PSA: Federal i-Bonds are returning 3.54% right now

[shaynaatl]

If you have cash sitting in a savings account earning a menial return, you should look into Federal i-bonds. Though the interest rate resets every 6 months, it's currently 3.54% for i-bonds purchased between May '21 and Oct '21. The rate is tied to inflation, so the interest rate will go up if inflation continues to rise.

If you're not familiar with the process- you need to create an account with the US Treasury, and purchase them that way. The purchase limit is $10k per adult per year, and you must hold it for a minimum of 1 year (so basically like a high-earning 1 year CD). There is a slight penalty (3 months of interest) if you sell in less than 5 yrs, but you still come out ahead after the penalty. Minimum purchase is $25. 

Yes, it can be a hassle to have another account to open, but it could be worth it to get that high of an interest rate.

Read more at the Treasury website:

www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm#myself

[ohgillian]

This is interesting. I don't know that I'll do it, but I do plan to read up on it just to know more about what all exists as financial options. Thank you for posting!

[shaynaatl]

Just a follow-up, I was happy with 3.54%. But the rate on I-bonds is jumping to 7.1% starting in November! That rate is valid for the next 6 months. So it's definitely worth looking into if you otherwise keep cash in a low-yield acct. 

[Cappy]

shaynaatl, Thank you! Would this be a good place to park my kiddos savings fund ($ from birthdays/Christmas)? It's not much (around $2k) but right now I just keep it in a Capital One HISA.

[missva]

Thank you for this info! Can the rate also dip?

[archiethedragon]

Oct 13, 2021 14:21:32 GMT -5 missva said:

Thank you for this info! Can the rate also dip?

yes, the rate is updated every 6 months.  But the rate cannot go below zero. 

[jlt19]

Oct 13, 2021 12:31:24 GMT -5 shaynaatl said:

Just a follow-up, I was happy with 3.54%. But the rate on I-bonds is jumping to 7.1% starting in November! That rate is valid for the next 6 months. So it's definitely worth looking into if you otherwise keep cash in a low-yield acct. 

Do you have to wait until November to purchase (not that it's super far away) or does the rate automatically adjust?

[mainelyfoolish]

Oct 13, 2021 13:41:18 GMT -5 Cappy said:

shaynaatl , Thank you! Would this be a good place to park my kiddos savings fund ($ from birthdays/Christmas)? It's not much (around $2k) but right now I just keep it in a Capital One HISA.

If it’s long term savings, then maybe. You cannot cash an I-bond out before one year and if you cash it out before 5 years, you lose 3 months of interest payments.

It looks like the fixed rate for the bonds issued starting in November will probably still be 0% (the interest rate on I-Bonds is a combination of a fixed rate and an inflation adjusted rate) so if in the future inflation goes down to 0% or lower, you may have a period when the bond earns no interest. The interest rates on the I-bonds adjust every 6 months.

[gt7301b]

Oct 13, 2021 14:21:32 GMT -5 missva said:

Thank you for this info! Can the rate also dip?

It can, but since it is based on the inflation rate it seems unlikely to me that it will dip soon.

ETA, I didn't realize the rates are going up to 7.1% in November.

[ohgillian]

Oct 13, 2021 12:31:24 GMT -5 shaynaatl said:

Just a follow-up, I was happy with 3.54%. But the rate on I-bonds is jumping to 7.1% starting in November! That rate is valid for the next 6 months. So it's definitely worth looking into if you otherwise keep cash in a low-yield acct. 

May I ask where you saw that info? I was trying to find it out earlier today, actually, and couldn't figure out where was the right place to look. Thanks again for this - I bought $10k earlier this year to park part of our "car fund" savings, and I'll get another 10k in H's name probably.

[dutchgirl678]

Interesting. I never considered buying an I-bond. I just found this information about the increase in the rate and why it would make sense to buy it at the end of this month:

www.mymoneyblog.com/savings-i-bonds-november-2021-interest-rate.html

[whiskeytails]

Seems like the only way to add a new bank account is to submit via paper. And you have to have the bank notarize it. This millennial doesn’t have a printer.

[just]

Clearly this is reddit, so reader beware ... but some good info in here.

www.reddit.com/r/Bogleheads/comments/q7bzdo/ibonds_rate_set_to_go_up_to_712_annual_yield_on/

[ohgillian]

Oct 13, 2021 18:01:44 GMT -5 whiskeytails said:

Seems like the only way to add a new bank account is to submit via paper. And you have to have the bank notarize it. This millennial doesn’t have a printer.

I definitely didn't have to do anything on paper to set up a treasury direct account earlier this year and to add a bank to it. I think I've read on bogleheads though that sometimes it asks for that and sometimes not?

[kanga1]

Does it make sense to buy now or wait til Nov 1? I got confused reading the reddit thread

[ds1013]

kanga1,
This financial firm says to buy in October and explains why: keilfp.com/blogpodcast/bonus-october-2021-will-probably-be-the-best-month-ever-in-history-to-buy-i-bonds-podcast/

I just found the article in my searching, so I'm not positive - but what they say makes sense.

[ellipsis]

Wow, that government website gave me 2002 pre-dot com bubble vibes. I set up an account (took less than 5 minutes) and transferred $10k. Not too difficult at all.

[niq]

Okay I have two "how to I-bond" questions:

1. If I buy an I-bond on November 1st, it will earn 7.1% interest for the next six months, and then six months from now they'll look at CPI and adjust it, and that process repeats over and over?

