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Here, I'd like to focus on using savings bonds as an investment...in particular, to replace the conventional "cash" and/or fixed income component of one's investment portfolio.

I've compiled a web page on the subject which I hope some of you will find useful at http://www.dhanson.net/ibonds.htm. Perhaps it can focus our discussion. It contains reasons why I'm sold on savings bonds as investment.

I'm hoping to update this page with suggestions from all of you. My goal is to be able to refer friends and relatives (including investment novices) to it when I'm asked why I like savings bonds.

Questions to start us off:

-Do you agree or disagree with my assessment?
-What would you add as other features of savings bonds worthy of comment?
-How are you using savings bonds in your invesment portfolio?
-What other questions do you consider worth focusing on in this thread?

As of October 2005, savings bonds are the subject of renewed interest at FW finance and elsewhere, as changes in the CPI have made them relatively attractive holdings. For questions specific to strategies of short-term holding of savings bonds in this late 05-2006 environment, see xerty's well thought-out strategy thread here .

It's been a long time since this thread (or my web page) has had a major update. Please offer suggestions for making the OP more useful, and I'll do my best to oblige.

TIA for your thoughts, Dave

NOTE: originally, this thread was a companion to this thread here , which did a fine job of discussing the technique of buying savings bonds for purposes of accruing credit card rewards. But as of 12/31/03, savings bonds can no longer be purchased with a credit card, making the bulk of this discussion obsolete.


Update 8/28/02: August bonds can be ordered through 8/29/02 through 11:59 pm Eastern time.

Go to https://wwws.publicdebt.treas.gov/SD/SBDHome?PROC=SBDHome&button.x=82&button.y=8 for the info.

Update 5/03/02: EE Patriot bonds are now a better deal short term, earning 3.96% vs the 2.57% i-bond return

Update 11/01/02: Once again, i-bonds are a better deal for most buyers, thanks to the increase in the inflation component of i-bonds.

Update 1/15/03: Bonds issued 2/1/03 or later must be held for a minimum of 12 months US Treasury press release on this is here

Update 6/29/03: Last day to buy June bonds is Sunday June 29. Note that terms have changed to allow for purchases of $30K in each of 4 categories per SS#: i-bonds, electronic i-bonds, EE bonds, and electronic EE bonds.

Update 11/13/03: As of November 1, EE Bonds are paying 2.61% ; I Bonds 2.19%.

Update 01/03/04: Purchase of bonds with a credit card officially ended as of 12/31. There are still excellent reasons to buy bonds as an investment, though people should also consider high-yielding CDs at the moment, particularly CDs from PenFed.org that are leading the national averages. See this thread for discussion.

Update 05/03/04:As of May 1, EE bonds pay 2.84%, while I bonds pay 3.39%. The fixed rate component on I bonds dropped to 1% (from 1.1%).

Update 11/03/04:As of November 1, EE bonds pay 3.25%, while I bonds pay 3.67%. The fixed rate component on I bonds stayed constant at 1%.

Update 06/03/05:As of May 1, EE bonds pay 3.50%, while I bonds pay 4.80%. The fixed rate component on I bonds increased to 1.20%.

Update 10/17/05:Updated to incorporate xerty's strategy thread and the renewed interest that savings bonds are seeing from this and similar approaches. Some obsolete material removed, new material added, along with a request for update suggestions.

Update 11/02/05:As of Nov 1, EE bonds pay 3.61%, while I bonds pay 6.73%. The fixed rate component on I bonds decreased to 1.0%.

Update 05/01/06:As of May 1, EE bonds pay 3.70%, while I bonds pay 2.41%. The fixed rate component on I bonds increased to 1.4%.

Update 11/01/06:As of May 1, EE bonds pay 3.60%, while I bonds pay 4.52%. The fixed rate component on I bonds remains at 1.4%.

