New I Bond Rate 11/1/18 to 4/30/18

[jhogue]

Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.

[pugchief]

Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.

How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.

[Xan]

Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.

How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.

You can cash it out at (just about) any time you like.

[boglerdude]

Whats that term, where you can "pay off" a mortgage by holding bonds of the same amount?

[ochotona]

It's tax deferred, no interest rate risk. Zero duration. It's more like an inflation protected CD.

[Kriegsspiel]

Or a 30 year bond with a pseudo-put option?

[jhogue]

Pugchief,

Do you have a better alternative for deep cash than I bonds?

I can readily imagine that Warren Buffett doesn't bother investing any of his petty cash in I bonds (or bank CDs for that matter). For those of us in more down-to-earth tax brackets, however, I bonds have all the attractions of Treasuries (safety, liquidity, guaranteed yield) with a bunch of other handy features thrown in for free.

[sophie]

Even assuming the Fed increases interest rates again in December, the tax deferral and future inflation protection are very attractive. Unless you figure that a) your future tax bracket will be similar to your current one, and b) you expect that T bills or bank CDs will do as well as I bonds in keeping up with inflation. That's not always the case though, and certainly was not until just this past year.

T-bills are still beating the pants off 5 year bank CDs, for those of us with state/local taxes to contend with.

[pugchief]

Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.

How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.

You can cash it out at (just about) any time you like.

After holding for 5 years. Otherwise, there is a penalty of 3 months. And you can't cash it out in the first year under any circumstances. So yeah, maybe if you are certain that you won't need the $ for at least 5 years. Who is that certain?

[pugchief]

Pugchief,

Do you have a better alternative for deep cash than I bonds?

Define deep cash. I can't see locking up my cash for long terms. Too much uncertainty and potential lost opportunity value. I'd rather own a more liquid instrument in exchange for a slightly lower rate. Vanguard Prime MM is paying 2.21%, although granted, it's not tax deferred.

[jhogue]

1. Liquidity preference is, by definition, subjective and personal. There is no second guessing your personal choice for your portfolio, Pug. If ya gotta have it, ya gotta have it.

2. That said, consider this: At some point (hopefully), the HBPP investor’s portfolio grows so large that likely rebalance and emergency fund scenarios are covered. A hypothetical HBPP in the $1 million to $2 million range calls for a Cash position of $250,000 to $500,000. To me, that is a lot of cash! Devoting just one third of that position to “deep cash” in I bonds could raise the annual yield from Cash with very little chance of ever having to redeem an I Bond in order to rebalance a sudden drop in one of the volatile assets.

3. In other words, it is not that your VMMXX @ 2.21% is “wrong” and my I bonds @ 2.83% are “right.” I do think, however, that avoiding I bonds is like leaving free money on the table. I like free money.

[ochotona]

"Deep Cash" is that amount of cash above and beyond what is likely to be needed under the worst likely personal crisis situations. Where only 5% of scenarios would require more cash, for example. It's a guess, it's imprecise.

Because of my job in the crappy oil industry, I have an emergency fund equal to 12 months of expenses. That will always be in the bank and liquid T-Bills and some paper currency. Beyond that is deep cash space.

My oldest I-Bonds is 3.5 years old. At 5, I won't count it as deep any longer.