New I Bond Rate Is 5.27%--Should You Buy, Sell or Hold?
Series I Savings Bonds rates increased this month. The unadjusted CPI-U rose from 301.836 in March 2023 to 307.789 in September 2023. As a result, the Inflation Rate on I Bonds increased to 3.97% in November 2023. At the same time, the fixed rate jumped from 0.90% to 1.30%. This represents the highest fixed rate in 16 years, bringing the combined I Bond rate to 5.27%.
The big question is how this new rate compares to TIPS and whether we should buy more I bonds, hold what we have, or sell?
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Video Resources
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I Bond Rates: treasurydirect.gov/savings-bo...
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Real Yields: home.treasury.gov/resource-ce...
No-Penalty CDs: www.doughroller.net/banking/l...
#ibonds #tips #robberger
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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I-bonds are the safest way to store wealth that I know. Therefore my emergency fund is in I-bonds. A few percentage points of interest lower or higher is irrelevant. You don't buy these to try and beat the market.
Its quiet interesting how we reject the reality of our situation and expect to be able to observe it, control it and even change it. I used to be financially depressed until I read a book that made me realized that the secret to making a million is making better investments.
May I ask which investments are good? I've been looking at a few different ones but want others' opinions as well
What I think everyone need is an adviser, who can help you get in and out of any investment at any time and you'd sure be in Profit. With this I feel anyone can basically achieve financial freedom.
Stephanie Kopp Meeks , That's whom i work with...
You can glance her name up on the internet and verify her yourself. she has years of financial market experience..
Thanks so much I was able to find her page and I already leave her a message..
Thanks for the video. I sold my i-bonds 2 days ago - glad to hear you'd support that decision
Rob, excellent commentary. Thank you for your work.
Thank you, Ron. I need to bail as well, as my fixed rate was 0%, also, on the I-bond I bought in June, 2022. 😟
Love the financial education you provide. Thank you!!!
You not only lose the 3 month intetest, you also have to pay the tax bracket % on the internet earned when you cash it in.
In addition, your ibond has much less correlation with interests rate and serves as emergent fund. Instead, 30 yr TIPs cannot serve as emergent fund and you could lose 40-50 percent of value in short period.
I see fields of green, and skies of blue... a wonderful world of choices : CD of 5.5% one yr , MYGA from ins companies (Canvas Annuity, Pillar) at 6.5% for 5 year. 15 month left on United Airlines bonds= 7plus %, Agency bonds at near 7% , APOS A rated and over 7%,
TIPS, especially long maturities, can and do decrease in value substantially during times of decreasing inflation expectations. Unless you hold TIPS until or near maturity you run a big risk of losing money. I-bonds on the other hand never decrease in value.
tips only decrease in value if real yields are increasing
Wife and I bought I bonds in the last two years to use as a file and forget inflation-protected emergency fund. Not an enormous position, but enough to cover a very significant unexpected expense. I’m inclined to keep them for reasons of simplicity and tax protection. I only need this $ to keep up with inflation without my having to keep track of it.
I don't like it as an emergency fund because of the penalties if you pull it prematurely. HYSA % are pretty good right now for your 3-6 month emergency fund.
@@Carnerd101If you invest in I bonds for years, you will have plenty to take out in any given year without penalty.
I don't like it as an emergency fund because of the lag to redeem. It used to be you just go to the bank and cash bonds. Now you have to process online and the redemption time is unpredictable in my opinion
@@williammitchell3271 We are Bank of America customers and have cashed out our I bonds without any issue.
@@williammitchell3271 No more than 4 or 5 weeks to get the I Bond money I thought.
Yeah idk I cant see selling making sense at the moment. Once they drop to 2-3% ill hold onto them for 3 more months, take the penalty at the sale and then put the money elsewhere.
I have 20k in I-Bonds. I started when the rate was 9.62% which was a no brainer, my wife and I bought 10k and also gifted each other 10K. Since then I have invested in several T-Bill ladders. 17 week being the first, then 8 week, then 4 week when they spiked. Things seem to have stabilized with 26 week at the top, so I am moving my 4s and 8s to the 26s. I will probably never buy more I-Bonds, as they have too many rules. I may hold them until the 5 years is up. I am 73 and don't see any reason to go beyond a 26 week term, especially when that is currently the best level for T-Bills.
