think so. My older I bonds have a 0% base rate, and so are rolling into a~3.5% rate now. While my savings account yield 4.3%, and MM funds > 5%. I will liquidate some I bonds soon and put them in HYSA, at least for a while. If the base rate on the bonds goes up I might get some some more. But I also don't put the max in every year, as I don't want that much in bonds/cash.
When you say "I don't think so", is this in regards to my bolded "I think they(I-bonds) are a better place to park cash for the long haul"? You mentioned that the current rate on MMF is >5%. Is it your contention that the current rate on MMF being >5% makes them a better place to hold cash *long term* than I-bonds?
Looking back:
Initial $10,000 purchase in either I-bonds or a MMF 20 years ago, here is the ~present value:
I-bonds: $23,692
MMF: $13,156
Obviously, we have no way to predict the future value of $10k purchased in both at todays rates. But, we invest in index funds based on the historical return of the stock market. I-bonds seem to have faired significantly better since their inception compared to MMF's.
2006 to present:
Ibonds $18,916
MMF $12,459
Unless I am mistaken, Ibonds come out further ahead than this since MMF returns are taxed yearly both federal and state. Ibonds are state exempt, and federal deferred.
Maybe it makes sense to transition into the higher fixed rate I-bonds rather than holding 0% forever?
To be clear, I'm not definitively arguing that I-bonds are the uncontested winner for where to park one's EF. I do think folks may be over simplifying and perhaps missing the forrest for the trees? 5% IMO is not a clear advantage when it is transitory, subject to state and federal withholding, subject to a penalty of cashing out Ibonds in order to get the MMF rate, and based on all of recorded history, will *not* provide inflation protection on cash over time.
I'm not dead opposed to changing where my EF is held i.e. cashing out I-bonds, but I'll only do so if I'm confident of a *better* long term alternative. I'm not convinced a year or two of temporary good rates in a MMF is the better option.
My point was that per year I put less than the $10k I bonds limit into cash (really $40k with a spouse+gift). So for that it's currently better to sit in MM and wait. Unlike the stock market, we know that the return in I bonds will be ahead of time. The treasury tells us. I don't mean liquidate all, just the 0% base bonds. And I'd rather put it back over a few years (and use the gift option via my wife too)
Yes if you target $100k or something in cash you obviously need to stay in I bonds.
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If I keep most of my EF in I-bonds, it looks like it may make sense to consider switching to a higher fixed rate. The "penalty" will be quite small if I lose 3 months @3.38%...effectively a 0.845% APR penalty.....the current 0.9% fixed rate comes out ahead after only one year.
I have to wait until January 1 for the 3 months penalty to be all 3.38%. New fixed rate comes out Nov 1 and could end up higher(??). At my current rate of 6.48%, it would take 1.8 years of the higher fixed rate to make up the 3 month penalty, so I don't think switching now makes much sense.
If the November rate is the same or higher, I may transition. What I don't like is that it takes a year to have access to the money again which of course poses the issue of an EF that cannot be accessed. Might have to transition into new bonds over 9-12 months.
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If I keep most of my EF in I-bonds, it looks like it may make sense to consider switching to a higher fixed rate. The "penalty" will be quite small if I lose 3 months @3.38%...effectively a 0.845% APR penalty.....the current 0.9% fixed rate comes out ahead after only one year.
I have to wait until January 1 for the 3 months penalty to be all 3.38%. New fixed rate comes out Nov 1 and could end up higher(??). At my current rate of 6.48%, it would take 1.8 years of the higher fixed rate to make up the 3 month penalty, so I don't think switching now makes much sense.
If the November rate is the same or higher, I may transition. What I don't like is that it takes a year to have access to the money again which of course poses the issue of an EF that cannot be accessed. Might have to transition into new bonds over 9-12 months.
