Is this worth it U.S, Government Treasury is currently offering 7.12%
invite response
2021 Dec 12, 7:55pm 1,627 views 20 comments
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1
Patrick
2021 Dec 12, 8:07pm
Patrick
2021 Dec 12, 8:07pm
If that's for real, then you could in theory borrow for much less and buy those for risk-free earnings.
2
B.A.C.A.H.
2021 Dec 13, 7:41am
B.A.C.A.H.
2021 Dec 13, 7:41am
Patrick says
It's for real. The 7.12% rate is for six months, then adjust again and readjust every six months.
If that's for real
It's for real. The 7.12% rate is for six months, then adjust again and readjust every six months.
3
Patrick
2021 Dec 13, 7:58am
Patrick
2021 Dec 13, 7:58am
I have a Treasury Direct account already. I will try to log in this evening and max this out if I can. The max would be:
10000 / 0.0712 = $140,449 invested
Maybe there's some catch, like this being a "loss leader" to get your money trapped for 30 years at 0% interest otherwise.
10000 / 0.0712 = $140,449 invested
Maybe there's some catch, like this being a "loss leader" to get your money trapped for 30 years at 0% interest otherwise.
4
B.A.C.A.H.
2021 Dec 13, 8:57am
B.A.C.A.H.
2021 Dec 13, 8:57am
Patrick says
No. I have been buying these for decades to use as a savings account instead of an FDIC insured bank deposit.
There's two lock up periods.
1. Cannot redeem for one year.
2. If redeemed before 5 years, forfeit 90 days worth of interest. This is like most FDIC CDs, forfeiting 90 days interest if redeemed early.
The 30 years you cite is when they stop accruing interest.
Regarding the interest, it's an accrual, not a payment. (Sort of like a zero coupon bond). This means the interest is tax deferred until redemption. It also means compounding of the interest. Since it's a treasury, no state income tax on the interest.
Because the interest is an accrual, you cannot use a regular stream of interest payments to cover interest payments on money borrowed to finance other investing.
Maybe there's some catch, like this being a "loss leader" to get your money trapped for 30 years at 0% interest otherwise.
No. I have been buying these for decades to use as a savings account instead of an FDIC insured bank deposit.
There's two lock up periods.
1. Cannot redeem for one year.
2. If redeemed before 5 years, forfeit 90 days worth of interest. This is like most FDIC CDs, forfeiting 90 days interest if redeemed early.
The 30 years you cite is when they stop accruing interest.
Regarding the interest, it's an accrual, not a payment. (Sort of like a zero coupon bond). This means the interest is tax deferred until redemption. It also means compounding of the interest. Since it's a treasury, no state income tax on the interest.
Because the interest is an accrual, you cannot use a regular stream of interest payments to cover interest payments on money borrowed to finance other investing.
5
SunnyvaleCA
2021 Dec 13, 11:19am
Is there any way to purchase these without going to Treasury Direct website? I would be much more convenient to use my existing bank or stock broker account.
6
zzyzzx
2021 Dec 13, 11:22am
zzyzzx
2021 Dec 13, 11:22am
SunnyvaleCA says
No. And the 10K annual limit is somewhat limiting.
Is there any way to purchase these without going to Treasury Direct website?
No. And the 10K annual limit is somewhat limiting.
7
B.A.C.A.H.
2021 Dec 13, 12:22pm
B.A.C.A.H.
2021 Dec 13, 12:22pm
zzyzzx says
10K per social security number. It means a married couple can get 10K each
the 10K annual limit is somewhat limiting.
10K per social security number. It means a married couple can get 10K each
8
fdhfoiehfeoi
2021 Dec 13, 1:08pm
fdhfoiehfeoi
2021 Dec 13, 1:08pm
KgK one says
As long as you can collect. Given everything that's happening in the world, that is a pretty big if...
Is this worth it U.S, Government Treasury is currently offering 7.12%
As long as you can collect. Given everything that's happening in the world, that is a pretty big if...
9
Patrick
2021 Dec 13, 1:29pm
Patrick
2021 Dec 13, 1:29pm
B.A.C.A.H. says
That is very important in high-tax California, though I don't know how long I'll stay here.
