iSavings bonds yielding 7.12% currently

[Spekulatius]

Someone posted this on Twitter and it’s great idea for US persons/ citizens. Due to the inflation of inflation, the ISavings bonds now yield 7.12%. You can open an account with a treasury directly and put 10k in these each calendar year. Seems like a great way to put some money in for the medium term. If you pull your money, you lose the last 3 month of interest, but since you don’t get interest in money market or savings accounts anyways, that’s not a big deal.

 

Looks like a no brainer to me - put in 10k this year and another 10k in January.

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

 

Edited November 22, 2021 by Spekulatius

[boilermaker75]

Thanks for the heads up. I was not aware of these.

[adesigar]

Also if I remember correctly you get the interest for the full month even if you buy at the end of the month. 

[sleepydragon]

Also, interest profit is tax free if used for education.

and interest is auto added to principal and compound.

 

However, it unlikely this high interest rate will last..

[adesigar]

Even if the next 6 months rate drops to zero it’s better than any savings account.

[sleepydragon]

1 hour ago, sleepydragon said:

Also, interest profit is tax free if used for education.

and interest is auto added to principal and compound.

 

However, it unlikely this high interest rate will last..

Also, you can’t withdraw for the first 12 months.

good deal though. I bought 20k for me and my wife

[IceCreamMan]

Nice find. Can you always redeem these for par? e.g. if interest rates rise to 5%, can we still redeem $10k of Series I bonds for $10k?

[Ulti]

https://humbledollar.com/2021/11/when-cash-is-king/

 

 

[drzola]

Who has the biggest Cojones on this forum tho?

 

https://humbledollar.com/2021/11/when-cash-is-king/

[Spekulatius]

8 hours ago, IceCreamMan said:

Nice find. Can you always redeem these for par? e.g. if interest rates rise to 5%, can we still redeem $10k of Series I bonds for $10k?

Yes, you can, after 12 month as @sleepydragon noted. Interest will likely get adjusted downwards after 6 month. On the other hand, if inflation does stay elevated or takes off this would be a great medium term investment.

Edited November 13, 2021 by Spekulatius

[Mephistopheles]

It says you lose 3 months of interest if cashed before 5 years. I guess if you want cash equivalent locked up then it's fine. But even when pulling for par after 1 year, you will only get 9 months of interest.

[mbreject]

Awesome-thanks!

[TwoCitiesCapital]

7 hours ago, Mephistopheles said:

It says you lose 3 months of interest if cashed before 5 years. I guess if you want cash equivalent locked up then it's fine. But even when pulling for par after 1 year, you will only get 9 months of interest.

 

This is how I'm using it. You're locked for the first 12 months and have a 3 month penalty at any time between that and 5. So using it as a "cash equivalent" for a portion of my cash. 

 

Seems to me that taxes are deferred until sale as well which is nice in the event inflation stays high and I can continue to compound that return. 

 

Thanks @Spekulatius for bringing these to the board's attention. 

[Gamecock-YT]

You can get around the $10k limit by purchasing more with EINs or in Trusts. Purchased them last month to lock in the 5.33% (3.54% for six months, and then the 7.12% for six months).

 

Will get $20k more in January. Even if you leave it in for exactly a year and take the penalty you're still beating the hell out of a savings/MM account.

[tede02]

Just grabbed my $10k. 

[tede02]

My understanding is the $10k limit is per person, so husband and wife could buy total of $20k. Anyone done this out of curiosity?

 

Edit: sleepydragon seems to have answered my question above. Thanks.

Edited November 18, 2021 by tede02

[CorpRaider]

Yeah H&W can do $20K electronic + $5K paper with tax refund.

[Castanza]

Thanks for sharing this @Spekulatius. 

 

Just an FYI as I didn't see it mentioned above that the penalty exists for a 5 year period. 

 

When can I cash (redeem) an I bond if I need the money?

You can cash your Series I bonds any time after 12 months. You receive the original purchase price plus interest earnings. I bonds are meant to be longer-term investments; if you redeem an I bond within the first 5 years, you'll lose your last 3 months interest. For example, if you redeem an I bond after 18 months, you'll receive the first 15 months of interest.

 

 

[Red Lion]

Thanks for posting this. Moving some money out of a CD to grab my 10k now. 

