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No I for Me

Michael Flack

OVER THE PAST FEW months, we’ve been inundated with articles touting Series I savings bonds and their 7.12% yield. More than a few HumbleDollarers have written about them, including here, herehere and here. It’s gotten so bad that, if I hear one more mention of Series I bonds, I’m going to scream.

Sure, at first glance, 7% sounds enticing. But after a detailed review, it all sounds like a marketing pitch worthy of Uncle Ron Popeil rather than Uncle Sam.

Series I savings bonds purchased before May 1 are guaranteed to yield 7% for the first six months. But after that, they reset to a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The fixed rate is 0% for the current offering period, so—if you hold the bonds for 30 years—you’ll merely keep up with inflation.

Annual purchases of Series I bonds are limited to $10,000 (plus up to an additional $5,000 if you use a federal tax refund to make a purchase). Since you can’t buy savings bonds through your brokerage account, you have to create a separate financial account for your investment—or two if you want to “max out” this proposition by including your spouse.

And oh, by the way, if you die prior to collecting, make sure your heirs know about your latest investment scheme. Since one of the benefits of Series I bonds is that no interest is paid and therefore no taxes are owed until you redeem them, there’s no 1099 to alert your heirs to their windfall. Think you’re too savvy to let that happen? Well, there’s $29 billion in paper savings bonds that have matured but which the owners haven’t bothered to cash in. We may live in a digital age, but I wouldn’t count on the Treasury tracking down your heirs.

I guess there’s safety in knowing that your $10,000 will keep up with inflation. But to me, it all seems like a giant pain in the neck. I already have too many accounts to keep tabs on. Do I really need one more that has only $10,000 in it? Also, why does the Treasury limit your investment to $10,000? Is it to prevent you from taking advantage of the Treasury or is it to prevent the Treasury from taking advantage of you? It reminds me of those commercials touting the Ronco Pocket Fisherman—”only one to a customer.”

Whoever thought this up at the Treasury should be given a raise: offer an introductory teaser rate, then pay interest equal to the rate of inflation for 30 years, pay this interest on the back end and, if the owner dies in the meantime, maybe never pay it at all.

That’s all I have to say about that. Instead, I’d rather spend my time talking about something a little more lucrative. Still willing to open a new account to put that $10,000 to work? I recommend depositing your $10,000 at tastyworks brokerage for three months. You’ll be rewarded with $500, easily outpacing inflation.

I opened an account a month ago. In two months, I’ll be $500 richer. But in the meantime, maybe I should let my wife know the details—just in case.

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mjflack
mjflack
8 months ago

Update: Just closed out my Tastyworks account and had my $500 reward transferred into my savings account.

Tooney
Tooney
11 months ago

More fun with I-bonds: The need for some to get signature guarantees to create or manage Treasury Direct accounts: See post and comments at Finance Buff blog Where to Get a Signature Guarantee for I Bonds at TreasuryDirect (thefinancebuff.com)

David Lamb
David Lamb
1 year ago

Agreed!

mjflack
mjflack
1 year ago
Reply to  David Lamb

David Lamb, I agree!

Olin
Olin
1 year ago

This article brings out some very valid points. If one is an executor of an estate and unsure if the deceased held any I bonds, perhaps due to misplacement of records, is there a way to verify with the Treasury if the person owned any I bonds? The MUD situation could be a great concern.

Tooney
Tooney
1 year ago
Reply to  Olin

Should be treasuryhunt dot gov

Olin
Olin
1 year ago
Reply to  Tooney

Thanks Tooney for the helpful link.

Tooney
Tooney
1 year ago
Reply to  Olin

Try Treasury Hunt service at treasuryhunt @ gov
Says it works for savings bonds, I’m not sure about I-bonds

Bob Drake
Bob Drake
1 year ago

If I hear one more mention about opening up a brokerage account for the signup bonus, whilst the real “investment ” returns are in credit card sign up bonuses….. HEY you kids get off my lawn!!!

mjflack
mjflack
1 year ago
Reply to  Bob Drake

Bob Drake, I like the way you think!

johntlim
johntlim
1 year ago

Warren Buffett recently told Becky Quick that he recommends I bonds.

mjflack
mjflack
1 year ago
Reply to  johntlim

Johntlim, thanks for your comments and please reply with the link.

Kevin Knox
Kevin Knox
1 year ago

TipsWatch blog had a great post about this the other day:

https://tipswatch.com/2022/02/22/should-the-treasury-raise-the-i-bond-purchase-cap-to-100000/

I appreciate that he details the history of iBonds, which only goes back to 1998. There are a bunch of very wealthy posters on the Bogleheads forums who routinely bought 30K per person per year of iBonds early on (and charged them to their mileage reward credit cards!).