I missed that rate because I couldn't unlock my account. Somehow I must have entered the wrong E Mail address & every time I tried to call in to unlock my account I was put on HOLD for hours. Finally in March I was able to unlock the account by talking with a customer service rep on the phone but I didn't wait that long like last November.
20k in I-bonds, was that really worth the trouble? It may make sense for some people with high taxes. But not for me, as you say the rules are a burden.
@@donniemoder1466 I have Brokerage accounts IRA / Roth / Regular that allow me to get T Bills / CDs / Corporate Bonds / Muni Bonds along with any stocks or ETFs. Some of the minimums on the best in class are really high ( T Bills ). Searches though narrow the field & its a good range of over 5% interest rates. I like the I Bond for its hands off automatic nature. Worth the trouble ? Overall, I believe it is worth the trouble.
Rates may go down in the next year, should consider extending duration, look at 1 year t-bill or 2 year treasury note.
I am looking to move to 26 week which is waffling for top rate with the 17 week that I already have a ladder. The 52 week is at the same rate as the 4 week, not worth my interest.
Thx for showing how the IBond interest rate is computed (ratio of CPI-U indices).
This makes sense. I use ibonds as a portion of my emergency fund, and 5 years ago a 1.3% return on cash would have been AWESOME so I am rolling my 0% fixed rate bonds into the newer high fixed rate ibonds and then pretty much forget about them until I need to replace the furnace or something Like a few of the other commenters said above it is just a simple place to keep some cash. They will probably never be the best place to keep your cash but I figure any ibonds bought between now and April of next year will never be the worst place either
Agree. TIPS might have higher real yield but they aren’t great for taxable accounts, which is what you want for an emergency fund. Cash has outperformed recently, but didn’t keep up with inflation for the previous decade. At least I-bonds maintain their value.
@@mere_cat My understanding is the interest you Earn gets rolled into your I Bond & collects interest too. You don't need to Babysit this investment.
I do the same thing
@@ag4allgood there's no such thing as rolling i bonds into anything. You either keep your existing i bonds where the variable rate changes every six months, or you purchase new issue i bonds. In order to get the current 1.3% fixed rate i bonds, you need to buy new issue between Nov23-Apr24. Your existing i bonds do not capture the new fixed rate, only the variable.
@@mere_cat what do you mean cash has outperformed? HYSA and MMA rates (e.g. cash) has not outperformed. I presume you might mean cash equivalents. If you are in a state and local tax state, you must take that into consideration, too, rather than just looking comparing rates. TIPS aren't subject to state and local taxation, but non-treasury bonds, CDs, MMA, HYSA are. What do you mean I bonds maintain their value? Considering the composite rate changes every six months, I don't know how that equates to maintaining their value.
Good analysis. Pretty much the same conclusion that I have come to, and I will be selling my $10K of I-bonds and will be moving that money into more 13-week Treasury bills.
This is just so good....not easy but good. I had to review your excellent presentation 3 times and take notes to fully understand.But in an age when millenials get their finanacial "get rich quick" info from Tic Tok and other You tube grifters, yours is a breath of fresh air.
No state tax where I live. Probably sell in Jan to pay less in penalty and move the income to 24. Then roll it into some CDs locally that are paying 5.75 for 11 months. Heck, my high yield cash account is paying 4.75%
It's not inflation protection in my book. It's rate of change of inflation protection. Big difference and makes I bonds a hard sell to me.
Very useful, thank you.
I bonds were never designed to be the most profitable. They are there for small time, risk adverse folks that need emergency savings. Otherwise there wouldn’t be a $10k cap.
The I bond is not guaranteed to get the fixed rate of 1.3%. If the variable rate goes negative (deflation) then it will eat into the 1.3% fixed rate. The website says 0% is the lowest it will go. It’s unlikely, but it has happened where I bonds earned 0% for 6 months even with a high fixed rate.