Member Summary
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I dumped all my I-bonds a few months ago. the 1% base rate bonds stink. But dont feel too badly, Tips buyers are LOSING... (more)

jdopple (Jan. 28, 2007 @ 1:05a) |

fathickory said: <blockquote><hr>My I-bond was purhcased in March/2006 and only earns a fixed rate of 1%. Right now it e... (more)

mariojm (Jan. 28, 2007 @ 9:52p) |

jdopple said: <blockquote><hr>I dumped all my I-bonds a few months ago. the 1% base rate bonds stink. But dont feel too... (more)

mariojm (Jan. 28, 2007 @ 10:16p) |

Direct link to US Treasury Savings Bond site

Cannot find a financial stmt on savings bonds to print out at TreasuryDirect.gov ? Nor can I!
Here's why: TD does not show interest posting dates on savings bonds or provide a detailed stmt of earnings as any other bank or investment company does. [Q]From: Treasury.Direct@bpd.treas.gov
Date:  Jan 3, 2006 12:55 PM
Hi, Interest for savings bonds is always added to the bonds value on the first
day of the month. TreasuryDirect does not break down the interest by
month. It only displays the current value of the bonds.

Electronic savings bonds do accrue interest every month; however, since
electronic savings bonds must be held for five years to avoid a
three-month interest penalty, the redemption value of the bonds will not
reflect any interest until the fourth month following issuance. All our
systems and calculators are programmed to provide the redemption value on
the current date and take into account the three-month penalty.

Once they are four months old, the increase in value will be added on the
first day of every month. If electronic savings bonds are redeemed less
than five years following the date of issuance, the overall earning period
from the date of issuance will be reduced by three months--effectively
subtracting the final three months of interest.

Once the bonds are five years old, the penalty is no longer part of the
equation and the system will reflect the full amount of interest earned
from the date of issue.

Rick Wilson
Customer Service Assistant
Thanks for visiting FatWallet.com. Join for free to remove this ad.

read the webpage. Agree with all your points and also find the I bond to be excellent short term investment (not to mention the CC rewards potential).

With bank interest rates so depressingly low, I bonds are the best "cash" investment there is. However, keep in mind that is only applicable to the last year or so, and the current "atypical" interest rates....we have been able to keep money in the bank at 7% or above for the last 20 years through one kind of account or another...

Thanks for the feedback SIS. You raise an excellent point, too.

How big a chunk are i-bonds in your portfolio? I take it you use them for investment/cash holding AND CC "flipping?"

I have $5K in october bonds, and will buy $10K in April bonds this weekend. That constitutes a fairly good chunk of my liquid, non-retirement portfolio at the moment. The reason I'm doing so much is that I want to able to buy investment properties this fall or later with that $, so the liquidity is a big plus. (The reason I'm doing so little is that my FBB rewards card only has a $15K credit line--otherwise I might make it $20k.)

Per your point, I think I perhaps should give more attention to on the webpage to the idea that you can arbitrage the ibond. That is, if you buy them periodically, you can sell the "losers" (low rates) and keep the "winners." In that way, if/when other short-term investments become more attractive, you just shift out of the i-bonds you own into newer ibonds or other products.

I think the likeliest scenario is that ibonds will keep up with other forms of short-term investment.

Dave, you may want to put the link to the I-Bonds homepage on your I-Bonds page. I figured out where it was once I clicked on the education url.

I know a couple people at work I'd like to pass on the I-Bonds info. Thanks for compiling the information on a concise web page!!

Thanks for a job well done. <img src="i/expressions/face-icon-small-happy.gif"border=0>
Makes me wanna buy more i-bonds now...

good suggestion happypants, link added in the intro to the page. <img src="i/expressions/face-icon-small-smile.gif"border=0>

np cyberbishop, hope it helps them out. <img src="i/expressions/face-icon-small-smile.gif"border=0>

For people who maxed out on ibond, which one is
better?
A. buy EE bond
the disavantage: lower interest rate.

B. use someone else's ss# for ibond
the disavantage: need to worry about gift tax
if it is more than $10K.

weve actually always had a good deal of money in savings bonds, about $10k per family member...I think we bought about $26k in November and December, we may flip the Dec ones or just keep them...3 family members = lots of bond-holding power ($90k)

we havent flipped them yet, although we would probably be able to soon..we were using Southwest Airlines visa cards, earned our free tickets and cancelled the cards to avoid the annual fee...we'll need to get a Farm Bureau before purchasing them to take advantage of that 2%

I see no problem with putting 50% or more of your cash assets in bonds as long as you are fairly certain you will not need to use that money within 5-6 months...

If you buy Ibonds with a rewards credit card, you can think of bonds as the highest rate 6 month CD out there, by a huge margin

cache, I think that was discussed in the other thread. I'd just use another SS# and put yourself down as one of the potential redeemers.


