All America Bank 1.5%

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jhogue
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Re: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 6:34 pm

pugchief wrote:
Jeffreyalan wrote:While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I should would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
As CraigR was fond of saying, "Don't buy fire insurance from the arsonist."
CraigR was referring to the mistaken use of TIPS as a substitute for gold, not for the use of I bonds in PP Cash.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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pugchief
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Re: All America Bank 1.5%

Post by pugchief » Tue Jul 25, 2017 7:57 pm

jhogue wrote:
If I bought an I bond purchased in November 2016, from Nov. 16 to April 17 the 6 month yield was 2.76%. From May 2017 to October 2017 the re-set 6 month yield was 1.96%, for an annualized yield of 2.36%, redeemable on 1 November 2017. That was the variable yield only; the additional fixed yield set at the time of purchase was a disappointing 0%. (The I bond yield is composed of both a fixed rate and a variable rate that automatically reset each 6 months based on the CPI-U inflation figures).

In comparison, a 1 year Treasury, sold on 11/02/2016 with a maturity of 11/02/17, has a yield when held to maturity of 1.08%. The best 1 year CD available (from Fidelity brokerage) in November 2016 had a coupon of 1.50%. That means my I bond handily outperformed my PP standard STT by 1.28 % and the “best deal” FDIC-insured brokerage CD by 0.86%!

THIS IS FREE LUNCH FOR THE MIDDLE CLASS, PEOPLE! GET YOURS NOW!!
Are they selling 1 year I-bonds now [as you imply]? Because if not, the comparison with a 1 year CD or Treasury is ridiculous.
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jhogue
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Re: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 8:29 pm

Dearest Pugchief:

Of course I bonds are for sale right now! You can buy them 24/7/365 at Treasury
Direct.

You used to be able to buy I bonds over the counter at FDIC-insured banks like WaMu and TBTF mega bank JP Morgan Chase, both of which I gather you have some passing familiarity. WaMu also offered some really hot rates on CDs too, just before they went into receivership. Did you get any of those?

Jamie Dimon and his gang of thieves never did make much money on US savings bonds, however, since they carry a 0% expense ratio. Perhaps that is why Mr. Dimon ordered his minions to dump the bank’s advertising for the savings bonds program and focus on more lucrative ventures, such as milking small business accounts they acquired in the fire sale of WaMu assets. I believe I have heard, however, that some of the more pugnacious clients objected to this scheme and bolted for greener pastures, rather than being treated like one of Grandpa’s Holsteins.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Desert
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Re: All America Bank 1.5%

Post by Desert » Tue Jul 25, 2017 8:50 pm

Yeah, the comparison with a 1 year CD is not relevant. 5-year CD's are typically the sweet spot, with the best combination of yields and early withdrawal penalties.
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pugchief
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Re: All America Bank 1.5%

Post by pugchief » Tue Jul 25, 2017 9:11 pm

jhogue wrote:Dearest Pugchief:

Of course I bonds are for sale right now! You can buy them 24/7/365 at Treasury
Direct.

You used to be able to buy I bonds over the counter at FDIC-insured banks like WaMu and TBTF mega bank JP Morgan Chase, both of which I gather you have some passing familiarity. WaMu also offered some really hot rates on CDs too, just before they went into receivership. Did you get any of those?

Jamie Dimon and his gang of thieves never did make much money on US savings bonds, however, since they carry a 0% expense ratio. Perhaps that is why Mr. Dimon ordered his minions to dump the bank’s advertising for the savings bonds program and focus on more lucrative ventures, such as milking small business accounts they acquired in the fire sale of WaMu assets. I believe I have heard, however, that some of the more pugnacious clients objected to this scheme and bolted for greener pastures, rather than being treated like one of Grandpa’s Holsteins.
Thanks for the bank history lesson. However, you did not answer my question, which I will rephrase to your liking:
Is Treasury Direct now issuing 1-year I-bonds? If not, why are you comparing them [long term bonds] to 1year CDs and T-Bills as if they are similar?
[See Desert's comment above.]
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sophie
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Re: All America Bank 1.5%

Post by sophie » Wed Jul 26, 2017 7:22 am

Pugchief, be nice!

