Comments on: Series I bonds versus bank CDs

by: Dan

Mon, 05 Jun 2006 18:49:23 +0000

Uve,

I'll be more than happy to hype I-bonds for you!

The thing I think most people overlook is that, after the 1-year mandatory holding period, savings bond money in a Treasury Direct account is just as accessible as money in an hi-yield online account like ING, but with tax-deferral that can be stretched out as far as thirty years.

The way I look at I-bonds is (after the initial 1-yr holding period) they are the PERFECT place to make regular contributions toward the 3-6 months of emergency money that seems to be universally recommended.

Think about it: We're advised to have our emergency money in an easily accessible account and in an investment that's uber-safe. And where else can you satisfy both of these requirements AND (1) defer federal taxes; (2) eliminate state taxes; (3) greatly reduce inflation risk; (4) require as little as $25 per purchase; and (5) yield returns that (on average) rival CD's?

So what if the current 6-month rate is near 2%? For the year an I-bond purchased last November averages out over 4%, which is close to (if not better than) 1-yr CD yields that were available at the time.

And if you contribute regularly, then when an emergency (or a better investment opportunity) does happen, you can chose to redeem the lowest fixed-rate of your I-bonds first. If they're never needed, you can leave the higher fixed-rate of your I-bonds gaining interest tax-deferred for 30 years. What CD or savings account is gonna do that for you?

by: Tom Adams

Sat, 03 Jun 2006 04:58:32 +0000

Uve - You're being a little hard on yourself and America.

For the reasons explained in the above post, I bonds continue to be a decent investment. Sure the low level of the inflation component is a disappointment, but it's only for six months. Meanwhile, the 6.73% you've already earned was a very high rate.

No one makes any commissions or fees from selling Savings Bonds, so you leave us wondering who hyped Savings Bonds to you or what incentive they'd have to do so.

by: Uve Jerzy

Fri, 02 Jun 2006 00:40:00 +0000

I must not be a sophisticated enough investor. I read the relatively recent hype about I-Bonds and the then 6.73% rates and how good of an investment that was. I also attempted to understand just how that rate was determined. I guess I must just be too stupid to figure out that the rate can drop to less than what my checking account offers, and far less than could be obtained with CD's.

Stupid me - but it would be nice if those that hype these crap investments also had to disclose, in an honest manner and in plain English, just what the downside is.

Ah, but this is America, home of the financial analysts who have collectively lost contact with the concept of honest and meaningful disclose.

So now I am stuck with tens of thousands in this completely underperforming asset. And they say Lay and Skilling and the Enron gang were crooks!