I was wondering if I was going crazy or not. I thought he misspoke, and it's a huge mistake.
well, technically, the i bond is guaranteed to get the fixed rate, but as you mentioned, if there is deflation a negative variable rate will offset it in the composite rate calculation. However, as Treasury notes, the composite will not go below 0%. This has only happend once in the 25 year history of the I bonds in May 2015. Whether that is statistically relevant is debatable, considering that the first issued i bonds from 1998 haven't even reached final 30 year maturity yet.
Im selling in January. Mine has no fixed
Thank you very much...
Exactly the same thing im doint. Not buying new, selling old.
I have a bond fund that has a 6.03% 30-day yield and I can sellout or some at any time with zero fees or interest penalty.
I have been holding my ibonds for over 10 years as part of my emergency funds. I see no reason to sell them now, besides I don't want to pay all that Federal Income Tax
I have been holding my IBond for 20 years now, I am not savvy at investing so I will stay put until I learn more .
Thank you for the explanation of how these bonds actually work in one's portfolio. I have always been a bit lazy in my education of these bonds and primarily invested through a low cost mutual fund.
Are people also investing in T-bills? This has been my primary Treasury investment the last couple of years as the rate has climbed. I am looking at expanding my portfolio of Gov securities and wondering about I-Bonds.
Could you remind me of some funds I could consider for tips that is mutual funds or ETFs maybe Fidelity and or vanguard …. Maybe I answered my own question. Ticker symbol FIPD X, and VAIPX respectively 😉
Still like ibonds as a no risk inflation protection (plus a return on top now) on my emergency reserve. Been selling my 0% fixed i bonds and will be buying the 1.3% fixed in their place end of 2023 and likely again in april 2024 (we'll see what things look like then).
Kind of what I’m thinking too. Mathematically there will always be better options, but simplicity for a portion of our investments is worth missing 0.35% for some of us.
I remember reading those ROM comics! This man is the real deal.
Question: Which is better and why, a high yield savings account or bonds?
FWIW Canada’s I-Bond equiv are Real Return Bonds (RRBs) tied to All-item CPI or corp/govt bond funds. I looked up returns for many bond funds and all only had losses for any time period incl Max avail. Am I missing something? Bill Gross right?
i bought a series Ibond 1yr ago as of sept of 2022 ive been thinkin about selling it in december so that my extra 3 month hit if interest but have been kinda conflicted about it nit sure if i should or not should as im bery new to investing🤓🧐
meaning FED is going to push another rate hike in December if I Bond rate is 5.27%. i Bond rate will fall after this is the peak. This still pays better than most banks.
Great video.. thanks for the content. Seems like the government has different ways of calculating "inflation" or too many types of inflation being measured. I wish inflation was 1.97%! What is truly unfair is: inflation is created by the government, we are not allowed to claim it to offset income taxes.
The government counts on Inflation when creating their tax tables. That's why they use specific amounts - guaranteed tax increase each year due to inflation.
So that I understand ... the real yield (approx 2 1/2%) you cite of a TIPS bond is in addition to the inflation indexed amount added to the value of the bond itself? And the amount of this inflation indexed growth is identical to the added inflation yield of an I bond? Thank you.
I was comparing rates and came across STRIPS under Treasury Zero on Research\Fixed Income. Yields are higher, but discovered a term, "accreted interest," realizing/paying taxes on interest as if coupons were received/realized versus at maturity. I would be interested in your thoughts.
Thanks for the updated informtion on I Bond rates and the analysis of I Bonds vs TIPS. In the end, you indicated that you would likely sell your existing I bonds and likely invest in TIPS. When you say that you may buy TIPS, are you going to actually buy TIPS, or buy into a TIPS-based bond fund? It seems that buying actual TIPS is a betrer investment than buying into a TIPS bond fund.
gotcha@@kippesp
Once tax is considered esp in higher bracket, ibond is much better deal. No one wants to pay phantom tax.
What user-friendly/low cost platform do you recommend using to buy ETFs for long term investing?
Definitely a buy unless your taking a very short view
I would love to see an analysis of buying TIPS on the secondary market. The specific questions I haven't seen addressed anywhere is how is the inflation factor determined and if inflation stays above zero will the adjusted price increase.
I think the factor is just the current_cpi / cpi_at_original_issue.