Of course these things (I bonds, CDs, T bills) are not similar and jhogue knows that perfectly well. He's just saying that if you're buying CDs purely for the higher yield, you should consider an I bond instead. That's a reasonable suggestion.

Jhogue, an I Bond isn't automatically more appropriate for a given situation than a CD or T bill. There is a higher bar to selling one especially as time goes on, because the deferred taxes would all be due at the time of sale and you give up future tax deferment on that bond. There is also the little matter of not being able to sell an I Bond at all for the first year.
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Re: All America Bank 1.5%

Post by jhogue » Wed Jul 26, 2017 9:46 am

I don’t quite understand why Desert (and you Pugchief) seem to regard a comparison of an I bond to a 1 year CD for PP cash to be “not relevant” or “ridiculous.” Why is that?

So, here are my calculations for a contest between a 5 year CD (“typically the sweet spot” according to Desert’s post) and a standard-issue I bond. Both securities sold/issued 5 years ago in July 2012. Sources are shown, By all means check my math and data:

5 year CD : July 2012 to July 2017
5 year CD rate at purchase: 1.1% (compounded annually)
Sale price: $1,000.00
Interest: $56.22
Value: $1,056.22 (matures 7/2017)
Source: bankrate.com website: (chart of 6 mo., 1yr., and 5yr. CD rates)
http://www.bankrate.com/banking/cds/his ... 6/#slide=1

I bond : July 2012 to July 2017
I bond rate issue: 07/2012 – final maturity 07/2042 (30 years)
Issue price: $1,000.00
Interest: $72.80
Current interest rate: 1.96% (No early withdrawal penalty. Next reset 1 Nov. 2017)
Value: $1,072.80 (as of 7/2017).
Source: Treasury Direct website:
https://www.treasurydirect.gov/BC/SBCPrice


- Over the last five years inflation has been low. If inflation should ramp up over the next five years, the inflation-protection of I bonds’ resets will really kick in. When that happens I imagine that some CD investors may start kicking themselves for not scooping up I bonds instead.

-I bonds are such a good deal for the middle class that the Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust. That’s $35,000 per year, MFJ. If you can afford more than that for your annual cash contribution to your PP, you ought to think about adding some EE bonds to your savings bond ladder. EE bonds are limited to $10,000 per SSN, for a total of $55,000 per year in US savings bonds. I bonds won’t make you rich, but they do let you sleep at night and avoid the many temptations and pitfalls that come with buying muni bonds or lower quality short term fixed instruments available from government-insured agencies.

If you can afford more than that for the next 30 years, you are definitely into Groucho Marx club territory!
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: All America Bank 1.5%

Post by pugchief » Wed Jul 26, 2017 11:28 am

Sophie & jhogue,
Sorry if my last post came off as snarky or snotty; that was not my intention. I love and respect most everyone here! Was just looking for an answer / trying to make my point.
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Re: All America Bank 1.5%

Post by grapesofwrath » Wed Jul 26, 2017 1:02 pm

Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust.
Sorry, for hijacking this conversation off at a tangent, but the above caught my eye. My wife and I each have personal TD account sand buy I-bonds into each account. Additionally, we also have a trust account at TD, the current trustees of which are both of us. Does this indeed qualify for an additional purchase given we are the trustees ? Wouldn't the limit be 10k per SSN ?
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Re: All America Bank 1.5%

Post by jhogue » Wed Jul 26, 2017 9:29 pm

grapesofwrath wrote:
Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust.
Sorry, for hijacking this conversation off at a tangent, but the above caught my eye. My wife and I each have personal TD account sand buy I-bonds into each account. Additionally, we also have a trust account at TD, the current trustees of which are both of us. Does this indeed qualify for an additional purchase given we are the trustees ? Wouldn't the limit be 10k per SSN ?
I do not have a trust, so I must caution you that I have no personal experience in this area.