Since it's a treasury, no state income tax on the interest.
That is very important in high-tax California, though I don't know how long I'll stay here.
10
EBGuy
2021 Dec 13, 4:33pm
Just to be clear on taxation, the product offers a couple of options (which could be helpful if you want to defer taxes until retirement).
Income tax applies at the federal level, but not the state and local levels. Report interest on your federal return either every year or for the year when the first of these things happens: the bond matures, you cash the bond, or you give up ownership of the bond and it is reissued.
Income tax applies at the federal level, but not the state and local levels. Report interest on your federal return either every year or for the year when the first of these things happens: the bond matures, you cash the bond, or you give up ownership of the bond and it is reissued.
11
Hircus
2021 Dec 13, 4:58pm
Hircus
2021 Dec 13, 4:58pm
from https://www.kitces.com/blog/federal-series-i-savings-bonds-inflation-712-composite-rate-treasurydirect-compare-fixed-income-investments/?source=patrick.net
Seems like the rate paid out is pretty volatile. But if you only need to hold for 1 yr before selling, and we know the 7% is good for ~5mo until it gets updated in april 2022, it sounds like a decent deal. I guess I would expect the rate to stay elevated for the next 6mo period as well, although maybe not quite so high. I'll guess 4% for the next 6mo period.
If it was 7% until april, and then say, 4% from april to nov, and then whatever for 1 more month until you can sell in dec, that's an average of about 5.5% or so. But, forfeiting the last 90 days stings a bit on a short holding period of 1 yr.
So $10k x (7.12% x 5mo) + (4% x 4mo) + (0% x 3mo)
$300.21 + $138.02 + 0 = $438.23
So about 4.4% gain if sold at the 1yr mark.
If we assume the rate stays at 7% for the entire yr
$10k x (7.12% x 9mo) + (0% x 3mo)
= $546.85
Seems like the rate paid out is pretty volatile. But if you only need to hold for 1 yr before selling, and we know the 7% is good for ~5mo until it gets updated in april 2022, it sounds like a decent deal. I guess I would expect the rate to stay elevated for the next 6mo period as well, although maybe not quite so high. I'll guess 4% for the next 6mo period.
If it was 7% until april, and then say, 4% from april to nov, and then whatever for 1 more month until you can sell in dec, that's an average of about 5.5% or so. But, forfeiting the last 90 days stings a bit on a short holding period of 1 yr.
So $10k x (7.12% x 5mo) + (4% x 4mo) + (0% x 3mo)
$300.21 + $138.02 + 0 = $438.23
So about 4.4% gain if sold at the 1yr mark.
If we assume the rate stays at 7% for the entire yr
$10k x (7.12% x 9mo) + (0% x 3mo)
= $546.85
12
B.A.C.A.H.
2021 Dec 13, 5:02pm
B.A.C.A.H.
2021 Dec 13, 5:02pm
Hircus says
I agree. This is why I only use it as an alternative to an FDIC-insured savings account. Those have been paying nothing for years. The ibond has been a bit more than nothing for most of those years, with (as you pointed out) occasional blips.
The ibonds that had a base rate of zero or 0.1% in the past few years are now earning 7.12% (or, for the 0.1% base rate bond, 7.22%). The FDIC insured savings accounts are still paying less than 0.1%.
These are a good alternative for saving, not for investing.
FDIC insured bank deposits and ibonds are good savings for principal protection, not for investing. Another savings tool that others have pointed out on Patrick's blog is gold bullion. FDIC and ibonds on one leg, gold bullion on the other. Again, for saving, not for investing.
Seems like the rate paid out is pretty volatile. But if you only need to hold for 1 yr before selling, and we know the 7% is good for ~5mo until it gets updated in april 2022, it sounds like a decent deal. I guess I would expect the rate to stay elevated for the next 6mo period as well, although maybe not quite so high. I'll guess 4% for the next 6mo period.
I agree. This is why I only use it as an alternative to an FDIC-insured savings account. Those have been paying nothing for years. The ibond has been a bit more than nothing for most of those years, with (as you pointed out) occasional blips.
