Any thoughts? I-bonds have a fixed base rate (for life) of 1.2% + variable rate (currently added together give 4.8% APY). I-bonds are required to be held for one year and have an "early withdraw" rate of 3 months interest if cashed before 5 years. CD rates are less and have shorter terms and may allow higher rates over time....
This is actually more complicated if you really sit and try to compare the two options!
Plus you dont pay state tax on I-Bond interest which can enhance 4.80 to 5.28 if you are in CA. Another advantage is no federal taxes if it is used for educational expenses. Another advantage is that unlike a CD you can control the interest distribution time ( say in a lean year with little income to reduce tax hit)
I live in California. I would anticipate living here for the next few years at least. I have some long term savings I would like to get a better rate on... is what you are saying is that if I put the $$ in an I-Bond I avoid all state and fed tax on the gains until I cash it... at which point maybe I will live back in FL (no state tax) and avoid state tax all together? That seems like a good deal.
There's no state or local income tax on savings bonds period and you would defer federal income tax until you cash them in(or avoid tax altogether if you qualify for tax free use of them for higher education).Savings bonds linky
Even though the I bonds are variable if you look at their history they seem to beat cd rates. Since they pay much better than most 5 year cds they offer some flexibility if you need to pull the money before 5 years. I think this is a no brainer. Think of the people that bought I bonds a few years ago and are pulling 7% or slightly higher,right now. That rate is good for 30 years!!! Once the rates rise they can sell the ibonds and try something else. I thought the max was 30K investment per year on these but the site mentions 30K in paper bonds and /30K in treasury direct (Online) Does that mean 60K total can be invested?
manish22 said:Plus you dont pay state tax on I-Bond interest which can enhance 4.80 to 5.28 if you are in CA. Another advantage is no federal taxes if it is used for educational expenses. Another advantage is that unlike a CD you can control the interest distribution time ( say in a lean year with little income to reduce tax hit)
Just want to add that there's an income limit for educational expense-based interest exclusion (and the qualifying expenses are only for post secondary, like college etc.). Married filing jointly it's $89K something for 2004 when it starts to phase out and $119K or so when it's completely phased out. So if you earn a lot or don't have a almost-college-age kid, don't count on interest exclusion.
Thanks for the discussion and the computation here. Living in SoCal, I'm debating where to put a chunk of money -- 4.8% i-bonds or 6% 5yrCD at Golden1 CU. I'm learning about CDs now, about how the interest is taxable even as it compounds during the 5yr period to get the 6%apy rate. That is not quite as attractive as the 4.8%apy of i-bonds that are tax-free at state/local level. I am not able to take advantage of the tax-free federal angle (using i-bonds for education), unless I decide to get busy working on a post-grad degree at 61. Not likely. Thanks for helping me to work out which is the better direction for me to lean with a lump sum that is wasting time at 1.5% USAA savings now.
I think I'll get busy buying i-bonds at TreasuryDirect.gov -- and thank you for your help. -Zer
I own both ibonds and CDs and I am confused by the question.. They're different, one can't be better than the other - they have entirely different terms.
I would use CDs when locking the rate over X time makes sense, and I use the ibonds or eebonds when i'm floating ongoing money. Although since the CC purchase option died I haven't bought any savings bonds.
Clarify, please, what you mean by "CC purchase option died" and how that made savings bonds less attractive. Thanks. -Zer --- manuel said:I own both ibonds and CDs and I am confused by the question.. They're different, one can't be better than the other - they have entirely different terms.
I would use CDs when locking the rate over X time makes sense, and I use the ibonds or eebonds when i'm floating ongoing money. Although since the CC purchase option died I haven't bought any savings bonds.
you used to be able to buy savings bonds online using a credit card, and people would earn rewards from the credit card. They stopped that a while back.
louedwards said:honestly, i would put it into a Real Estate Investment Trust (REIT). the way the market's going, you can easily get 10% returns.
my REIT got about 30% returns last year.
In the gogo days of the 1990s(overheard at a party)
I made 30% on a stock this month (guy #1) I made 30% this week (guy #2) I made 30% today daytrading (guy #3)
real estate has been hot. To count on easy returns going forward with no breaks? Over time there have been many times where real estate falls completely out of favor. Most are not involved with the residential housing market (commerical property mostly.
didYOUsearch said:you used to be able to buy savings bonds online using a credit card, and people would earn rewards from the credit card. They stopped that a while back. Ah, yes, I did see a note to that effect at TreasuryDirect.gov but it was over before I got a grip on how TD works. I'm now linked up for regular purchase through EFT. Thanks for explaining Manuel's comment. -Zer
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