SIS, I didn't realize the SW card had an annual fee. If SW goes many places you want to go, seems like a great deal. They don't fly east out of Spokane (you have to go west to Seattle first) which is the only reason I generally avoid them.

Thanks for sharing your/family's investment strategy with them. Interesting that you invest as heavily as you do in them even though you are accumulting property. Of course, I'm sure you like the idea that if you need cash to jump on a great propery, just take October's bonds (soon November's) or earlier and redeem them at a bank <img src="i/expressions/face-icon-small-smile.gif"border=0>

I agree with the high return CD analogy, except as you know i-bonds are better because you don't have to keep locking them in again after 6 months to enjoy the benefits.

DH,

I just purchased I-Bonds with some airlines CC. Now, I opened up Discovercard (because they were giving away $35 <img src="i/expressions/face-icon-small-smile.gif"border=0> and Discovercard gave me 0% APR till November. I have a $6000 credit limit on Discover. Do you think it is a good idea to do a BT to Discover to get a little more interest ? If the credit limit is $6000, how much do you think I can transfer and keep the balance for about 8 months or so without hampering credit records.

Thanks

sunrise, good question...short answer is "I'm not sure." <img src="i/expressions/face-icon-small-smile.gif"border=0> A few thoughts:

-is it your biggest credit line, or do you already have several this large or larger? If the former, it'll be more likely to hurt your credit rating if you max it out to buy the bonds.

-do you have a better rewards card already, like FBB? If you can transfter balances from a card like that to your new DC, you'll get a better deal from the i-bond.

-credit reporting agencies only get reports for the amount drawn on your line once the billing cycle turns over. So, if you pay part of the balance off before then (e.g. front yourself some of the cash for just a couple weeks), it won't count against you.

-in any case, borrowing half the line or less for this purpose shouldn't hurt you.

-if you aren't planning on doing any loan apps or other borrowing in the next 6 months, you can probably go for it. I might monitor my credit score during that period to see how significantly it's affected.

Hope this helps, Dave

so if u buy on jan 27, and redeem on july 1st, u do get the interest, right?

if u dont have the $ to buy the bonds, but have a house w/equity, open a deepgreenbank.com home equity line of credit (heloc).

the heloc rate is .05% below prime, thus 4.7% currently.

if in the 20% tax bracket, then 4.7% *.2 = .94% thus your rate is effectively 3.76% after tax deduction.

i-bonds w/2% cash back (farm bearu bank) = ~6%.

Profit by using your heloc: 6 - 3.76 = 2.24%

Is my math right?

Are you remembering the 3 month interest penalty if you cash in before 5 years?

yurgreat,

I suppose if you are calculating it that way, you should also consider the federal tax that you have to pay on your gain, when you redeem the bonds.

I have another question : when I redeem bonds at banks, do they charge any fee ?

There is no fee to redeem your bonds. The bank which redeems them will also have to mail your 1099-INT.

Won't be in time for April, but...

$35 with new Discover Platinum card
+ 0% APR thru Nov 02.

the "buy bonds with a HELOC" is a good discussion.

I will post a new thread discussing the strategy.

yurgreat,

<< if u buy on jan 27, and redeem on july 1st, u do get the interest, right? >>



yes, minus 3 month's penalty.



<< the heloc rate is .05% below prime, thus 4.7% currently. >>



actually, that's the WORST rate you can get. If you use more than 50% of the line, it's 4.45. I have more info at http://www.dhanson.net/dgb.htm

Note that if you itemize deductions, you can deduct the HELOC interest every year, but not pay any i-bond interest until you sell.

IMHO, the idea of i-bond investing with a dgb line is an intriguing one, IFF:

-you itemize deductions
-you know you won't need the cash for the next 4-6 months while the proceeds are illiquid/bonds are redeemable
-added bonous: if you're paying lots for education now or soon, and are over 24, making the bonds largely tax deductable (see i-bond link above)

I would NOT use the dgb line for i-bond/cc flipping myself, for reasons laid out in SIS's new thread.

]

NOTaFool, as I posted in the thread you linked, I think your strategy makes excellent sense for someone who wants to flip--it is not only well thought out, but empirically proven. <img src="i/expressions/face-icon-small-smile.gif"border=0>

Here, I simply wanted to talk about pros, cons, strategies, and experiences of investing i-bonds, versus trading or flipping them.