I agree that at 10-15K a year iBonds are either not worth or barely worth the hassle but I like the author’s proposal of going back to 30K a year purchase limits AND indexing increases in the limit to inflation. Have to say I also agree with the WSJ editorial authors that 100K would be even better and that the government ought to share in the pain of the policies it inflicts but neither of these ideas are likely to gain much traction.

mjflack
mjflack
1 year ago
Reply to  Kevin Knox

Kevin Knox, thanks for your comments and the link.

Jamie
Jamie
1 year ago

The nay-sayers are missing the point. We’re advised to have emergency savings equal to X months of our expenses (the number of months varies depending on who you ask). Series I savings bonds are the perfect place to keep these savings. The interest rate paid matches the inflation rate, so your money cannot erode in value over time. There is no default or bankruptcy risk. Federal taxes are not owed until the money is withdrawn. State taxes are exempted. The money can sit in the investment for 30 years. It is easy to sell and transfer the $ to your bank account. Downsides? There is an annual investment limit and there are restrictions on withdrawals during the first 12 months, so you have to be “thoughtful” in how you build up your emergency savings using Series I savings bonds over multiple years.

mjflack
mjflack
1 year ago
Reply to  Jamie

Jamie, all valid points. Though you didn’t mention all the money that the Treasury has made off of “investors” who have forgotten about their money and have now given it to the U.S. Government. There is a lottery component to all this, that has the middle class funding the US Government, that I just don’t like.

Sabine Nooteboom
Sabine Nooteboom
1 year ago

I think you all may be (sort of) missing the point. US Savings Bonds (I and EE) are intended for middle class folks who want to save risk-free for the long term. Raising the annual minimum on I-bonds to $100K would make them just another benefit that helps the wealthy more than the remaining 90%. I‘m quite happy with the $30K in I-bonds our family can buy each year ($10K for me, $10K for my spouse, $10K for our revocable trust). Once the accounts are set up annual purchases are simple (just be sure to list a beneficiary or joint owner on the individual accounts). We can even transfer bonds from our individual accounts to the trust account occasionally (when balances get high) if we like.

I-bonds are a great, risk-free way for young people to save for a house they‘d like to purchase in five years……..

mjflack
mjflack
1 year ago

Sabine Nooteboom, you may very well have a valid point about saving for a house, though you went too far with the making “them another benefit that helps the wealthy”. The government has tilted the entire playing field when it comes to helping the rich, but then in an effort to right all the wrongs (tax code, the justice system, education, health care, etc.) your Congressman throws the rest of us the I Bond bone? I don’t think so.

Last edited 1 year ago by mjflack
mjflack
mjflack
1 year ago
Reply to  mjflack

As a follow up to my previous reply, The link provided by Kevin Knox (see above) mentions that “My initial thought, however, is that raising the purchase limit to $100,000 temporarily would be a financial windfall for more wealthy Americans, allowing a couple to sock away $200,000 earning 7.12% interest as a short-term investment. Would these wealthy investors jump into — and then out of — I Bonds when yields fall in the future? Very likely.”

This helps confirm my argument that those I bond investors that are not wealthy will jump in and then not jump out, allowing the US debt to be partially financed by these non wealthy owners of I bonds.

Tooney
Tooney
1 year ago

Thanks for the post. I agree. Every time I read articles and posts about how to buy I-bonds I laugh. And thanks for posting the link to Treasury’s MUD (matured, unredeemed debt) report. It’s funny, too. $29 billion in MUD, expected to grow to $39 billion in a couple years.

At least when you ordered your Veg-O-Matic from Ron Popeil, you actually got the device “It slices! It Dices!”, instead of MUD.

mjflack
mjflack
1 year ago
Reply to  Tooney

Tooney, thanks for the support. It appears that alot of people are drinking the mud.

Nick M
Nick M
1 year ago

I agree Treasury should send 1099s, rather than people needing to remember them themselves.

However, I’ve resolved all the other issues by keeping in mind 3 simple rules: 1) Keep a list of all accounts, including beneficiary/POD info. 2) Use a password manager to keep everything sorted, and don’t buy paper bonds. 3) Use I-Bonds only where it makes sense, like an emergency fund or the cash portion of a portfolio, that would otherwise get crushed by inflation.

mjflack
mjflack
1 year ago
Reply to  Nick M

Nick M, thanks for your comments. Maybe the Treasury should post something similar on their website.

Ben Rodriguez
Ben Rodriguez
1 year ago

Before reading this, I thought *I* was contrarian. I love the different view point, and they are all fair points. But still, where else are you going to be able to keep pace with inflation on your cash? I’ll be happy to find another answer.

Tooney
Tooney
1 year ago
Reply to  Ben Rodriguez

Interesting concept: being able to keep pace with inflation on your cash. “Inflation” is defined as “a general increase in prices and fall in the purchasing value of money”. Since inflation is a fall in the purchasing power of money, a characteristic of cash is that it loses value during inflation. That disadvantage of cash can be more than offset by other advantages of cash.