I'm going to sell the I-Bond that I purchased in late October 2022, which did not have a fixed rate, and use that money to purchase this new I-Bond that has a 1.3% fixed rate. For me, holding I-Bonds long-term is all about the fixed rate and compounding. Otherwise, I'd be sticking with just treasuries and TIPS.
I was thinking of doing this too but why not a higher interest CD instead? Just curious. I can get 5.6% one year CD. Is that not the better move?
I was thinking of selling too(having purchased late Oct '22 as well), but I like the idea of the 5.27% for 6 mo in April.
I find the T bills are just more easily managed. You know the day it's issued what you get if you hold to maturity. I have one I bond that i will be selling in January to put the interest in to 2024. It's 10k with about $950 in interest. I just prefer the guarantee as i use treasuries as my fixed part of my portfolio.
I am with you. I have several T-Bill ladders. The yield curve is inverted, I don't know why at this time why anyone would look at long term notes or bonds. I am in Texas so it means nothing to me but for states with income tax T-Bills are exempt. As to 5.27% every T-Bill is higher with no silly rules.
well, i bonds weren't meant to be traded, so I'm not sure there is really an argument on ease of management. You literally buy it and it just sits there without any input on your part until you want to redeem it.
@@gbinman the logic is flawed. If 5.27% tbill is good, then why a tnote or tbond earning around 5% not be good enough for the long term? tbills will invariable go down when fed lowers rates, and with policy focused on driving down inflation, I'm not sure that 5% 5-10yr (well, it's only ~4.5% now, unless you got 20yr at 4.947%) is a bad fixed rate investment if that is what you are looking for. I think you sort of have to separate what is good for institutional investors vs personal investors, becuase a 10yr might not make sense for personal investor, but would for institutional. Institutional investors were buying negative rate instruments just to preserve cash by minimizing loss. Now, I also agree that buying i bonds even with the 1.3% fixed rate currently doesn't really make much sense considering policy is intent on driving down inflation, which is the purpose of holding an i bond, so you are literally buying into something that is purposelly being worked against.
How does one go about selling their Ibonds? Thanks
Compared to Wealthfront cash account at 5% right now with FDIC at 8M, with unlimited transactions and completely liquid...why would this be better? Just asking because I don't see a better avenue right now.
"Never ever" is strong wording. Just because they're (generally) better kept in pre-tax than in taxable does not mean that they are never appropriate for taxable. If someone did not have a pre-tax bucket, and has income space to be taxed at a low rate, it seems like a reasonable option.
That's what I was thinking. 50k in emergency cash gains an extra 1% in TIPS vs HYSA right now... Where else would I put my cash?
Thank you for your good information. I love the stock market but as I get older I think I should play it a little safer. You mentioned having to pay state tax with i bonds. That confused me. Washington state has no state income tax. Did you mean that whatever state the i bond is issued from, the investor must pay state tax to the issuing state? Forgive my ignorance please.
So I bought I-bonds about two years ago with the base rate of 0%. Should I sell and buy new I-bonds to get the higher base rate or do my existing I-bonds get the higher base rate now?
We bought ours in October 2022. Will be cashing in after the new year unless someone knows better timing
No, you’re right. Best time to cash out if you bought in October 2022, like myself, is January 2024.
@@aaa4181 Appreciate the information. Bought a large T Bill today through Fidelity and will hold until the end of December. Good money and pretty safe unless we crash the economy. I should say they and not we.
...but wouldn't we miss out on the 5.27% rate beginning in April?
@@aarontsika1519probably but it's only 10000 for each one of them. So a total of $20,000 where I can buy very large and just add that 20,000 to it
@@aarontsika1519 I am not saying that isn't a good rate. Just didn't want to have that money held up for 5 years. Also, if you have time look into SGOV and other monthly paying ETFs depending on your situation and age.
No, you may not always get the 1.3%. The iBond net rate can (and has in the past) gone to 0%. This is because the inflation rate can go negative and subtract from the base rate. It has a floor of 0% net.
technically, you get 1.3%, but as noted the composite rate will be 0% in deflationary periods that offset the fixed rate. This has only happened once in the 25year history of i bonds, but yes it's a consideration; although, deflation means that your money isn't being eaten by inflation.