The ibonds that had a base rate of zero or 0.1% in the past few years are now earning 7.12% (or, for the 0.1% base rate bond, 7.22%). The FDIC insured savings accounts are still paying less than 0.1%.
These are a good alternative for saving, not for investing.
FDIC insured bank deposits and ibonds are good savings for principal protection, not for investing. Another savings tool that others have pointed out on Patrick's blog is gold bullion. FDIC and ibonds on one leg, gold bullion on the other. Again, for saving, not for investing.
14
Maga_Chaos_Monkey
2021 Dec 14, 6:35am
Maga_Chaos_Monkey
2021 Dec 14, 6:35am
I got into this last month. You can actually buy up to 15K if you use 5K of your tax return so max 30K/yr/married couple.
If you decide to get out before the 5 year term they claw back the most recent 3 months.
I will probably get out after 1-1.5 years depending on the resets.
If you decide to get out before the 5 year term they claw back the most recent 3 months.
I will probably get out after 1-1.5 years depending on the resets.
16
HeadSet
2021 Dec 14, 1:30pm
HeadSet
2021 Dec 14, 1:30pm
just_passing_through says
So this actually penalizes people who know how to use a W-4?
You can actually buy up to 15K if you use 5K of your tax return
So this actually penalizes people who know how to use a W-4?
17
B.A.C.A.H.
2021 Dec 14, 2:02pm
B.A.C.A.H.
2021 Dec 14, 2:02pm
HeadSet says
Ha! Missing an opportunity is not really like being penalized.
If you wanna game the system for that, make an estimated payment of $5000 for Q4 of 2021. Then they'll owe it back to you on the filing.
So this actually penalizes people who know how to use a W-4?
Ha! Missing an opportunity is not really like being penalized.
If you wanna game the system for that, make an estimated payment of $5000 for Q4 of 2021. Then they'll owe it back to you on the filing.
18
B.A.C.A.H.
2021 Dec 14, 2:04pm
B.A.C.A.H.
2021 Dec 14, 2:04pm
NuttBoxer says
Yeah.
This is the reason for using these instead of an FDIC bank deposit for savings. (The other one being physical bullion).
Those bank deposits haven't been adjusting their rates for inflation. The ibonds do. Albeit, a lame, half-ass under-stated rate of inflation based on hedonics adjusted cpi. But that's more than the banks adjust on our deposits.
I hope you have all adjusted for inflation...
Yeah.
This is the reason for using these instead of an FDIC bank deposit for savings. (The other one being physical bullion).
Those bank deposits haven't been adjusting their rates for inflation. The ibonds do. Albeit, a lame, half-ass under-stated rate of inflation based on hedonics adjusted cpi. But that's more than the banks adjust on our deposits.
19
Maga_Chaos_Monkey
2021 Dec 14, 7:22pm
Maga_Chaos_Monkey
2021 Dec 14, 7:22pm
HeadSet says
B.A.C.A.H. says
B.A.C.A.H. says
At least it's not bitcorn eh?
So this actually penalizes people who know how to use a W-4?
B.A.C.A.H. says
If you wanna game the system for that, make an estimated payment of $5000 for Q4 of 2021. Then they'll owe it back to you on the filing.
B.A.C.A.H. says
for savings
At least it's not bitcorn eh?
Thanks to community member dn90003 for sharing this offer.
About this offer:
How do I buy a Series I bond?
Must register or sign-in to your free TreasuryDirect.gov account and link a bank account.
Electronically: Online via TreasuryDirect (including through payroll direct deposit)
Paper: By mail when you file your federal tax return
Click here to view a Guided Tour
What is a Series I bond? (source)
"A savings bond that earns interest based on combining a fixed rate and an inflation rate."
You may use Series I bonds to:
Save in a low-risk product that helps protect your savings from inflation
Supplement your retirement income
Give as a gift
Pay for education
Click here for more information about Series I Bonds
What interest does an I bond earn? (source)
A combination of a fixed rate that stays the same for the life of the bond and an inflation rate that is set twice a year.
For bonds issued from November 2021 through April 2022, the combined rate is 7.12%