If others aren't interested in doing this, I'll settle for letting this thread die off (tho I'm hoping I'll get some some sharp minds critiquing my web site before that happens!)

<< Hope if this catches on, it doesn't effect yield or purchase rules in the future! >>

Ahh, but it will, I'm afraid. I won't repeat myself, but as I asserted in SIS's flipping thread, I believe the government will loose too much money to not cease this practice if many people make them incur CC and paperwork expenses only to flip them at the first opportunity. And that would be unfortunate. (I for one would be much less inclined to buy and hold them indefinitely if that happened.)

If i have a card that gives only 1%, will it still be as beneficial?

Following NOTaFool's flipping strategy, you should still make 6%+ (halfing the 6% portion of the 9%, while retaining the 3 x 1% from bond interest)

=

.



<< I think people focus too much on the 3 month interest penalty for cashing prior to 5 years. >>

Agreed--absolutely right. SIS has made much the same point in other threads, and you are right that with excellent CC timing, the loss is all but entirely offest anyway.

<< Putting these expenses on the rewards CC, using grace period, and then paying bill when due with bonds as necessary, provides sufficient liquidity for me. >>

Makes sense. So you aren't redeeming every i-bonds on the first possible date only to immediately HAVE to pay a new CC bill due from the last flip...in some cases you'll hold longer, pay bills, etc. To the extent one does this, one reduces the problem of reduced liquidity.

By investment portfolio, I also meant how do they fit in your strategy--i.e. stocks, real estate, retirement accounts, etc. E.G. for someone nearing retirement, it's prudent to take on somewhat less risk than if you're single and 25...also, with kids in college, you have needs for cash outflow in the short term. OTOH, 20 (not to say 25) years of officer's service to our nation entitles you to a pension that will offer a base of support keeping you out of the poorhouse, even before you qualify for SS, etc.--meaning you could plausibly be more agressive than a civilian in your situation with only a 401k to fall back on...

Here's my story in brief...I'm 33, dual-income no kids (probably 2-3 years till first comes along), $110K or so combined income (she's a lawyer, I'm a philosophy professor). I have all stocks, REITs, and cash (waiting to buy) in my and my wife's Roth IRAs (around $70K.) Maxing out both 401ks at $11.5K per year each, mostly in stocks, foreign stocks, and REITs again--balance must be around $50K in these. In my non-retirement, I have almost all cash and i-bonds at the moment, only because I'm looking to buy rental properties in the near future (else I would be in a larger diversified small-cap portfolio. no debts save a couple 0% CC offers and the house in Spokane WA (worth $160K after huge remodel but last officially appraised at $133K, with a 5.25 fixed Netbank HEL ($88K due) and a $23K DGB heloc at 3.85% (pre-Nov 2 rate structure.)

<< Best use of timing for optomizing returns and minimizing taxes. Currently in 27% tax bracket hoping to time sales to 'top-off' a possible 15% retirement tax bracket. >>

I think that's a great idea for discussion!

To begin with, you're surely aware of the nice tax break you get with i-bonds paying for kid's college like that? A sweet deal--they might be tax free for you.

As for taxes, I wonder if you itemize? if so, it would be a big argument for deploying a HEL or HELOC somewhere in your strategy, I think.

(BTW, I was intrigued that their school allows for fee-free CC payments for tutiion...nice perk...I wonder if most do that now.)

<< The grace periods are complements of the CCCs. >>

No question that's right.

<< Not sure how much they pay CCCs, but I believe they would get a better rate than your average Mom/Pop convenience store. >>

Definitely, and it would be great to get definitive information on this (anyone have a high-placed friend at Treasury?). But I'd be VERY surprised if it were less than 2.5-3%, ESPECIALLY since it's internet based transactions--the most expensive kind to buy because of security issues. And that's off the top, every time someone buys.

<< Printing costs should be cheaper than printing dollars, single vice two sided printing. >>

Gotta disagree with this. Bills get produced in MASS quantities, and aren't keyed to individual holders, SS#s, etc. Bonds get custom-made, cross-checked, dated, shipped, etc. The % hit would be much lower here on bigger denominations, but I'd bet it isn't a trivial amount for all but the spendiest bonds.