@@hanwagu9967 I don't know how you can say, "technically, you get 1.3%" when the composite rate is 0%. Technically the math says you get 0% and in actuality the treasury pays you 0%. 0% is definitely not 1.3%. With the many years of base rates at 0%, I'm skeptical of the "only happened once" claim, but not interested enough to go back and recompute the past. I just wish I still had the iBonds I purchased with credit cards when base rates over 3%. Oh well.
If i bought april 2022 ideal sell would be january correct? (or Feb 1st?)
I am thinking of selling it in January so that I can move tax implications to next year. Just waiting on it. Any suggestions?
I just want to protect my capital against inflation as I'm coming up to retirement. Capital protection against inflation and loss in real terms is more important than capital appreciation. At the moment I hold sgov and stocks. Any advice?
Yeah, I am selling to. Bonds with 0% rate just don’t have any meat on the bone. The rate you get now will be less than 4%.
I’m a Tbills fan
Question: What are your thoughts on Agency bonds and Corporate bonds that are earning 7 - 8% at this time??
Just make sure the Company that issued the bonds are solvent & solid financially. I have a few Goldman Sachs Corporate Bonds that yield 7% out to 2035 that pays out 2 times / year in my Brokerage account as part of my portfolio. Interesting to watch the value of them fluctuate during the recent year.
Just like my stock portfolio, I just don’t mess too much once committed. My five years are up in 2027. I have a few regular bonds in the same boat (3ish percent). Treasury is a pain to work with…..have you found an easier way to work with them?
Just buy them through a brokerage account. Fidelity is super easy.
There is the weak link. Treasury can be a very slow processor when you redeem.
@@smmasongt i bonds are only available through treasury direct.
@@williammitchell3271 that has never been my experience. submitted to redeem and the next business day the money was in my linked bank account.
I have been using Treasury Direct for years, easy to use, no problem at all.
cashed mine out today. going into swvxx @ 5.4%
I bought I Bonds in April and May, that I thought would roll over to whatever the current interest rate is at the time, but they haven't. How are the rates determined after the first six months is up? I, apparently, misunderstood how it works.
Treasury Direct has a chart with the interest rate info. It changes every 6 months. The DiamondNestEgg channel has some excellent videos that will explain IBonds in an easy to understand manner.
Does the interest earned on the ibond compound therefore are you getting interest on the interest that you’ve earned for the previous six months all the way up until you sell it compounding?
the interest gets added to the bonds value
I bonds are great for emergency funds after the 1 year holding period. I’ll take the 1.3% fixed rate for that. Rather have my emergency money keep up with inflation and nothing safer offers that like i bonds.
Thx for reminder on tax considerations.
Thanks for the info. The only thing I have against TIPS is that 5 years is the shortest duration, and it is a hassle to sell an individual treasury. One minor nitpick on where you said you always get the fixed rate on I bonds. You always get a positive or zero interest rate on an I bond, but if inflation is negative the fixed rate can go away. A May 2001 issued I bond with a 3.0% fixed rate earned zero percent total rate in the May 2009 6 month period, due to a 6 month inflation rate of -2.78%. Rarely happens, but you can lose the fixed rate on I bonds during deflation.
I got my iBond when it was 8% so I’m guessing it is fluctuating as I type correct?
Rob, just to clarify, the fixed rate follows the bond for 30 years, the inflation rate can change every 6 months and is added to the fixed rate, right?
That's right.
Wouldn't you be better off buying Berkshire Hathaway stock?
Is that ROM the Spaceknight on the shelf?
Yep. I used to have a few issues. All the comics I have left is Savage Sword of Conan.
Do you pay yearly taxes on a 30 year bonds?
Shouldn't you wait 3 months after the I bond rate drops from 6.49 to 3.40 to not lose the 6.49 rate?
That is what I would do if I knew the other investments would yield more. No State or Federal Taxes owed on the interest you earned is a good deal though. There are dividend stocks in the Limited Partnership land that leases their land to oil & gas companies that are stable money earners. Many yield over 10% & they have also appreciated stock values in the past 2 years depending on when you bought them. Very predictable stock prices make it easy to Buy them LOW while collecting the dividends. Not quite like sleeping on a I Bond while interest accumulates but proactive to take the dividends & Buy more stock when it the stock price lowers again. That is why I Bonds attracted me is no Taxes to figure out.
