Post
by Austen Heller » Mon Dec 20, 2010 12:23 pm
Are I-Bonds worth bothering with? That is, compared to other options such as Short-Term Treasuries or treasury MM funds. The I-bond yearly purchase limit of $10,000 seems too low to be very helpful to a lot of people. At the current rate of 0% fixed and 0.74% variable, you are probably not even keeping up with government-reported inflation, after paying taxes. And when you consider the actual dollar amounts, if you max out your yearly contribution, you will be getting $74 a year, which is $6.16 a month, BEFORE taxes. You would need to rack these things up over many years to make the numbers significant.
Also, I personally don't like having to go into a bank to place an order for the I-bonds. The teller has seemed clueless about how to place my order on several occasions. And then the Treasury Direct website states that for redemptions over $1000, you have to mail the paper I-bonds to a Treasury Retail Securities Site. You can avoid having to do this by converting the paper bonds to electronic format, but the yearly process of "you go to a bank, they mail you the bond, then you mail them the bond" is ridiculous. These activities are the opposite of the ease that one encounters when buying something like a treasury mutual fund through a company like Fidelity or Vanguard.
I am sure that this is a very personal matter for most folks. Everyone has a different opinion of what qualifies as a hassle. I have been collecting I-bonds for a few years, but I am starting to realize that I would rather have the $ lumped into something that is easier to deal with and track, like a short-term treasury mutual fund. Over the long-term (10-20 years), would the returns from I-bonds and ST treasuries be very different anyway?
I concede that the tax deferral properties of I-bonds are superior to that of other treasuries, though all treasury securities are free from state taxation.
Another point of concern is the Treasury Direct itself. I have dealt with them on several occasions, and I would describe their reps as generally being "surly", not unlike workers at other government institutions like the Post Office. On the other hand, the reps at Vanguard and Fidelity seem more interested in keeping me as a happy customer. In the event of any electronic account shenanigans, I'd rather be dealing with a company than with the government.