<< More debt in Savings Bonds means less in treasury bonds, etc..... >>

Since those are held mostly by institutional investors, not available on credit, and often bought/traded in big quantities, expenses should be trivial by comparision.

Moreover, we're still not considering factors like expense of redeeming. You know the bank gets a cut (1% maybe? Bet that's conservative) for redeeming the bonds on demand after 6 months. Here's a guess as to how this works:



    I buy a $1,000 bond on Dec 29.


      Gov't gets $975 (100-2.5% of face) on Jan 2 from their CC vendor for my bond.


        Gov't spends $10 on printing, running security, processing, mailing, and tracking my bond over course of its life (down to $965.)


          I redeem bond on June 1 at local bank (earlist date.) Bank pays me $1000+ ($13 = (6 months interest - 3m penalty)) = $1013.


            Bank hits up gov't on June 10 for $1013 + 1% processing fee = $1023.


              Bottom line For use of my : Gov't gets use of my money for just over 5 months. For this, they pay $1013 (redemption payment) - $965 (my money net costs and fees) = $48 = ~5%. Their cost is worse than 13% APR, under conservative assumptions. (Anyone who knows anything about lobbying power of banks, CCs, etc. vs. the Tresury would probably call this naively optimistic on my part!) They could do MUCH better selling treasury bills at %2-3% plus much smaller costs. They loose BIG.

              Now (and here's the key<img src="i/expressions/face-icon-small-smile.gif"border=0> That roughly 5% should be their cost regardless of whether I hold the bond 4 months or 30 years. And if I hold it just 5 years (the minimum before they assess me a penalty), their cost of borrowing that money is just 1% above whatever interest they pay me. At that point, they're likely coming out OK, esp since the debt is longer term. If I hold 25 years, it drops to .2% above that--truly trivial.

              Assuming I'm right (and of course I might be wrong), does this make flipping bonds shady behavior? Not at all--it's a contractual agreement between buyer and gov't that the buyer is agreeing to exactly. But would it give me pause before making it the cornerstone of my investment strategy?

              Well, yes. I'd do this to a corporation in the business of making a profit without a second thought. Their job is to look after the bottom line, and frankly they deserve to go out of business if they don't. But things are more complex with the govt. They are charged to give small investors good investing opportunities (like i-bonds) rather than just make profits, they are subject to political oversight and public policy goals (hence exceptions for disaster relief and tax-free redemptions for education), etc. etc. And in the end, as silly as it sounds, all Americans loose if the gov't looses.

              Moreover, if I'm right, sooner or later the government will decide that it would rather prevent itself from paying over 13% APR even if it meant little guys couldn't buy bonds with CCs. And I'd hate to see that.

              Well, this post is way too long already, so I'll stop there for the moment. <img src="i/expressions/face-icon-small-smile.gif"border=0>Perhaps more informed or awake minds can correct or complement my reasoning here?

              Edit 11/23/02 to correct typos on dates in redemption example above (Dec 29 not 31, June 1 not May 1). Thanks cak144, mshen11, and taylor.

              lllll

              But I'd be VERY surprised if it were less than 2.5-3%, ESPECIALLY since it's internet based transactions--the most expensive kind to buy because of security issues.

              I see this as being one of the safest transactions for the merchant and cc company. There is virtually no chance of fraud. Sure, you might be able to get the government to send you a bunch of bonds that you bought with a fraudulent card. But they are individually numbered, and you can't get the money for 6 months. They can refuse to redeem these thing if there is anything hinky in the transaction.

              ,,,

              NOTaFool,

              << I don't think you're going to convince me. >>

              Of what, that printing/distribution costs are non-trival, that the gov't looses big on "flipping," or that these arguments offer reasons to consider not flipping? Or all of the above? <img src="i/expressions/face-icon-small-smile.gif"border=0>


              Here's why I think the case of roads is disanalogous (warning: this might seem windy or sily, so feel free to skip!):

              -When we drive on roads, we follow their express intent, even though doing so causes wear. Driving a lot is OK too. However, all else equal, we should be mindful of not causing undue problems with them...e.g. using studded tired when not needed or violating weight guidelines. Similarly when we buy i-bonds for an investment, we use them as designed--even if it turns out we need the money early. We don't do so when we flip them.