Yes, this is more or less what I'm planning to do. I have several I-bond lots with 0% base, that in next months will be past 3 months of ~3.5% interest (and one is 5 years old). So I will redeem those then. I could rebuy at a 0.9% base, but in this case since they are still talking raising rates I will hold out at least until November change, perhaps till May (and of course in the meantime I can get 5%+ in a MM fund!).
Now of course since inflation is trending down, the inflation rate is going down, so very likely the Nov or May total rate is lower than now anyway, but I'll take the higher base for 30 years. I keep I bonds as sort of an "extra EF"/cash holding/security blanket that I've mostly been adding to over few years now. This is the first time I'm redeeming any. Kept around ~30k, but don't have a very specific rationale for that number, just what I feel comfortable with for some secure cash, and ok knowing will loose out to market most of the time.
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Here is the calculator to figure out best time to redeem
https://eyebonds.info/ibonds/index.html
Based on this, having bought Series I Bonds in mid-April 2022, I think I can either sell now (but lose some of the 6.48% interest), or 3 months after October 1st to only lose lower amounts (3 months at 3.38%).
Does that make sense?
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My $10k in iBonds, issued August 2022, have been yielding a 3.38% composite rate (https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/) since May 2023. Redeeming now would chop off about (0.0388 * 0.25)= <1% off my total return of 7.64% over 14 months. That would leave my annualized return on this little experiment at *roughly* *napkin math* +5.7%.
I'll call the experiment a success because such returns were not yet available in August 2022 anywhere else at this level of safety. However, that total return is eroding away the longer I wait to sell, and arguably it was optimal to sell in August. Now it's hard to look at 3.38%, and maybe lower starting in November, when I could be pulling more like 5.3% in comparably risky, but not inflation-indexed SGOV, 5.2% on certain non-callable CDs, or even a nominal treasury. Am I willing to pass up almost $200/year for the option of being positioned to take advantage of a resurgence in inflation?
Probably not. Real interest rates are deeply positive, QT is continuing to erode the monetary base, and I've shared concerning data about real estate and banks elsewhere. I think now is the time to switch from inflation-indexed to locked-in nominal. Will wait until Wednesday to see what the new rate is out of curiosity, and will then click Redeem.
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My $10k in iBonds, issued August 2022, have been yielding a 3.38% composite rate (https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/) since May 2023. Redeeming now would chop off about (0.0388 * 0.25)= <1% off my total return of 7.64% over 14 months. That would leave my annualized return on this little experiment at *roughly* *napkin math* +5.7%.
I'll call the experiment a success because such returns were not yet available in August 2022 anywhere else at this level of safety. However, that total return is eroding away the longer I wait to sell, and arguably it was optimal to sell in August. Now it's hard to look at 3.38%, and maybe lower starting in November, when I could be pulling more like 5.3% in comparably risky, but not inflation-indexed SGOV, 5.2% on certain non-callable CDs, or even a nominal treasury. Am I willing to pass up almost $200/year for the option of being positioned to take advantage of a resurgence in inflation?
Probably not. Real interest rates are deeply positive, QT is continuing to erode the monetary base, and I've shared concerning data about real estate and banks elsewhere. I think now is the time to switch from inflation-indexed to locked-in nominal. Will wait until Wednesday to see what the new rate is out of curiosity, and will then click Redeem.
Yes I've also sold off my 0% base I bonds. I will consider adding a little more back in if the Nov rate is something like 1.2% fixed + 4% inflation, as some predict. Locking in 1%+ above inflation for 30 years is a bit tempting, but not enough for me to go for the max limit.
5 year treasuries can lock in 4.8% now, which is decent. Or 5 year TIPS at 2.44% + inflation. Both options I'm considering instead.
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Planning to sell all of my zero-fixed I bonds on November 1st, since that's when the interest accrues. May as well wait.
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I sold my Nov 2022 i-bonds in August (3.38% composite rate) and put them in a 15-month CD at 5.32%. I will sell my Feb 2022 i-bonds next month and use the money to churn a bank account. Then maybe another CD. Unless the i-bond rates are more favorable.
