Anyone heard of I-bond?

[stan394]

I-Bond

I heard that its return is better than a 1-year CD, after considering its tax benefits. I am trying to read up more about it and am just wondering if anyone here has anything to say about this

Things I know so far:
- goverment-issued bond
- interest consists of a fixed rate and a variable component based on CPI
- cannot cash out before 1 year
- have to forfeit the final 3 month of interest if cash out before 5 years
- interest are state and local tax free, and federal tax deferrable.
- can be bought online
- current interest rate (including both component, before tax benefits) is 4.8%

 

[suse920]

I've heard of it and it seems like a fair investment.

 

[DaWhim]

just do your hw before putting your money in it.

 

[mwtgg]

It's 'backed by the full faith and credit of the United States Government'. If the government collapses, your I-Bond will be the least of your worries. That being said, they're a decent and safe investment.

 

[vi edit]

It's a great option for somebody that wants as close to zero risk as you can assume. It also avoids inflation risk because of the variable interest rate.

The tax advantages are that it's only taxible at the federal level. You don't pay state & local income taxes on it, like you might be subject to with other securities.

It's a great way for investors with limited income to invest for future college education and various other mid to long term goals because of the low buy in prices ($50 and up).

It also is a good way for high risk/growth oriented investors to hedge against market risk and interest risk by diversifying in a security that is interest driven and a cash based security.

 

[stan394]

and I heard that if you buy I-bond at the end of the month, you earn the full month of interest. so essentially you are earning double interest if the money you used to buy i-bond comes from an interest bearing account.

 

[konichiwa]

The other tax advantage is that you can choose to either report the tax on the interest you're earning as you earn it, or defer the taxation until you redeem the bond. Allows more flexibility...

Also if you're going to use the bond toward higher-education it can be 100% tax free if you use it in the same year you cash. Not to mention you can buy them on a credit card...can you say skymiles/rewards?

 

[Minjin]

Originally posted by: konichiwa
The other tax advantage is that you can choose to either report the tax on the interest you're earning as you earn it, or defer the taxation until you redeem the bond. Allows more flexibility...

Also if you're going to use the bond toward higher-education it can be 100% tax free if you use it in the same year you cash. Not to mention you can buy them on a credit card...can you say skymiles/rewards?

You can't buy them with a credit card anymore. That deal is long dead.

Mark

 

[stan394]

Originally posted by: Minjin

Originally posted by: konichiwa
The other tax advantage is that you can choose to either report the tax on the interest you're earning as you earn it, or defer the taxation until you redeem the bond. Allows more flexibility...

Also if you're going to use the bond toward higher-education it can be 100% tax free if you use it in the same year you cash. Not to mention you can buy them on a credit card...can you say skymiles/rewards?

You can't buy them with a credit card anymore. That deal is long dead.

Mark

that's what i heard too. too bad

 

[kranky]

Some people are saying the I-bond is going to be a good deal when the new rate goes into effect on Nov. 1 since it will be abnormally high. But having to forfeit 3 months interest if you cash in earlier than 5 years doesn't really appeal to me.

No matter what, I WOULD NOT BUY AN I-BOND BEFORE NOV. 1. Rates are sure to be better.

I agree with vi_edit, a professionally credentialed finance guy , that the I-bond is a good choice for a completely safe investment with some amount of inflation protection. However, if you are young and investing for the long term, it's not a good choice.

 

[konichiwa]

Originally posted by: Minjin

Originally posted by: konichiwa
The other tax advantage is that you can choose to either report the tax on the interest you're earning as you earn it, or defer the taxation until you redeem the bond. Allows more flexibility...

Also if you're going to use the bond toward higher-education it can be 100% tax free if you use it in the same year you cash. Not to mention you can buy them on a credit card...can you say skymiles/rewards?

You can't buy them with a credit card anymore. That deal is long dead.

Mark

Ah well then I recant. I bought quite a bundle on my Amex a few years ago, basically free travel with interest :thumbsup:

Too bad that's gone

 

[vi edit]

They really are a decent option. Putting in even $2500 a year over 18 years with an assumed interest rate of 5%, that's just shy of $73,000 you can use for your kid's college.

If interest goes up to 6%, that's over $80,000 you can use for their education.

It really is a good savings vehicle for lower income people that are hessitant of investing in the stock market and want something *a bit* higher interest earning (plus tax benefits) over a basic savings account

 

[DaveSimmons]

Originally posted by: kranky
Some people are saying the I-bond is going to be a good deal when the new rate goes into effect on Nov. 1 since it will be abnormally high. But having to forfeit 3 months interest if you cash in earlier than 5 years doesn't really appeal to me.

No matter what, I WOULD NOT BUY AN I-BOND BEFORE NOV. 1. Rates are sure to be better.

I agree with vi_edit, a professionally credentialed finance guy , that the I-bond is a good choice for a completely safe investment with some amount of inflation protection. However, if you are young and investing for the long term, it's not a good choice.

Yep, see today's other "invest" thread for discussion of retirement investment in stock-based mutual funds, including posts by vi_edit.

You can, with almost zero _long-term_ risk, earn about twice as much as an i-bonds by investing in mutual funds, but this is investing over many years / decades not months or a year.

 

[vi edit]

You can, with almost zero _long-term_ risk, earn about twice as much as an i-bonds by investing in mutual funds, but this is investing over many years / decades not months or a year.

It just really comes down to goals, time frames, and comfort of *potential* risk.

Even with the training I have, and the tools available to me, I'd still heavily consider something like an i-bond for future college savings over just about any other investment choice.

There are a lot of people that are very very scared of the stock market and still choose to put their money into a savings account at their local bank. This is a better option for that and is further empowered by the tax benefits when used for qualified educational expenses.

Yes you can do a Coverdell ESA for the tax benefits, but then you are back to the market risk that some people aren't willing to chance.