If you want to keep pace with inflation, you must invest in something other than cash.

But to consider I-bond accounts as “cash”? I’d hate to have to face an “emergency need for cash” by having to redeem I-bonds from the US Treasury.

mjflack
mjflack
1 year ago
Reply to  Ben Rodriguez

Ben Rodriguez, you make a valid point my friend. Though once you commit your 10 grand to Uncle Sam via the US Treasury website,it is no longer so much cash as another account you have to manage. If you manage it with a keen eye, you may have valid point . . . otherwise Uncle Sam will manage it for you.

Ben Rodriguez
Ben Rodriguez
1 year ago
Reply to  mjflack

Totally fair. Truth is if I died tomorrow I’m not sure anyone would know I had a TD account. 🤷‍♂️

David Powell
David Powell
1 year ago

Thanks for keeping the “personal” in personal finance with this post. Love it.

Some years ago I read a piece by Bud Hebeler (RIP), who wrote how he saved up I Bonds over time for his emergency cash needs. It seems a great fit for that, to avoid erosion of purchasing power over decades of inflation (if we’re so lucky). I still keep some of that savings in the bank, but a lot less than before.

I agree with parkslope’s two points about TreasuryDirect.

mjflack
mjflack
1 year ago
Reply to  David Powell

David Powell, remember the Robin Williams’ line in Good Will Hunting? “Personally… I don’t give a shit about all that, because you know what, I can’t learn anything from you, I can’t read in some fuckin’ book. Unless you want to talk about you, who you are. Then I’m fascinated. I’m in”. And that is why I read (and write for) the Humble Dollar.

Last edited 1 year ago by mjflack
wtfwjtd
wtfwjtd
1 year ago

While we’re piling on here, I’ll add another beef. Once the bonds have matured after 30 years, tax is due and payable on the interest in the year the bonds reach final maturity. For those close to retirement age who hold bonds that are maturing, this amounts to (yet another) RMD–and more complexity and potential tax headaches to plan around. Grrr.

Last edited 1 year ago by wtfwjtd
mjflack
mjflack
1 year ago
Reply to  wtfwjtd

wtfwjtd, very good point. I always thought that the Humble Dollar was about simplifying . . . not complicating.

Guest
Guest
1 year ago

The WSJ Opinion page today has a thoughtful piece that includes a recommendation that the max I-bond purchase be raised temporarily from $10k to $100k. If that happens, then I’ll be very interested. At the current $10k/$15k max, no thanks.

mjflack
mjflack
1 year ago
Reply to  Guest

Guest, thanks for your comment. If I ran the U.S. Treasury I’d permanently raise it to $100k for everyone and to $1 million for everyone 80 or older.

parkslope
parkslope
1 year ago

Tastyworks’ pitch is what I would call a teaser as opposed to the interest rate for I bonds which is a composite rate that the Treasury doesn’t publicize.

TreasuryDirect makes it very easy to open an account and it is simple to include one’s treasury account in the list of financial accounts that one should make easily accessible to one’s heirs.

mjflack
mjflack
1 year ago
Reply to  parkslope

parkslope, thanks for your comments. You can call it a teaser. I’ll call it $500 in my pocket (or 150 Bud Lites in my friend’s bellies). The best cons require a certain amount of effort from the mark (opening a separate account with the Treasury), but then after that, make it rather straightforward.

Harold Tynes
Harold Tynes
1 year ago

1099’s are provided on matured bonds per Treasury regs. The matured value is then moved into a non-interest bearing account. If one chooses not to pay the tax, I would guess the IRS will send you a notice for interest and penalties in a few years. I bought quite a few Ibonds in the 2000-2001 time frame. Treasury allowed you to purchase with a credit card and I received a rebate on card purchases. Those bonds are now yielding 9-10%. I bought more last year and this year for the 7% yield.

mjflack
mjflack
1 year ago
Reply to  Harold Tynes

Harold Tynes, good job buying back in 2000-2001. If the Treasury would still allow me to buy via credit card (for a 2% kickback to fund my next Hawaiian vacation), it might make this scheme a little more palatable. But hey, that 500 bucks from tastyworks sounds even better.

R Quinn
R Quinn
1 year ago

I agree 100% much flap about little. That 7% is bait. I used to have a Treasury account and bought bonds through it. Then I realized as you mentioned, who is going to find it and know how to access – even with final instructions. I closed it.

Now I’m in the process of cashing in years of matured bonds from payroll deductions. Still a bit of a pain at the bank.

If I’m not mistaken if you don’t cash in a matured bond you are supposed to pay the tax on the interest anyway after maturity. I bet that isn’t happening.

mjflack
mjflack
1 year ago
Reply to  R Quinn

R Quinn, thanks for the comments. So the Feds expect you (or your heirs . . . or their heirs) to pay taxes on the interest you don’t collect? Ahhhh, that’s priceless.

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