Too good to be true, or a "must buy if you have $10k laying around"?

I just made an account to do just that. Then I started reading that you cannot redeem the bond within the first 12 months, which is fine. But it went on further to say that if you redeem within five years that you owe three months worth of interest as a penalty.

Any other drawbacks?

Kurt Gowdy said:

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I just made an account to do just that. Then I started reading that you cannot redeem the bond within the first 12 months, which is fine. But it went on further to say that if you redeem within five years that you owe three months worth of interest as a penalty.

Any other drawbacks?

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If I'm not mistaken, big thread where this was discussed talked about having to pay taxes on the gains for the years you make the interest, so you'd have to set money aside to pay that.

Not necessarily a "drawback" but something to keep in mind.

ac04 said:

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https://texags.com/forums/57/topics/3284662

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Thank you. I seem to remember it being a thread a while back. I don't anticipate inflation dropping significantly any time soon.

Ag CPA said:

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I'm new to the I-Bond game as well this year but I think that you can elect to defer interest taxes until you cash out the bond.

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You are correct.

I've bought the max $10k for me and the wife the last few years. Seemed like a good time to do that to re-balance my portfolio away from all equities and real estate.

Are these rates expected to increase or decrease in November? Follow up, would it be better to buy right before that or wait until after?

My thought, although I'm not sure if this is the best way to think:
If rates increase, you'll get 6 months at the current rate and then 6 months at the new, higher rate.
If rates decrease, at least you'll get 6 months at the current rate (which I believe is attractive) and then you can suffer through 6 months at the lower rate and cash out wasting 3 out of those 6 months at the lower rate.

The rates aren't fixed when you buy, they're only fixed for a 6 month block.

Current estimate is next rate will be 7%-ish. Not too shabby

Thanks for posting this.

I think inflationary increases will stabilize soon as we've already seen happening (doesn't mean prices will go back down) and these rates will drop significantly. I think buying now you might get a year of good interest, then you'll wish you didn't have them any longer. Early surrender for 3 months interest at that point.

CPI data has been very stable since May ( 292.296, 296.311, 296.276, 296.171). If that holds anywhere close, the November change is going to set interest at 4-5% for next 6 months.

Edit to add:. I would not buy these after November 1... I think the May update next year could get well below 3%, maybe even close to zero). If you want some, between now and November 1 may be your last chance.

Looking online, if I am understanding Treasury direct correctly, there appears to be significant incorrect information about projected rates being written about online (the 7% mentioned above by 1 poster).

The calculation per Treasury direct is the semi annual inflation rate, times 2. For instance, the May 1 rate was March 2022 CPI - September 2021 CPI (287.505-274.310).. Divide that result by the September '21 CPI and you get the 4.81% increase, which times 2 is 9.62.

All these sites I see predicting 7%+ are using annual inflation rates, which isn't correct.

Where we stand today is April CPI is 289.109. So, to get to 7% yield, we'd need 3.5%, or September CPI of 299.228. August was 296.171. That would require a month over month change of historic proportions, while energy costs are going down.

The more likely result is right around 5% when November update occurs.

Feel free to correct me if I'm wrong.

https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm

Think you should be using the March 2022 as the base, not the April 2022 CPI.

Ok.. that would bring the update to 6.2%, assuming 0.4 increase in September (last 3 months have actually had small decreases).

Yeah I'm not saying you're wrong, just that that part of the math was missing. I bought back in April, so I'm still on the November 2021 rate and getting ready to reset to the May 2022 rate. I'd probably continue holding at 5%-7%. If it dropped below 5%, I'd wait 3 months and then cash out taking the <5% months as the penalty.

Didn't take it as you telling me I was wrong.. appreciate your input. I agree with your strategy. To the OP, no, don't wait until November, you should definitely buy now or never in my opinion.

I think the average investor (and many above average) people think the headline inflation number matters and I think many/most don't have what they think they do.

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Careful on how you designate your bank account on these. I bought mine from an account I share with my wife.
After I created minor accounts for my kids, it defaults to the original bank account. But the funds for their bonds are at a different bank via inheritance. I now have to sign a form, get it certified by god knows who, then mail it to Treasury Direct in order to add the new bank account. No clue how long that will take to set up, but hopefully before the November rate reset as I want to buy these in October.

I believe if you buy today they are yielding 9.62%.

Thought this might be of interest:

https://www.cnbc.com/2022/10/04/as-demand-soars-for-series-i-bonds-treasurydirect-gets-a-makeover.html

I messed up with the custodial account process when I bought this for my kids in april. I got an email pretty quickly saying I screwed up and they would be refunding my money within 10 weeks.

Well, here we are 20 weeks later and they still haven't refunded the money. I called, was on hold all morning, just to be told they are working through it.

The entire process is ridiculously outdated.

Brian Earl Spilner said:

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Thank God it doesn't look like it's from 2001 anymore.

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Ha -- you're not kidding. I finally jumped in this past Thursday to buy my first, and was a little taken aback by how dated the website was. I could almost hear the AOL modem connection in my head.

I actually like the website.

For folks that have done the 10k for a child, do you just make a separate account for your child and use their SSN? Anyone had any issues doing so?

Suze was pushing them 3 months ago. Said the only draw back was the 10K limit.

tlh3842 said:

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For folks that have done the 10k for a child, do you just make a separate account for your child and use their SSN? Anyone had any issues doing so?

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You log into your account, then add a Minor Account for each kid you want to buy for using their SSN. That's what I've done, but see my post on the bank account issue as far as funding it.