[ValueMaven]

wow - just picked up $10K today and will pick up another $10K 1/1/22.  I'm treating this as cash plus.  It's just sitting in a bank earning nothing anyway and I'm not using the cash over the next 12M+ anyway.  Really interesting.  

[longterminvestor]

I did an analysis on this - poke holes in it if you can.  Thanks!

 

VIDEO:

Beck Quick Video: https://youtu.be/0bLP7F-UWSQ

 

ATTACHED:

• Bloomberg Article
• NY Times Article
• John Lim article (guy from Becky Quick video)
• Basic Info on I Savings Bond from treasurydirect.gov
• FAQ on I Savings Bond
• Tax Consideration
• Rate Calculation Formula

 

OPPORTUNITY:

Save $10K per Family Member now till 12/31/2021 and $10K additional window available from 1/1/2022 thru April 2022

Family of 4 can lock up max $80K in next 5 months (discounting the additional $5K available thru tax refund) at floating semiannual rate of 3.56% (7.12% annualized if CPI stays flat in May ’22)

Rate Formula (component of fixed + inflation with fixed at 0.0%):

Fixed rate: 0.00%

Semiannual inflation rate: 3.56%

Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]: [0.0000 + (2 x 0.0356) + (0.0000 x 0.0356)]

Composite rate: [0.0000 + 0.0712 + 0.0000000]

Composite rate as percentage: 7.12%

 

OPINION:

Good option to put money in a safe place rather than bank earning 10 beeps or less

Additional $5K thru Tax refund is not appealing– more paper work and the tax refund option is issued as a paper bond – different than electronic bond available in $10K bucket.  Paper bond is money good, just gotta keep paper records - redeemable in person only at local bank.

TAX - Like the option to defer tax to maturity rather than paying tax annually

 

PROS:

• Inflation adjusted in a time where inflation risk is real
• 30 year bond maturity with 1 year lock up (if withdrawn within 5 yrs – the last 3 months of interest is deducted as “penalty”)
• Unlike TIPS, the bond value cannot go down – the rate cannot go negative
• US Gov Issued – indisputable best credit available
• Interest compounds semiannually
• Tax Advantaged if you defer taxable event to maturity
• Frictionless - no transactional fees

CONS:

• Floating rate subject to CPI semiannually – May & Oct
• Consumer Price Index (CPI) has its flaws
• Money locked for 1 year
• Too small, $10,000 per yr max cap does not move the needle (uncertain if this product will be offered post April 2022)
• Gotta purchase thru treasurydirect.gov – set up account, attach bank account, set up additional account for spouse, set up minor accounts linked to parent account.  Little annoying but the juice is worth the squeeze.   

Best Savings Rate_ U.S. Government Series I Savings Bonds Offer 7.12% - Bloomberg.pdf I Bonds, Offering a Safe Space for Cash, Get a Big Rate Bump - The New York Times.pdf John Lim - Opinion_ This simple investment can earn you more than 6% with no risk - MarketWatch.pdf Individual - Series I Savings Bonds.pdf Individual - Series I Savings Bonds FAQs.pdf Individual - Tax Considerations for I Bonds.pdf

[ValueMaven]

Spot on.  Well done.

[CorpRaider]

I am pretty sure you can link your paper bonds to your Treasury Direct account.  I'm planning to get some paper ones this year to mess with it.  I like paper bonds and stock certificates and coins and notes and stuff though.  

 

The hole, of course, is if/when CPI-U is transitory you earn 0.0%, but you can redeem and pay tax on accrued interest eat penalty and re-up, still better than similar options, if you're comping to high yield savings accounts or something.  

Edited December 3, 2021 by CorpRaider

[shspyc]

bought 20k. will buy another 20k in Jan. no bonds for dependent. 529 will be better for children

[thepupil]

I'm kind of torn on these. my biggest issue is the after tax upside. I live in high tax state and have a high marginal tax bracket. So as long as that's true making 7% all ordinary income on $20K/year ) isn't really that exciting to me because it gets chopped in (almost) half by taxes. Of course, I can defer and I won't always be in high tax bracket (once stop working), but then I'm tying up capital in something that yields 0% real for a long time which I think I can beat. I feel like I'm rich enough to no longer care about that extra $200-1000 of relative value to extract from that juicy uncle sam 7% bond, but not rich enough to where I can afford to deploy $10-$30K per year into something that generates no  real return.