I don’t think you’re understanding or maybe just not giving credit to that fixed rate. In a few years banks may be back to giving nothing and you’ll still have that fixed rate plus whatever.
How'd inflation for social security end up at 3.2% but ibonds 5.27%?
At 7:41 you say you would "Never Ever" buy Tips in a taxable account - and you're not alone in saying this; many advisers say the same thing. However, I find the exact opposite is true in my case. I'm quite new to self-directing my investments, so I'd love to be corrected if my thinking is wrong. I am a high income (near top brackets) retired California resident with low risk tolerance. I was about to follow the conventional advice and buy $500k worth of TIPS for my 401K, (as an inflation hedge) until I discovered that ALL of the income and gain would be taxed both Federal and State upon withdrawal. If I hold TIPS outside of the 401K I don't have to pay 13% state tax on the interest or gain. I don't mind the "Pay as you go" taxation which would occur with TIPS outside of the 401K - I can afford to pay those taxes without realizing the gain until maturity. I realize that I will lose any potential interest which might have been gained on the taxed income over the life of the bond, but by my calculation that's not enough to offset the loss of the state tax exemption. Am I missing something here?
As a follow-up, I did a quick calculation: For a hypothetical $1000 5 year TIP at 2 1/2% rate and assumed 2 1/2% inflation, an 11% State tax penalty of putting this in an IRA would be $70. If held outside of an IRA, the earlier payment of Federal tax would render a $13.60 opportunity cost (lost interest on the earlier tax payments). So at the end of a 5 year bond I'd be $56 ahead by keeping this out of the IRA. Again... am I missing something?
U.S. stock futures rose Tuesday as equities were buoyed by a sharp decline in bond yields, while earnings from some of the largest technology companies loomed in economic data. renewed buying strength in markets in September and October. I want to invest more than $300k, but I'm not sure on how to mitigate risk.
I feel like the real reason to keep Series I is a hedge against deflation, which absolutely destroys TIPS. If such a hedge is important to you then maybe losing some interest is worth it. We diversify our equities and bonds, why not diversify our cash positions as well? Also, not so long ago, a 1.30% fixed rate looked quite attractive. Will we ever go to such low rates again? Who knows. (I suspect not anytime soon but lack a crystal ball) Personally I keep a mix of treasury bills, notes and CDs (no state tax here). I also keep a chunk of cash in Series I for the deflation protection. Those I do intend to switch out given the fixed rate, and hold for an extended period of time.
I think the real risk of deflation is a better argument for standard treasuries - 5-10year seem attractive now
If you buy an I bond, does the rate go up and down every six months as it changes or are you locked in at your original price?
that 1.3% would remain, but the variable rates do change
Currently, CDs are the way to go for fixed income, I don't have the stomach for the stock market right now.
I don't quite understand holding something for any significant amount of time that's paying in the 5% range when your money can just sit in a money market for a similar return without giving up any opportunity potential. That includes treasuries everyone is talking about. What am I missing when it comes to everyone's interest in those things? 5:46
You can’t assume other nominal investments will beat inflation. With tips and I bonds, they are guaranteed to meet or beat inflation.
Your money market rate is not "locked in" and can change at any time.
Bank solvency is a concern. I'm not chasing high CD rares. What are banks chasing to pay those high rates ? Mortgages ? LOL. T Bills continue to look good.
Unless the Govt defaults
Unless you can get a 10% or more. The inflation beats you😢 buy something good to eat 😮
I wonder if I Bonds are worth the hassle since the limit is $10k and the interest rate is about the same as money market funds (fidelity 5% today). 18 month CDs are currently at 5.5%. 5 year ladders are 5%. It seems to me that the time and yet another thing to worry about just isn't worth it, especially if you are older and have heirs that are going to have to figure this all out. Keep it simple. Fidelity, Vanguard, Schwab, etc.
The fact I Bonds are not Taxed by the States makes the actual yield higher than a CD or even a Corporate Bond if your in a higher tax bracket. Sorry TAXED Federally not by the State !
