Series I Bonds: Buy before November 1st or wait?

[sophie]

I haven't bought my annual aliquot of I bonds yet, and it's time for the semiannual game of "Guess that Fixed Rate."

If the fixed rate is any way reflective of long bond rates, instead of just the whim of the Federal Reserve, then I would guess there's a good chance that the current 0.1% will return to zero, and I should buy before November 1.  Otherwise it's a random guess...maybe buy half before and half after.

Anyone else considering whether to buy now or wait?

[dualstow]

{Aliquot, what a great word! Before I looked it up, I thought it was a cousin of a kumquat}.

If I weren't gagging on the chemicals from my wife's nail polish right now, I could remember what I wanted to say....
Oh, yes: I haven't bought iBonds for this year either. My decision is partly made for me, being low in plain old cash, post renovation. I may even have to sell some short-term notes to fund retirement contributions.

I think if I did have cash, though, I would just keep buying 3-year notes.  I might not buy I-Bonds for a few years, and I won't miss them (I think).

[barrett]

Any I-Bonds I bought after January of 2009 have yields that are just so puny that I cant get excited about them. I guess I might still be buying them if I wasn't too loaded up in deep cash (and too light in proper dry powder).

Question for you Sophie... Do you prefer the I-Bonds to EEs at this point? If so, why? Thanks.

[sophie]

Interesting!  So it sounds like the I Bond score card is:

Dualstow:  I Bonds 0, 3 year treasuries 1
Barrett:  I Bonds 0, EE bonds 1

Barrett:  I'm a bit unsure about EE bonds because they're essentially a bet that interest rates won't go much higher than 4% over the next 20 years.  That's too long a time frame, and if you have to sell early you get rates hardly better than a 6 month T bill in return for locking your money up for years.

Dualstow - getting ready for the next big market crash are you?  I bond yields currently are about double that of 3 year treasuries, plus there's the tax deferral.  How come you're favoring the 3 year treasuries?  They're not as "deep" as I Bonds true...

[dualstow]

Dualstow - getting ready for the next big market crash are you?  I bond yields currently are about double that of 3 year treasuries, plus there's the tax deferral.  How come you're favoring the 3 year treasuries?  They're not as "deep" as I Bonds true...

The not as deep aspect is the ony reason. I just can't afford to have deep cash this year, unless I suddenly come into some windfall.
In fact, I'd probably be likely to copy you or Kevin or Rickb if I had my druthers, rather than make up my own mind.

I suppose I should just buy t-bills or use a money market for now. Yuck.

[dualstow]

For those of you who can afford deep cash and are buying I-Bonds, is anyone keeping an eye on CD rates?
I'm asking because CDs keep popping up in boglehead threads.

[barrett]

Sophie, I wasn't voting in favor of EE-Bonds. I was just hoping you might do my thinking for me.

I probably won't be a buyer of savings bonds for at least a few more years. For years I bought as many as I could afford as deep cash before I knew what deep cash was. And, I have to admit, that I liked the idea of deferring tax but never really understood how important it was until doing some reading up, much of it on this forum.

For the next three years I will probably even be a seller of EEs as I have some that are reaching their doubling dates between 2014 and 2016. Being in a lower income bracket at the moment, I am hoping to redeem those over the next couple of years and get that money into my Individual 401(k) Roth (I am self-employed). If I live a long time and this dang PP thing works, that will be a better use of that money.

All that being said, I am just not interested in accumulating savings bonds at the moment because of the way all our assets were configured in the pre-PP era. My wife and I are in sort of an eight-year plan to get everything set up the way we want it.

Dualstow, the way you are doing your tag lines at the end of your posts now reminds me of Kevin Nealon's "subliminal man' bit. I've had Sultans Of Swing circling around my brain all morning and I just can't figure out why.

Hmm, just saw MangoMan's post come in. Pug, what is the minimum investment for the FDIC insured online accounts?

[dualstow]

I think a lot of us would be fine letting Sophie do the thinking for us. :-)

I don't think I would lose sleep over FDIC either, Pug, especially with that high maximum covered. (I hope one day soon I will have to worry about an excess of 250K in cash. High-class problem).

@Barrett  I wonder if many people, including non-pp investors, used to buy I-Bonds in lieu of a retirement account. When I was a lot younger, I did that at my Dad's suggestion. He's mostly into stocks, but cautioned against an all-equity portfolio.

An eight-year plan, wow!

Sophie, I wasn't voting in favor of EE-Bonds. I was just hoping you might do my thinking for me.

