Any weird gotchas with I-Bonds?

[Doppel]

Clark Howard was mentioning these today, purchased at http://www.treasurydirect.gov/ . They are inflation adjusted and at this time for example have a return of 4.6%. CDs right now have the same pathetic rate as savings accounts (closer to 1%). There is a $5k limit per year on these and a penalty if taken out prior to five years, but it's only 3 months of interest so not the end of the world. The rate can change a couple times/year from what I can tell.

Given the strong return here from a reliable investment, is there any reason for a person not to contribute to one of these from an account that would otherwise be liquid savings sitting around?

 

[arcenite]

If you have to ask...

 

[Elbryn]

Clark Howard was mentioning these today, purchased at http://www.treasurydirect.gov/ . They are inflation adjusted and at this time for example have a return of 4.6%. CDs right now have the same pathetic rate as savings accounts (closer to 1%). There is a $5k limit per year on these and a penalty if taken out prior to five years, but it's only 3 months of interest so not the end of the world. The rate can change a couple times/year from what I can tell.

Given the strong return here from a reliable investment, is there any reason for a person not to contribute to one of these from an account that would otherwise be liquid savings sitting around?

you can only purchase 10k total a year per ssn. 5k in electronic, 5k in paper bonds. they rate changes 2x a year. you'll have to confirm but i believe it's in nov and may. interest is determined by 2 pieces, the fixed rate (0% these days for the most part) and the inflationary rate. add them together for the total rate. no matter when you buy them, you get 6 months of the prevalent rate at the time and you always get the full month's interest no matter when you buy. ie: you buy oct 28th, you get all of oct interest and you get 6 months of the standing rate at the time before switching to the next rate.

rates can fluxuate. basically, it's a vehicle to keep you money at the same rate as inflation.

benefits- you're not taxed until it's taken out, if taken out for educational purposes they are tax free.

if you believe you might have to take money out, buy several sets of lower denomination bonds so you dont eat the penalty on one large chunk.

 

[dud]

The most obvious concern I would have is if the Government defaults ... but if that happens were in major trouble anyway.

 

[SP33Demon]

If just storing cash as an alternative to the market then it's good. But let's not act like it'd be better than decent mutual fund (many will get you > 5% a year).