@@ag4allgood You are right about state taxes but be sure that I Bonds are taxed by the federal government upon redemption. The state tax is no consequence to me. CDs are better than I Bonds, at least right now. Money markets (like Fidelity) are really the sweet spot since the money is liquid and the rate is just about as high as the I Bonds.
The very low purchase limit is one reason why it's hard for me to get excited about I Bonds. I bought some when there was a huge difference between I Bond rates and CDs, Treasuries, etc., but will sell them soon. It seems like I Bonds are better for a long-term plan that allows the purchaser to slowly build a substantial amount over time.
I like that ibonds growth is tax deferred so I hope to sell mine while in a lower tax bracket in retirement
They were really appealing when inflation was running wild and the banks were offering peanuts for savings rates. Now they aren't because the bank savings rates are good. I feel like chasing rates is a rat race and you should do what you feel is simplest to maintain. I-Bonds are just another option for parking money and making sure you don't lose value to inflation.
Fidelity says the 20 year US treasury zero is 5.38%. Why not just lock that in?
You are betting that inflation will be under that. It may be the case that inflation shoots over 5% and in that case ibonds will be a better choice and their rate will go up as well. With out of control spending it is perfectly reasonable to expect high inflation (or even hyperinflation) in the future.
@@Bambarbia2447 well, you are conversely betting inflation will shoot over 5%. Given history betting on rising inflation hasn't been that profitable, especially considering that fed is intent on working against you.
Rob, I'm still a bit confused by all this, so I hope you don't mind if I ask a question. If you're too busy and wish not to answer, I totally understand. Q - I purchased an I-Bond in May 2022... which at that time I believe the fixed rate was 0% but the interest rate was 9.62%. Now when I review my bond on the treasury site I see an interest rate of 3.94%. Does my bond say at the fixed rate of when purchased (0%) or get to take advantage of the new fixed rate of 1.3%? Trying to decide if better to cash out and take 3 month loss and invest elsewhere... I wish there was some kind of calculator that showed a break-even or best time to exit type of scenario based on when purchased & interest...
I did the same as you. From what I understand you'd' have to cash it out to grab the new fixed rate otherwise it stays at o%. I'm also trying to decide whether to cash out and take the 3 month loss. Another youtube person I follow suggests we wait until January to cash out. Then we'll only lose the last 3 months that had the lower interest rate. I think I'm going to do that and go to a high yield CD maybe. That or buy new Ibond with the new fixed rate. Don't know which is better now.
The new rate only applies to the newly-purchased ibonds, up until the next rate is active in 6 months.
Thanks for another informative video. I was wondering how you track your I-Bonds and TIPS in empower?
I had to add them manually 🙁
less than treasuries... I'll pass. Thanks for update.
What about I-bonds use for education, with proceeds being tax free with certain use-case and income limitations? And even if you cannot use the proceeds in this capacity for yourself or your family, I bet you know someone who could, and there's always a possibility of gifting the I-bonds.
I got some Apple corporate iBonds.
Several of the biggest market experts have been voicing their opinions on exactly how awful they think the next downturn would be, and how far equities may have to go, as recession draws closer and inflation continues well above the Fed's 2% objective. I'm trying to build a portfolio of at least $850k by the time I'm 60, therefore I need suggestions on what investments to make.
I redeemed my i bonds and just bought t-bills last month. made no sense to continue buying i bonds. yes, we will probably see a higher fixed rate next May, but the variable rate will go down if the Fed has anything to do with anything. Why would you want to buy an inflation adjusted producted when all the monetary policy is deadset on driving inflation down. You are literally buying or holding into a depreciating asset. Long term, i bonds underperform index, too. You better off just buying 10yr hovering at 5%.
Gov is still spending like drunken sailors vs Powell trying to push down inflation. So, its a hedge in case inflation is elevated for year. Don't know what is going to happen on Tbills. yes, we are buying some tbills too. Do you think tbill rates will continue to be elevated?
@@darwinjina tbills will continue to be elevated so long as fed rate remains high. That is an advantage over i bonds or tips, because as inflation goes down the fed rate decrease lags. Case in point the current situation where the fed is keeping rates high and may continue to increase next year, while inflation rate has decreased, which has lowered the variable rate on i bonds. There's really no reason to buy into i bonds where the fed policy is to actively work against you by decreasing inflation.