2. the "interest" isn't cash that's kicked out, it's added to the value of the bond whenever it matures and/or you redeem it (but there's some penalty if you redeem in the first five years)?

[AdaraMarie]

niq
I have only been researching this since yesterday but I did buy some today.

Whatever rate is in place when you purchase, you get that rate for 6 months and the interest is computed monthly. I think it is added to the balance every month, but I am not certain if that is correct. It is not held until the bond matures, it compounds, but it isn't disbursed untilyou cash in the bond.
The new interest rate is announced May 1 and November 1 of each year but your bond changes every 6 months. If you buy in October, you get the current "May" rate for 6 months and then in April it switches to the "November" rate for the next six months.
The podcast I was listening to that spurred my research said to wait until November to buy but I decided to buy in October instead. This is because if you buy now you get the current, historically high rate and the next expected to be even higher rate. It is a gamble that the current rate is higher than the rate that will be in effect at some point in the future. If you keep it for 30 years it seems very likely that this will be true. If you are going to pull the money out in a shorter time frame it might not be.

Seems like a better deal to move part of my e fund there where it is safe and fairly liquid and gets more than the 0.01-0.25% interest in my other accounts.

[niq]

Oct 13, 2021 14:40:15 GMT -5 archiethedragon said:

Oct 13, 2021 14:21:32 GMT -5 missva said:

Thank you for this info! Can the rate also dip?

yes, the rate is updated every 6 months.  But the rate cannot go below zero. 

Last night I googled historical i-bond yields and it looked like during the great recession they had rates around 1.25-1.75. So basically what you got with a 5 year CD at the time.

I think *right now* CD rates are still in the toilet, which makes i bonds more attractive, even if they drop into the 2s in a year or two?

EDIT in normal times, 10 year treasuries have better returns. No clue how long it will take for things to get back to normal...

[jlt19]

NOT A ZOMBIE

I purchased some pre-November, and I didn't remember when I'd get the 7%, so came back to her to remind myself how it all worked.

I clicked on the Keil Financial partners link above, they have calculated that the May rate could be 7.52%. Which would be awesome for those who bought after Nov 1 (which I did in DH's name).

Anyone else "reading" this the same way? Once (IF) a similar number is confirmed, buying before May will guarantee over 7% for the year?

[missva]

Mar 6, 2022 10:13:30 GMT -5 jlt19 said:

NOT A ZOMBIE

I purchased some pre-November, and I didn't remember when I'd get the 7%, so came back to her to remind myself how it all worked.

I clicked on the Keil Financial partners link above, they have calculated that the May rate could be 7.52%. Which would be awesome for those who bought after Nov 1 (which I did in DH's name).

Anyone else "reading" this the same way? Once (IF) a similar number is confirmed, buying before May will guarantee over 7% for the year?

I'm reading it the same way, and I'm about to move some cash over.

[shaynaatl]

Mar 6, 2022 10:13:30 GMT -5 jlt19 said:

NOT A ZOMBIE

I purchased some pre-November, and I didn't remember when I'd get the 7%, so came back to her to remind myself how it all worked.

I clicked on the Keil Financial partners link above, they have calculated that the May rate could be 7.52%. Which would be awesome for those who bought after Nov 1 (which I did in DH's name).

Anyone else "reading" this the same way? Once (IF) a similar number is confirmed, buying before May will guarantee over 7% for the year?

Yep, if a similar number is confirmed, you are truly getting over 7% for the year. We max out ($10k each) per year. 

[Pilsy]

I went ahead and purchased $10K. I had been contemplating a CD, but the rates are dismal is comparison.

Thanks for the tip!

[jlt19]

Damn, they’re predicting 8.26% as of last week. So happy I have my big meeting with our new financial advisor in mid April!

[jewel]

If I have the cash sitting in savings (and not anticipating needing to use it) is there any reason not to do i bonds? I have as much of our savings at Vanguard as I think I’d like to right now, but I wouldn’t mind getting more than the 0.6% I’m getting on the cash. The money isn’t earmarked for anything - we’d only NEED it in the case of a true catastrophic emergency (and would still have a good amount available outside of the $20k we could max this year).

Basically - are there downsides beyond what if we need the money before a year, and the gamble that we could make more in an investment acct?

[Roc A Bee]

The May rate is 9.62% I’m really considering buying but wondering if I should do so prior to May 1.

[simpsongal]

How long does it tie up your money again? Like 6 months? My mom needs to put some money somewhere and this seems like a good, safe option.
ETA - derp read the answers up thread.  Thanks!

[shaynaatl]

Apr 20, 2022 13:23:08 GMT -5 Roc A Bee said:

The May rate is 9.62% I’m really considering buying but wondering if I should do so prior to May 1.

You can buy an I Bond near the last day of the month (say on May 30) and still get credit for a full month's interest. Note that some bank transfers can take a few days. 

[shaynaatl]

Mar 20, 2022 22:15:21 GMT -5 jewel said:

If I have the cash sitting in savings (and not anticipating needing to use it) is there any reason not to do i bonds? I have as much of our savings at Vanguard as I think I’d like to right now, but I wouldn’t mind getting more than the 0.6% I’m getting on the cash. The money isn’t earmarked for anything - we’d only NEED it in the case of a true catastrophic emergency (and would still have a good amount available outside of the $20k we could max this year).

Basically - are there downsides beyond what if we need the money before a year, and the gamble that we could make more in an investment acct?

No big downsides if you don't need the money before a year. The two most common I-bond complaints seem to be "oh great, another account I have to keep track of" or "not worth the hassle since I'm limited to $10k annually per person".