In both cases, I am losing the last 3 months of interest, but at 3.38%. It's a little less than $100 each.
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Ideally I would have sold sooner - but I've had other things to do, optimizing interest on $50k of bonds hasn't been high on the priority list.
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My 0% I-bonds are earning 6.48% through October. If I redeem January 1, do I only forfeit interest from Nov 1? Trying to figure out if redemption on 1/1 or 2/1 would still earn Octobers interest.
If I have to wait until 2/1 to redeem, I'm calculating my penalty at ~ 0.428% in exchange for the lifetime higher yield. In this case, the loss incurred from the interest penalty will break even in about 3 months. Seems like a small price to pay.
The reason the effective penalty is only 0.428% is because of 3 months of a 3.38% penalty(-0.845%), plus a bonus 1 month return of 5%(+.417%) in a MMF, during which month the new I-bond will also earn interest for the entire month.
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My 0% I-bonds are earning 6.48% through October. If I redeem January 1, do I only forfeit interest from Nov 1? Trying to figure out if redemption on 1/1 or 2/1 would still earn Octobers interest.
I believe that is how it works. Interest accrues on the first of the month, you give up the most recent 3 accruals.
I don't know whether I'll bother shuffling to a MM for just under a month.
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My 0% I-bonds are earning 6.48% through October. If I redeem January 1, do I only forfeit interest from Nov 1? Trying to figure out if redemption on 1/1 or 2/1 would still earn Octobers interest.
I believe that is how it works. Interest accrues on the first of the month, you give up the most recent 3 accruals.
I don't know whether I'll bother shuffling to a MM for just under a month.
Once I redeem my Ibonds, it's just clicking a few buttons to put in MMF rather than FDIC cash. Worth over $100 for a few seconds.
I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
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Once I redeem my Ibonds, it's just clicking a few buttons to put in MMF rather than FDIC cash. Worth over $100 for a few seconds.
I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
That's quite interesting. Do you have a solid source? The official announcement is supposed to be 10AM tomorrow (I believe Eastern Time since that's where DC is located)
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Once I redeem my Ibonds, it's just clicking a few buttons to put in MMF rather than FDIC cash. Worth over $100 for a few seconds.
I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
That's quite interesting. Do you have a solid source? The official announcement is supposed to be 10AM tomorrow (I believe Eastern Time since that's where DC is located)
Earlier I saw it on a third party news site, but here it is from the source:
https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
5.27%
This includes a fixed rate of 1.30%
For I bonds issued November 1, 2023 to April 30, 2024.
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Guess I will hang on for now. My I-bonds that I started buying in 2021/2022 all have average life-yields over 6%. I should even buy another one at this good fixed rate.
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Guess I will hang on for now. My I-bonds that I started buying in 2021/2022 all have average life-yields over 6%. I should even buy another one at this good fixed rate.
For selling considerations, it's not the average life yield which matters - it's the yield over the prior 3 months (which you lose if you sell in under 5 years), and what you could get by rebuying.
I've got mostly 0% fixed rate I bonds, so my interest rate going forward* is only the variable component (3.97%). If I sell and rebuy, I get an additional 1.3% interest. This means that the foregone interest will be recouped in 7-8 months, and I'll forever be getting an extra 1.3% compared to my existing I bonds.
*For simplicity, I presumed the rate resets today - it actually doesn't, so I'll be getting 3-4 months of an extra 1.89%.
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I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
I saw that as well, and not quite sure what to do now frankly. I have 10k in 0% base IBonds, which I should redeem, and some I redeemed earlier. But the 5.27% rate is not very tempting considering the alternatives. 1.3% above inflation for 30 years is decent. But if (big if) the fed meet their goal and get back to 2% inflation in the next couple years, these bonds would only yield 3.3%. But the 10 year TIPS have a base rate of 2.4%, plus inflation. And 5 or 10 year treasuries around 4.8%, possibly going higher.