I probably won't be a buyer of savings bonds for at least a few more years. For years I bought as many as I could afford as deep cash before I knew what deep cash was.
...
Being in a lower income bracket at the moment, I am hoping to redeem those over the next couple of years and get that money into my Individual 401(k) Roth (I am self-employed). If I live a long time and this dang PP thing works, that will be a better use of that money.

[barrett]

Dualstow,

Regarding the eight-year plan, that's kind of how long it will take us to get our assets into a PP configuration that I really like. That includes getting rid of some housing equity which is wasted investment opportunity (screw quality of life considerations!). I think that to a certain extent the further along one is in life, the longer it can potentially take to get the investment ship turned all the way around. There are not only tax considerations but other people's desires and goals to take into account.

I think one reason I latched onto savings bonds is probably because my dad used to have a stash of them in his junk room/office downstairs. I used to like to take them out and look at them. I still don't have any interest in owning them electronically. It's the fondle factor. They used to also have juicier nominal yields which is still a draw for a weak-minded investor like me.

[sophie]

Dualstow, your dad gave you some wise advice there!

I probably have too much deep cash as well, but I just hate to pass up a year's worth of savings bonds.  They are almost as good as the "fondle factor" - barrett can I steal that phrase from you?  Outstanding!

Ally savings account here, for the "non-deep" cash.  Before Craig jumps in with his usual admonitions against putting complete trust into savings accounts:  I've wondered whether treasuries at, say, Fidelity, are any safer than a bank account, because you have to sell them and then transfer out of the core account, which is sort of like the savings account but without FDIC protection.  So probably just as well to stick with the good old savings account, but hedge by socking some money into Fidelity's Treasury MM (or similar) once you've got that $25K minimum saved up.  That account has checkwriting privileges, so it's about as direct a route to your money as it gets.

I could open that Treasury MM if I eschewed the I Bonds this year, but trading 2% interest for 0% is a tough hurdle to get over.

[sophie]

In a 2008-like event, yes, you would be able to get to your money while enjoying the sight of people with money in "high-yield" MM accounts watching their dollars become less than a dollar, or worse yet, frozen.  Those things actually happened.

What you're talking about is essentially complete collapse of the U.S. government & financial system.  The Treasury account is not intended to protect against that.  That's what your gold coins are for.  See, Harry Browne thought of everything!!!

[barrett]

Sophie,

Feel free to use the terms 'fondle factor' and 'fondle scale.' Gold is highest on the fondle scale, then cash, then savings bonds. I know the last two are just promissory notes but they are still, for the time being at least, stores of value. If I weren't overly deep in cash I might think more seriously about the savings bonds.

I think one thing to consider with T-Bills versus, savings accounts and money market funds is where you are in your investment timeline. If I were retired and living off a conventional PP, I would want that cash mostly in T-Bills. But sometimes not all options are available and you takes what you can get.

[dualstow]

Have you bought?

[sophie]

Decided not to.  Like you, I have too much deep cash, plus some unexpected expenses came up.  Like, got a small bonus and the next day the division chief wandered into my office and basically asked for most of it back, to use for staff bonuses.  Said staff is currently enjoying their weekend while I'm slaving away on the next grant submission.  I hope they're enjoying their free money.

[dualstow]

Oh, that's awful. We need a more polite and accurate term than the racist and grossly inaccurate "Indian giver", something that denotes someone putting a doughnut on your plate and then snatching it away before you can enjoy it. 

[barrett]

Just curious if this rate was announced yet or if they are holding off until Monday. Can't find anything online yet.

[Bean]

I Bond Earnings Rate of 1.48% includes a Fixed Rate of 0.00%

http://www.treasurydirect.gov/news/pres ... atespr.htm

[barrett]

Thanks for posting that, Bean. There must be something wrong with the picture when I look at 1.48% and think "Not bad."

[sophie]

Had a feeling they were going to lower the fixed rate.  So much for the Treasury playing nice to savers.

Too bad I didn't opt to buy.  Compared to savings accounts, Tbills and CDs, 1.48% is indeed a pretty good deal especially when you add in a 0.10% fixed rate, considering that it's free of state & local taxes.

[barrett]

Just to clarify, Sophie, it's a fixed rate of .00% plus 2X the rate of inflation which is .74%. The composite rate is 1.48%.

Also, I'm curious... Has there ever been any talk about a secondary market in savings bonds?

[sophie]

I know if you buy now the fixed rate is 0...the 0.10% would be if you bought before November 1.

No secondary market.  The Treasury Direct site lets you cash savings bonds but I don't see any way to transfer them.  You can buy new ones as gifts, only.