@@hanwagu9967 Thanks. i can see the scenario. I would like to see inflation go down. (as it inflation is still higher than average annual pay raises).
At 7:37 you say you would never own tips in a taxable account, "never ever", then at 7:52, you say if you "had to" buy in a taxable account you'd probably lean more towards i-bonds, then later you go on to say that if you need money in 5 years you'd buy tips, with no qualification that the investment would be in a retirement account which does not pay yearly taxes.
So...if I purchased Oct '22, I should expect a change to 5.27% in April?
No, if you bought in Oct 22, the rate has been reduced to 3.4% starting in October 1, 2023. I'm cashing out on January 1, 2024 and taking the penalty of the last 3 months of interest which is 3.3% from October 2023 to December 2023. Inflation looks to be cooling so i-bonds bought in October 2022 may even go lower than 3.4% next year. You would be better off putting the money in a 12 month bank CD at 5.2% now.
Why am I seeing my rate as 3.48%?
They take out 3 months unless you hold it for 5 yrs. So if you cash out in 1 year You will lose the first 3 months interest. You need to mention that
The last 3 months, I've been told?
@@visitingfromsantafe1329 they give you nothing for the first 3 months. That is a fact
thanks, Rob. i still have no idea what happens to paper ibonds they send us with tax return/refunds…. if we lose them…. bec treasury direct records no trace of them, and i can’t even look up their fixed variable rate data making them hard to manage wisely as u advise. thoughts what to do with refund bonds? held in paper and unclear even how to redeem
@@SpringRubber where have you been ?! thanks!!
@@MissMoonshineDance apparently an hour's reply away 😉
@@charlesbyrne71 I left several messages to their website and never got a reply, because I never found that instruction
I actually have trouble finding those instructions so I wonder where most people can expect to find them on the treasury direct site. I would expect to see them on ManageDirect page under Manage my Securities, buht the paper ones don’t appear under Transfer tab
@@SpringRubber see below. not only can I not find the very clear instructions, i see only one rate for the existing 3 series I bonds - which say 3.79%, 3.38, and not available for 2021. i thought there are both fixed and inflation components we can see in the rate. bummer i can’t find said details!
If you buy and sell an I Bond from Treasury Direct you don't have it in a taxable account to worry about, am I correct as far as taxes go?
I am referring to brokerage accounts.
you can only purchase and redeem i bonds from treasury direct. You cannot buy and redeem anywhere else. i bonds are only subject to federal taxation. You have a choice of either reporting interest annually or at redepemtion.
I bonds in Treasury Direct account are taxable . You will pay the Federal tax.
@@SatishJoshiIt is tax deferred for federal tax purposes until redeemed and exempt from state tax. Is that right?
@@SD-co9xeYes
Help me out Rob, why wouldn’t one purchase treasury bonds at 5.5%? What am I missing?
I bonds can only buy 10000 a year so that is the max .
Because the treasury bond is a fixed rate and duration. If inflation rises, the I bond you already own will also rise (every 6 months), but the regular bond is stuck at 5.5%. If inflation and interest rates drops dramatically, the I bonds you buy now will still have the 1.3% fixed rate to give you a little interest. But, when the regular bond matures in low interest rate environment, you probably won’t be able to find anything (CDs, bonds, etc) to buy that pay >1.3% (like 2018-2021).
@@jeeplife5262 30 year treasury is at 4.83%. 30 year GSE at 5.82%. I’m just surprised Rob isn’t at least mentioning those options. We’ll be hard pressed to beat those rates, even with inflation adjustments.,
I'll be selling my I Bonds too that I purchased in Aug of 2022. That's when it was a nice 9.62% rate. However, I'm going to wait until after the end of this year, just so that the interest will be included in the 2024 tax year, and not this year. Yeah, I'm getting a little less interest now for the next couple months, but it's not a huge amount. Like you mentioned, no penalty CDs, and even some HYSA's are paying just as much, and I don't see that changing dramatically any time soon.
I still dont understand why anyone would invest long term in bonds.