I think for now I'll hold this cash in MM fund (5.25%). Probably until we have a better idea what will happen at May reset. But if things are like now I'll probably instead spread it between some 5 year treasuries and 5/10 year TIPS. Variability of Ibonds don't appeal now. I'd like to lock in these high rates, ideally just before they start to drop
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I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
I saw that as well, and not quite sure what to do now frankly. I have 10k in 0% base IBonds, which I should redeem, and some I redeemed earlier. But the 5.27% rate is not very tempting considering the alternatives. 1.3% above inflation for 30 years is decent. But if (big if) the fed meet their goal and get back to 2% inflation in the next couple years, these bonds would only yield 3.3%. But the 10 year TIPS have a base rate of 2.4%, plus inflation. And 5 or 10 year treasuries around 4.8%, possibly going higher.
The nice thing is that you can cash out the I bond now and wait til almost the end of the month to decide without losing any potential I bond interest.
That said, TIPS look interesting - is the variable similar to what's on an I bond? If so, it's a no-brainer to go TIPS instead.
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Guess I will hang on for now. My I-bonds that I started buying in 2021/2022 all have average life-yields over 6%. I should even buy another one at this good fixed rate.
For selling considerations, it's not the average life yield which matters - it's the yield over the prior 3 months (which you lose if you sell in under 5 years), and what you could get by rebuying.
I've got mostly 0% fixed rate I bonds, so my interest rate going forward* is only the variable component (3.97%). If I sell and rebuy, I get an additional 1.3% interest. This means that the foregone interest will be recouped in 7-8 months, and I'll forever be getting an extra 1.3% compared to my existing I bonds.
*For simplicity, I presumed the rate resets today - it actually doesn't, so I'll be getting 3-4 months of an extra 1.89%.
Yeah, I guess...if I want to stay in I-bonds it would be better to sell and re-buy. I will sell half; grab some treasuries and then sell and rebuy the other half.
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I own the 0% fixed-rate iBonds issued August 2022. According to the updated chart on treasurydirect, my next 6 months would be at 3.94%.
Period when you bought your I bond Composite rate for your 6 month earning period starting during November 2023 through April 2024
From Through
Nov. 2023 Apr. 2024 5.27%
May 2023 Oct. 2023 4.86%
Nov. 2022 Apr. 2023 4.35%
May 2022 Oct. 2022 3.94%
Nov. 2021 Apr. 2022 3.94%
May 2021 Oct. 2021 3.94%
Nov. 2020 Apr. 2021 3.94%
May 2020 Oct. 2020 3.94%
Nov. 2019 Apr. 2020 4.14%
May 2019 Oct. 2019 4.45%
5.27% is attractive, and competitive with my SGOV. I did not plan to put any more money into iBonds in 2023, but if I did want to maintain my iBond exposure it looks on the surface like I should redeem my 2022 ibond earning 3.94% for the next 6 months and purchase a new one at 5.27% for the next 6 months (as @TomTX notes). Yes, I'd lose the last 3 months interest - about 1% in total, but the ~1.3% difference I'd earn over the following year would seem to make up for that. I'm just noting how odd it seems that an investor would benefit from a round trip transaction like that if they haven't already hit their 2023 limit.
However I'll redeem and buy 20-30y treasuries with the proceeds. Like @Scandium I'm thinking now is the time to lock in high longer-term rates in the fixed-nominal bond world. Rates have never risen this fast without something breaking, and with inflation already at 2% if you exclude shelter / the housing bubble (https://fred.stlouisfed.org/series/CUUR0000SA0L2#0) I think we should expect long term rates to fall at the first sign of trouble. If China attacks Taiwan and sends US inflation through the roof, I'll be wrong and will wish I had doubled down on ibonds instead.
