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

@harish7631

Are I Bonds still attractive?

I Bonds purchased from January to April 2023 will pay an annualized composite rate of 6.89% for six months, which includes the fixed rate of 0.4%. Is 6.89% attractive? Definitely. But let’s look at the alternatives:

  • A six-month Treasury bill has a nominal yield of about 4.76%.
  • Best-in-nation 6-month bank CDs are yielding about 4.4%.
  • A 1-year Treasury bill has a nominal yield of about 4.73%.
  • Best-in-nation 1-year bank CDs are yielding about 4.75%.
  • A 5-year Treasury note now yields about 4%.
  • A 5-year TIPS has a real yield of about 1.58%.

As a six-month investment, an I Bond definitely looks attractive. But keep in mind that an I Bond has to be held for at least 12 months, and redeeming before 5 years forfeits your last three months of interest. That brings uncertainty into the equation.

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Thanks, Xerty.

Funny that safe I Bonds did better than the most risky Crypto last year

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…until you consider that the year(s) before, that Crypto often gained more in one day than I-Bonds earned for the entire year.

fair enough. Willing to stomach volatility in stock indices b/c long term trends are up/recovers . Crypto could go to 0.

Back to topic I Bonds my only concern is 0 years (I’ve had a few since I have “set it and forget it” since buying with a CC FWF days. I will be more mindful if /when inflation goes down. Thankfully it is headline news these days.

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The Feds fudging the inflation numbers doesn’t impact I bonds since they don’t use the “seasonally adjusted” CPI numbers in the headlines.

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Good article about how to compute the current value of I-bonds.

The article links to this page that has a calculator for the current value

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Guessing rates for the next reset in May

https://seekingalpha.com/article/4584640-i-bonds-long-term-buying-opportunity-coming

if my estimates are close we should expect the May I-bond to offer 0.7-0.9% fixed rates with 2-2.4% variable rates for a composite rate of 2.7-3.3%. This is far below the current 6.89%.

Although investors may be attracted to the 6.89% annualized yield, as compared to other fixed income assets, this yield is only offered for 6 months. If CPI ends up being 1% by May, resulting in the next variable rate of 2% annualized, I-bonds bought today will only offer 4.05% over the next 12 months when the early redemption penalty is assessed. Investors can earn 5%+ from the 1-year Treasury now.

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I thought it was going to take a long time to achieve their 2% target inflation? Yet here we are?

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It’s a very short term thing, annual CPI window vs the 6mo for I bonds. Energy and housing have dropped CPI lately, as well as some weird healthcare calcs, all the while Core CPI is running 5-6% annually each month. Basically, this most recent 6 month I bond period caught the downdraft and so may be a good time to sell / avoid.

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Anyone here buying iBonds that lives in California, (or another location declared an “emergency” that has until October to pay their taxes)?

I usually file an extension in April and overpay by $5000 so I can use that money to buy paper iBonds. But with this automatic extension being given to us, I am not sure what I need to do to overpay my taxes. Can I file an extension in late August and pay the expected amount due plus $5000? Any other ideas?

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Usually you’re supposed to pay anything you owe by the original deadline even if you file an extension.
I’m confused why you file an extension and what it has to do with the I-Bonds. The Bonds will be issued once your return is processed, it doesn’t matter if you do that in February or in July, the only difference is the I-Bond interest rate in effect at the time.

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I normally owe money. No refund to use on iBonds. So I overpay in April as an extension. But this year, California filers don’t need to pay until October 15. So there’s no extension to file and no opportunity to overpay. What do I do to overpay?

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Obviously, you could just file now. You are going to pay the money now regardless, so there’s not really any benefit to waiting until October - that extra $5k is just going to sit stagnant for 6 months if you dont.

Or, in case I’m missing something, there’s no reason you can’t file for an extension anyways.

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I think he’s asking how he is supposed to make the overpayment, since he can no longer do so with the extension form.

I just pay using a CC and they don’t seem to care what it’s for, as long as the correct year is selected.

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Just because his state already has an extension doesnt mean he cant file the request anyways…

This did cause problems for me - online I selected “balance due”, but on my return I included it in the estimated payments. Caused a discrepency which delayed processing my return. I phone call got it quickly cleared, but it took a while to figure out I needed to call.

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Well, some K-1s I rely on to be able to file usually come late so I generally can’t file on time anyway.

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I don’t even recall seeing a “balance due” field. The CC processors usually ask you to select the form, like 1040-ES for estimates or 1040 for presumably the final payment. But we also know that you can make at least 2 quarterly and 2 annual payments with each processor, which means all payments should go to the same place – your IRS account. Thanks for the warning though.

That’s what I assumed too. The guy briefly explained it but I dont recall the exact details, I just remember there was a minor issue using the other (not the 1040-ES) option and it reconciling on my return. It may have been a random audit too, that checked in more detail than just the final account balance.

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Time to start thinking about this

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