Series I Savings Bonds at 7.12%

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Lemur
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Series I Savings Bonds at 7.12%

Post by Lemur »

Ran across this scrolling the Reddit Financial Independence threads and thought I would provide some information...

https://www.treasurydirect.gov/indiv/re ... uy.htm#how
NEWS: The initial interest rate on new Series I savings bonds is the second-highest ever: 7.12 percent. You can buy I bonds at that rate through April 2022.
Quick & Easy Rules to withdrawing:
  • Can't withdraw for 1 year
  • Between 1 year and 5 years, withdrawing loses the last three months of interest
  • 5+ years - no penalty
Also the interest that your savings bonds earn is subject to federal income tax, but not to state or local income tax. Reported on 1099-INT. The interest rates on the bonds are based on a fixed rate + an inflation rate. The latter changes every 6 months.

This could provide a useful risk-free vehicle if you've some cash that you want to protect from inflation but don't want to deploy anywhere else. Maybe can also be used to cover some sequence of returns risk.

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unemployable
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Re: Series I Savings Bonds at 7.12%

Post by unemployable »

XOM's yielding 5.4%, so to beat that it has to go up about $1.17 in the next year. MO can even go down and beat it.

My I bonds that I bought in 2001 will be over yielding over 10%!

Optimal_Solution
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Re: Series I Savings Bonds at 7.12%

Post by Optimal_Solution »

I-bonds currently have a nice return and I think it unlikely that bank accounts will be matching that APY for a while.

The bummer is that a married couple is limited to purchasing $25k per year (10k per individual + 5k via tax return refund).

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Ego
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Re: Series I Savings Bonds at 7.12%

Post by Ego »

Lemur wrote:
Tue Nov 02, 2021 8:49 pm
The interest rates on the bonds are based on a fixed rate + an inflation rate. The latter changes every 6 months.
I believe the fixed portion is 0% and the 7.12 % is based on the variable portion, so the rate has the potential to change significantly.

2Birds1Stone
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Re: Series I Savings Bonds at 7.12%

Post by 2Birds1Stone »

Optimal_Solution wrote:
Thu Nov 04, 2021 11:03 am
The bummer is that a married couple is limited to purchasing $25k per year (10k per individual + 5k via tax return refund).
Still a good move for most, if one has the funds laying around, you could fund $45k MFJ pretty quickly by buying now and in January, and then at tax time. For most people on an ERE budget, that would alone represent a decent chunk of their nest egg.

white belt
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Re: Series I Savings Bonds at 7.12%

Post by white belt »

Ego wrote:
Thu Nov 04, 2021 1:34 pm
I believe the fixed portion is 0% and the 7.12 % is based on the variable portion, so the rate has the potential to change significantly.
This is correct, although one advantage of I Bonds is that the fixed rate can never go negative, unlike TIPS.

Basically TIPS and I Bonds perform similar roles in providing low-risk inflation protection. They each have associated pros/cons.

Source: https://www.bogleheads.org/wiki/I_Bonds_vs_TIPS

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unemployable
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Re: Series I Savings Bonds at 7.12%

Post by unemployable »

white belt wrote:
Thu Nov 04, 2021 3:53 pm
This is correct, although one advantage of I Bonds is that the fixed rate can never go negative, unlike TIPS.
The overall payment can also never go negative, if your fixed portion is nonzero.

TIPS never have a negative coupon, although they can trade enough over par that the effective nominal interest rate is negative, as is the case currently.

Salathor
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Re: Series I Savings Bonds at 7.12%

Post by Salathor »

Can you buy one in an IRA? The idea of locking myself into matching inflation and losing 10-25% of that to taxes isn't very appealing.

2Birds1Stone
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Re: Series I Savings Bonds at 7.12%

Post by 2Birds1Stone »

No you can't. But the interest is taxable upon redemption.

Married2aSwabian
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Re: Series I Savings Bonds at 7.12%

Post by Married2aSwabian »

Optimal_Solution wrote:
Thu Nov 04, 2021 11:03 am
I-bonds currently have a nice return and I think it unlikely that bank accounts will be matching that APY for a while.

The bummer is that a married couple is limited to purchasing $25k per year (10k per individual + 5k via tax return refund).
We will definitely be maxing this out next year…already did so this year. How does the $5k tax refund work? I thought it was a straight $10k max per person. Additional for MFJ?

We cashed some I bonds (and EE bonds) in Aug to help pay for our daughters tuition…many of those were from mid 90s with high rates.

Fun fact: the interest earned on them is tax free if used to pay for college tuition! That was reason for our cashing some out early.

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Chris
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Re: Series I Savings Bonds at 7.12%

Post by Chris »

Married2aSwabian wrote:
Wed Nov 17, 2021 9:03 pm
We will definitely be maxing this out next year…already did so this year. How does the $5k tax refund work? I thought it was a straight $10k max per person.
The limit for direct purchase (electronic) is $10k per person. But you can also elect to receive your federal tax refund in the form of paper I Bonds. It's a max of $5k, and is separate from any bonds your purchased electronically. To get the max, you'll need to have a refund due of at least that amount. You can force a refund by making a large estimated tax payment during the tax year.

More info in the instructions for IRS Form 8888.

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unemployable
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Re: Series I Savings Bonds at 7.12%

Post by unemployable »

Oooooh, I have a collector's item!

Image

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