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I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
I saw that as well, and not quite sure what to do now frankly. I have 10k in 0% base IBonds, which I should redeem, and some I redeemed earlier. But the 5.27% rate is not very tempting considering the alternatives. 1.3% above inflation for 30 years is decent. But if (big if) the fed meet their goal and get back to 2% inflation in the next couple years, these bonds would only yield 3.3%. But the 10 year TIPS have a base rate of 2.4%, plus inflation. And 5 or 10 year treasuries around 4.8%, possibly going higher.
I think for now I'll hold this cash in MM fund (5.25%). Probably until we have a better idea what will happen at May reset. But if things are like now I'll probably instead spread it between some 5 year treasuries and 5/10 year TIPS. Variability of Ibonds don't appeal now. I'd like to lock in these high rates, ideally just before they start to drop
That's why I do half I-bonds and half ZROZ. Set up for any direction of interest rates.
TIPS seem a lot less interesting when you think about paying 22%+ of that interest as taxes every year, while I bonds are a little bit tax advantaged in that I can delay taxes until I am possibly back to the 12% rate.
Also I like the "choose your own duration" feature of Ibonds. They could be low yielding 1-year bonds. Or riskless 30 year bonds. Or riskless bonds of any duration in between, as determined by myself.
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If China attacks Taiwan and sends US inflation through the roof, I'll be wrong and will wish I had doubled down on ibonds instead.
If China attacks Taiwan I think our bond positions will be the least of our worries.
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I'm seeing 1.3% as the new fixed rate, for 5.27 combined rate. I'll definitely be making the change for the $30k of my EF that is in Ibonds. Will be a great place to hold my EF until I either use it, or don't need it anymore.
I saw that as well, and not quite sure what to do now frankly. I have 10k in 0% base IBonds, which I should redeem, and some I redeemed earlier. But the 5.27% rate is not very tempting considering the alternatives. 1.3% above inflation for 30 years is decent. But if (big if) the fed meet their goal and get back to 2% inflation in the next couple years, these bonds would only yield 3.3%. But the 10 year TIPS have a base rate of 2.4%, plus inflation. And 5 or 10 year treasuries around 4.8%, possibly going higher.
The nice thing is that you can cash out the I bond now and wait til almost the end of the month to decide without losing any potential I bond interest.
That said, TIPS look interesting - is the variable similar to what's on an I bond? If so, it's a no-brainer to go TIPS instead.
TIPS work a bit different. I'm not an expert, i've never owned any.
I believed they're adjusted using same CPI, but it's not continuous "%- yield" like the Ibond. It's applied to the face value/price of the bond (e.g. it goes up 3% if 3% inflation), and the yield (current 2.4%) is based on that.
https://www.investopedia.com/terms/t/tips.asp
If you hold to maturity I think the result would be the same as an Ibond with the same base rate. But I'm not 100% on that.. You can also re-sell your tips, so that would get complicated, but I don't plan on doing that.
The advantage of Ibonds as Radagast points out is you don't have to choose 5,10 or more year maturity like with TIPS. You get 30 and can jump out before. With TIPS there's a chance you'd loose value doing that. And once your TIPS mature you can't extend those high rates.
Interesting bogleheads discussion on TIPS volatility, if not held to maturity. Some lost ~50% of value in 12 months!
https://www.bogleheads.org/forum/viewtopic.php?t=415657
Maybe we need a separate thread on how to best take advantage of these high rates, for longest.
10 year treasuries: 4.8%
10 year tips: 2.4% + inflation
I-bonds: 1.3% + inflation
??