              -We pay a user fee for using roads in the form of federal gas taxes. In that respect, we do pay our way. We pay no such fee for flipping bonds.

              -roads are a program we as a society have agreed to pay for so that we all can benefit. We expect and are satisfied with "losing money" on these. I-bonds, OTOH, are a way for the government to raise revenue, made as convenient as possible for small investors. The main point is for the gov't to fund its debt affordably. That's not underminded by holding, per express intent of i-bonds, but is by flipping.


              << Also, if you feel you are not being taxed sufficiently to pay for the gov't services you are using >>

              But this isn't my argument at all. I'm for taking every tax break I can, as permitted by law. LMK if I should make the distinction clearer...


              << Keep in mind even if someone buys a bond with intent to cash in 6 months, when the rates go down, it's awful hard giving up those bonds. At least for me and my 3% fixed + 2.92% variable bonds I first purchased. >>

              That's interesting...why is that (sincere question)? You could make more by flipping...is it a psychological or a financial thing?

              WSM and you are of course right that buying bonds should be one of the safest internet CC card transactions imaginable-I concur. But do you really think this means the gov't pays less than 2.5-3% on this transaction?

              Admittedly, my figures here are all conjecture--albeit well informed ones, I think. I would be most curious to get real data on this.


              Please let me reiterate--THE LAST thing I want to do is question ANYONE'S ethics, patriotism, motives, what have you. I know that there are legitimately different views on these issues, of which yours is certainly one. (Heck, I have yet to see a single other person on this board agree with my position, and obviously LOTS of bright, admirable folks on FW disagree!)

              Also, my apologies if my last post on this thread was a little windy--you certainly got me thinking, and the professor in me might get a little carried away, LOL <img src="i/expressions/face-icon-small-smile.gif"border=0>

              mm

              Ibonds and a rewards CC is a great way to save for grad school/law school or any further graduate classes.

              I PM'd Dave Hanson about it and found his reply to be worth noting.

              1. I-bond interest is tax deductible if applied to education costs and if you're at least 24 years old.

              2. Combining with a rewards CC makes the deal ever hotter.

              I'm currently 24, and looking at business school in a few years, this might be a good way for other potential students to make a bunch of money in the near-time to fund their education expenses. Sure, you might want to hold the bonds instead of flipping them, but you miss out on the CC gain.



              << You assume 'flipping' is not an intended use >>

              actually, their website says as much: "I Bonds are meant to be longer term investments..."

              << yet the rules clearly allow this use without violating any laws or terms of agreement. >>

              You are clearly right, and I've never disputed this. Let me say again, there is NOTHING illicit about this strategy.

              << Clearly, the CCC do not intend for me to use their 0% loans and not eventually profit from my business. >>

              Actually, they profit anyway, because they get their 3% cut on the purchase. To be sure, they would profit more if you weren't as savvy and carried a balance--they'd like to see you do that.

              But more important from my own (warped and apparantly unique) point of view <img src="i/expressions/face-icon-small-smile.gif"border=0>, they are a for-profit company, in the business of granting credit. I would not hesitate to get every last red cent I could from them, as long as I wasn't breaking their TOS or the law.

              << The gov't also provides the opportunity to earn on bonds in the hopes it will be mutually beneficial relationship. >>

              Agreed again.

              << I believe it can be. >>

              I believe it can also, but not if one flips as agressively as possible--in that case, the gov't loses badly, unless my hypothetical is way off.

              << Why I'm not flipping now??? >>

              Thanks for addressing this, NOTaFool. FWIW, those reasons seem like smart thinking to me.



              << Just as you are utilizing legal tax regulation to minimize your personal tax liability and maximize your personal financial assets retained; >>

              I do disagree with this analogy. IMHO, They are different in many respects. I could elaborate, but I think my answers to the roads analogy would probably make doing so redundant.

              << I'm suggesting utilizing a legitimate strategy >>

              Again, I concur <img src="i/expressions/face-icon-small-smile.gif"border=0>

              << Still see this as Win-Win-Win for country, CCC, and myself. >>

              Fair enough! We may just agree to disagree on this. I see aggressive flipping as: cc's win a little bit (commission, but lose float), you win a little more (flipping does provide better returns, if the extra hassles outlineed in SIS's thread aren't an issue), and the gov't looses big (13 APR when they could get it for 3% with t-bills.)

