I-Bonds Discussion Thread (continuation of the FW thread)

No, all you get is the interest. They just guarantee the interest will add up to double the value in 20 years. .1% isn’t going to come remotely close to doubling the value in 20 years, so you’ll be banking entirely on that guarantee.

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Yes, but that guarantee relies on the full faith and credit of the USA.

The way things are going, it’s anyone’s guess how reliable that will be twenty years hence. Congress then could easily decide to pay off in worthless inflatodollars . . . . or not to pay off at all . . . . assuming there still is a Congress in twenty years.

I don’t in the least trust America’s promises having a twenty year waiting period. I’m much more a “show me the money” kind of person.

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IMO if you have a 20-yr time horizon, you can do better than 3.5% annual returns with minimal risk (but not without any risk like these). For college or retirement, I think it just doesn’t cut it since at this rate, you’re basically only keeping up with inflation (2.31% annualized since 2000 and that was an historically low stretch). And like Glitch pointed out, it’s basically a 20-yr CD with a cancellation penalty of nearly all your interest.

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interesting thread on the bogleheads where someone bought $220K of tips at treasury direct and his bank account was charged $246K. It turns out that, at the auction, the bonds sold for about 10% premium over par. This, of course, results in a negative inflation adjusted rate

Edit. to be clear tips are not ibonds. This is just an FYI post. Thanks to glitch99 for pointing out possible confusion

Help! My dad was just charged 20K for buying TIPs on Treasury Direct in December

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Just to be clear (in case someone gets confused), TIPS are not i-bonds.

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Yeah TIPS are definitely not I-bonds. They are bought at an auction and not at face value like I-bonds are. 10% premium for 5-year TIPS is a sign of the expected short-intermediate inflation trends though.

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I try hard to keep up with everything. But there are instances where I fall short and need help. This is one such instance:

I bought I-bonds back in 2018 and again in 2019. I skipped 2020 but bought again at the end of last October. I know that most recent purchase will eventually, in the spring of this year, begin to earn the higher interest rate you need today just to approach keeping up with inflation.

But I’m confused about my bonds bought in 2018 and in 2019. Will those bonds, at some point, also earn interest at the new higher rate?

Yes, those bonds will get the 7% rate for 6 months too. It depends on when you purchased them, when their rate rolls to the next 6-month block.

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Thank you, glitch99.

That’s great news and very good and helpful to know.

Damn, I should not have skipped in 2020. Beeeeg mistake.

I will be buying more I-bonds near the end of this month for certain!

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Yes, I also regret that I hadnt been paying attention to ibonds all along. The 7% was unforseeable, but the rates have been pretty competitive all along even without the spike in inflation.

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Time to think about buying the 2022 allocation of I bonds. People usually say to wait until the end of the month since you get an effective date of the first of the month if you buy at any time in a month. But I am earning .01% on the Payment account. This works out to about eight cents for a month of interest on $10k :flushed:

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Understood.

Personally I am targeting 26 January as the day on which I shall place my order.

Even a 2% rewards checking account will only gain you an extra $15 on that $10k, by waiting until the end of the month. These are sad times indeed.

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Treasury direct let me schedule a future purchase now, so I can set and forget

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Buying I bonds with a credit card - IRS Form 8888

Caveat: I’ve not done this . . . . yet. If you have, please post about your experience. Here’s the deal:

We have a confluence of events upcoming these next several days. I bond interest rates are already favorable. Deadline for quarterly filers is next Tuesday. IRS has announced new tax season commences 24th of January, opening up opportunity to file your taxes (including Form 8888) sooner rather than later.

Quarterly taxes already are permitted to be paid with a credit card. Hence overpayment could also be via credit card. With the filing season (almost) upon us, you would file Form 8888, requesting thereby I bond purchase . . . above and beyond the limited $10K purchase allowance we all are going to fulfill before the end of this month. The purchase via tax refund, of your purposeful overpayment, is separate.

I am providing below a link to Form 8888. This text is stolen from the instructions of that Form:

U.S. Series I Savings Bonds
You can request that your refund (or part of
it) be used to buy up to $5,000 in series I
savings bonds. You can buy them
electronically by direct deposit into your
TreasuryDirect® account. See instructions
under Part I for details. Or, if you don’t
have a TreasuryDirect® account, you can
buy paper savings bonds. See the
instructions under Part II for details.

Repeating the above caveat: I have not yet done this. So what I’m posting might be incomplete or contain pitfalls about which I’m unaware. Superficially, though, I think there might be a path here to purchase I bonds with a credit card, and that path might merit exploration at the least. Here is the promised link to Form 8888:

Link to IRS Form 8888

Time is short to consider this deal if you’re a quarterly filer. But with I bonds paying the interest they are, it might be worth a look.

ETA

Located a good writeup, from a pro, regarding the above:

Overpay Your Taxes to Buy I Bonds for a Better Yield

That was written almost exactly one year ago, when I bond purchases were significantly less favorable than is the case now. He goes into all the details, including a path for non-quarterly filers and how to convert your paper bonds to electronic form, if you want to.

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The text you copied seemed to imply you can buy an additional $5k worth of I Bonds in electronic form. But I can’t figure out how this can be requested on that Form 8888.

I don’t like holding the paper I Bonds. The last time I tried, for $5k, they give you something like 12 I Bonds in various small denominations. I know you can send them in to be converted to electronic form, but that is another step you have to do.

Me, either. But the post from the pro I just provided in my edit explains how to get around that dilemma.

I think you are referring to the conversion part. Yeah, I know but I don’t like the idea of waiting “patiently” for the I bonds to arrive in the mail. God knows how reliable the USPS is nowadays. And if the I bonds do not arrive, I would have to spend time to deal with the issue.

I wish they have really added the ability to have the I bonds purchased automatically in the TD account with the tax refund.

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There is, by overpaying your taxes. But only up to that $5k. And you pay a 2% transaction fee to send in the credit card tax payment.

It’s a means of buying 50% more for the year ($15k verses the $10k purchase limit), but it is a very limited and very marginal credit card opportunity. And I’m pretty certain form 8888 needs to be submitted with your return, it cant be filed separately or retroactively.

[Edited out bad info]

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Me, too. But this is the “guvment” we are discussing here. They do not get anything right. The guy in my reference addresses this, as follows, precisely on the point of your comment:

If only they ask for your TreasuryDirect account number on the tax return, they won’t have to mail you the bonds and you won’t have to mail them back in. While it is possible to direct deposit part of your tax refund into your TreasuryDirect account using a special routing number, when you use the money to buy I Bonds, you use up part of your $10,000/year quota, which defeats the whole purpose of overpaying taxes to buy additional I Bonds. Again, the government has no incentive to make it easy. If you want more I Bonds, you’ll have to tolerate their process.

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