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I-bonds where a good idea when rates were zero and there was a significant risk of capital loss with TIPs or Treasuries. Now that rates are hovering around 5%, there is an opportunity for capital appreciation in TIPs and Treasuries and you are compensated a bit more for holding (at least if inflation heads back to around 2% where the fed is targeting). I am rotating 30k of I-bonds into short term 1-2 year treasuries/CDs right now and plan to move to intermediate term corporate bonds if we get into a recessionary situation. My thinking is the yield curve is still inverted, or at least not compensating you appropriately for duration risk. ST treasuries will appreciate modestly if rates are cut, but long term rates should stay around their current rates as a ST rate cut will result in a more typical graduated yield curve. Corporates, especially piciking and choosing in the BBB range, should become more attractive when the economy is strained compared to treasuries.
TLDR - stay in 1-2 yr liquid treasuries yielding 5.3%+. A ST rate cut from 5% to 2.5% will result in a 2-5% capital gain that can be redeployed in 5-10yr corporates yielding 7-9%.
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I-bonds where a good idea when rates were zero and there was a significant risk of capital loss with TIPs or Treasuries. Now that rates are hovering around 5%, there is an opportunity for capital appreciation in TIPs and Treasuries and you are compensated a bit more for holding (at least if inflation heads back to around 2% where the fed is targeting). I am rotating 30k of I-bonds into short term 1-2 year treasuries/CDs right now and plan to move to intermediate term corporate bonds if we get into a recessionary situation. My thinking is the yield curve is still inverted, or at least not compensating you appropriately for duration risk. ST treasuries will appreciate modestly if rates are cut, but long term rates should stay around their current rates as a ST rate cut will result in a more typical graduated yield curve. Corporates, especially piciking and choosing in the BBB range, should become more attractive when the economy is strained compared to treasuries.
TLDR - stay in 1-2 yr liquid treasuries yielding 5.3%+. A ST rate cut from 5% to 2.5% will result in a 2-5% capital gain that can be redeployed in 5-10yr corporates yielding 7-9%.
IDK, I think history says long term rates such as the 10y yield (https://fred.stlouisfed.org/series/DGS10) will reprice long before the recession is declared. For example:
The 10y yield fell 205bp from June 2007 until recession started in December 2007 (6mos).
The 10y yield fell 183bp from February 2000 until recession started in March 2001 (12mos).
The 10y yield fell 66bp from May 1990 until recession started in June 1990 (1mo).
Those drops occurred before anyone knew for sure that a recession was coming, and recessions aren't even announced by the NBER until at a minimum half a year has passed - sometimes longer. So my concern is by the time a recession is apparent, a lot of the gains in long-term bonds will have already occurred. If one's plan was to switch from short-term to long-term at that point when recession becomes apparent, one would miss out on the majority of the gains and end up underwater during the mid-recession bond slump / yield rally that occurred in each of those 3 previous recessions.
I think there are two games one could play if one knew a recession was on the way:
1) Long-term bonds until recession is being felt. Then go to short-term bonds for a few months. Then pivot to stocks.
2) Short-term bonds until at least a year after the start of recession. Then pivot to stocks.
I think either strategy historically works well, with the specifics of each recession dictating which approach would be optimal.
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I think there are two games one could play if one knew a recession was on the way:
1) Long-term bonds until recession is being felt. Then go to short-term bonds for a few months. Then pivot to stocks.
2) Short-term bonds until at least a year after the start of recession. Then pivot to stocks.
That's the key here! And a big IF. If everyone "knows" a recession is coming (in say 6 months), they would sell now, thus starting the recession, but then the recession has already started, so everyone would buy.. It's a Heinsberg recession. Knowing about it, changes it.
I'm not betting that I can tell that for certain. I've had zero interest in bonds, because well, rates have been zero. But now locking them in at a guaranteed 5% for 5-10 years? That's much more attractive. I don't doubt that a few good days in the market could far eclipse those bond returns, but consistently over 5+ years is perhaps less likely. I think I'll stick to buying individual bonds though, the funds still don't seem appealing, since they'll have constantly changing yields, and will fluctuate in value (i.e. the 40% drops we've just see!) I'm even less sold on bonds funds than I was before! which was not at all, so that's pretty impressive.