Treasury Direct FAQ says:

What is the annual purchase limit for U.S. Savings Bonds?
“Effective January 4, 2012, the annual (calendar year) purchase limit applying to electronic Series EE and Series I savings bonds is $10,000 for each series. The limit is applied per Social Security Number (SSN) or Taxpayer Identification Number (TIN). For paper Series I Savings Bonds purchased through IRS tax refunds, the purchase limit is $5,000 per SSN.”

So, if your trust has its own TIN, that means that your trust can purchase $10,000 worth of I bonds per year.

There was a discussion of this point and other legal questions concerning titling of US savings bonds that you might find useful on bogleheads. I regard Mel Lindauer, who participated in the thread to be the best authority on US savings bonds. He also wrote a series of columns for Forbes that every investor in savings bonds should read. See:
https://www.bogleheads.org/forum/viewtopic.php?t=78341

Hope that helps.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: All America Bank 1.5%

Post by Desert » Wed Jul 26, 2017 10:45 pm

jhogue wrote:I don’t quite understand why Desert (and you Pugchief) seem to regard a comparison of an I bond to a 1 year CD for PP cash to be “not relevant” or “ridiculous.” Why is that?

So, here are my calculations for a contest between a 5 year CD (“typically the sweet spot” according to Desert’s post) and a standard-issue I bond. Both securities sold/issued 5 years ago in July 2012. Sources are shown, By all means check my math and data:

5 year CD : July 2012 to July 2017
5 year CD rate at purchase: 1.1% (compounded annually)
Sale price: $1,000.00
Interest: $56.22
Value: $1,056.22 (matures 7/2017)
Source: bankrate.com website: (chart of 6 mo., 1yr., and 5yr. CD rates)
http://www.bankrate.com/banking/cds/his ... 6/#slide=1

I bond : July 2012 to July 2017
I bond rate issue: 07/2012 – final maturity 07/2042 (30 years)
Issue price: $1,000.00
Interest: $72.80
Current interest rate: 1.96% (No early withdrawal penalty. Next reset 1 Nov. 2017)
Value: $1,072.80 (as of 7/2017).
Source: Treasury Direct website:
https://www.treasurydirect.gov/BC/SBCPrice


- Over the last five years inflation has been low. If inflation should ramp up over the next five years, the inflation-protection of I bonds’ resets will really kick in. When that happens I imagine that some CD investors may start kicking themselves for not scooping up I bonds instead.

-I bonds are such a good deal for the middle class that the Treasury has a limit on how many you can buy: $10,000 per SSN + $5,000 with your annual tax return. You can however get an additional $10,000 in a trust. That’s $35,000 per year, MFJ. If you can afford more than that for your annual cash contribution to your PP, you ought to think about adding some EE bonds to your savings bond ladder. EE bonds are limited to $10,000 per SSN, for a total of $55,000 per year in US savings bonds. I bonds won’t make you rich, but they do let you sleep at night and avoid the many temptations and pitfalls that come with buying muni bonds or lower quality short term fixed instruments available from government-insured agencies.

If you can afford more than that for the next 30 years, you are definitely into Groucho Marx club territory!
jhogue, your case study above is probably accurate if one buys the "average" CD. Don't do that. Buy well above average. As I stated above, the CD market is very unlike the completely efficient treasury market. I have multiple CD's earning 3 percent. When I purchased them the equivalent treasury yields were more than 100 basis points lower. For many folks, the sheer inconvenience of hunting around for unusually high CD rates isn't worth the trouble. For me, it is. It's one of the few ways I can actually juice returns without violating my portfolio rules.
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Re: All America Bank 1.5%

Post by jhogue » Thu Jul 27, 2017 7:09 am

pugchief wrote:Sophie & jhogue,
Sorry if my last post came off as snarky or snotty; that was not my intention. I love and respect most everyone here! Was just looking for an answer / trying to make my point.
Pugchief,

No offense taken.

In fact, I welcome your sharp questioning of my argument. If I can convince you to buy I bonds, I think I could convince anybody. If I can't, there is probably some weakness in my argument.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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