              =

              Good point NOTaFool. I didn't know that this tax deduction would occour only after Hope and LLC, even though it would makes sense that it wouldn't be.

              Another point NOTaFool's example highlights--you can only deduct if you have expenses equivalent to the entire redeemed value of the bond, interest and principle--not just interest.

              Edit: buy through 4/29, see update above

              --

              ]]



              << Peace? >>

              This first and most important--you bet! As far as I'm concerned, we were never at war! Nothing better than a good exchange of ideas when people respectfully disagree. That's my whole life as a scholar of philosophy, and I argue more ferociously than this for a living with many of my best friends. <img src="i/expressions/face-icon-small-smile.gif"border=0>

              And let me add publicly that in the couple of days you've been here, I think you've easily contributed more valuable info/experience/ideas to this board than I did in my first month.


              << Neither of us actually knows what the gov't cost is per purchase/sale >>

              Most definitely, as I conceded above.

              << I really doubt it's anywhere near the amount you suggest. >>

              Really? It might be beating a dead horse at this point, but I'd be curious to hear what sounds fishy to you (that goes for the rest of you too!) I actually suspect my numbers are pretty conservative--and if so, I don't think I've made any math errors.

              << If it is the gov't should stop selling bonds entirely, because it would be more advantageous to just sell treasuries period. >>

              I don't think that follows. First, I'm sure that most folks who buy bonds still buy them and hold them long term, as they have done historically. When that happens, the gov't gets LONG debt granted for a reasonable price, rather than short term debt for a high (I argue) price. Of course that will change if flipping catches on enough, and I think we've agreed (?) that if that happens, i-bond purchases under current terms will end. Second, buying by CC is relatively new (anyone know exact date it started?) Without that, gov't doesn't do as badly with shorter redemptions. Third, the gov't isn't in the profit-making business alone, as I argued earlier. Getting rid of savings bonds would likly be politically difficult--there's symbolism, history, constituecies, etc. getting in the way.

              << I believe the caveat you mentioned is meant to explain the restrictions on cashing before 6 months and the penalty for cashing prior to 5 yrs rather than to suggest restricting or discouraging flipping. >>

              Right--the context clearly is RE the 3-month penalty, and again, there's NOTHING AT ALL "restricting" flipping-no TOS, no laws, nothing. I simply was replying to your questioning of the "intent" of savings bonds.

              << If you buy a 5yr CD, the bank will likely disclose early withdrawals result in a six month interest forfeiture. >>

              Once again, I dispute the analogy. You can't buy CDs with CCs--if you could, boy, I'd buy them like CRAZY, screw the 3 or 6 month interest penalty. And no bank in their right mind would do that--lots of FW readers and professional arbitragers would put them out of business so fast the CEOs head would spin. Plus, CDs aren't redeemable for cash at any bank--can only be redeemed at the bank you took them out at. Those are Crucial differences.

              << With decreasing interest rates it may actually be advantageous to the gov't for people to cash in bonds with higher interest rates to buy ones with lower rates. >>

              Certainly true in theory. But who in their right mind would do that unless they were playing the credit card bonus angle? What would be the point? And that's where gov't loses.

              I gather from your tax remark that it is remains unclear why I think the case of taking all legit tax deductions is different?

              << Still think thou dost protest too much, >>

              ? Not sure whether you're kidding here or not? If not, I'm not sure what you mean...?

              << I do like your site and the other info you've provided. Looking forward to your under construction additions! >>

              Thanks! Whatever little value is there, you and other folks like you will make it better (you already have, in fact.) <img src="i/expressions/face-icon-small-smile.gif"border=0>

              BTW thanks for the clarification on educ deductabilty too...I think understand what you're saying, but I'm not sure how that would change my post (edit of edit?) You obviously know your stuff on this better than me...I'll change my post if you have a suggestion for making it read better.

              Also, have you looked into bofi.com's bank accounts? You should be of at least boomer age, and with your sophisticated strategies (BTs, CC float maximization, etc.) it might really help you eek out every last buck with litle stress...sure has for me. <img src="i/expressions/face-icon-small-smile.gif"border=0>

              1)Anyone paying tax (when filing tax return) on those CC rewards? I will be soon over $1000 in Amazon coupons... Any info on that?

              2)Any guesses at the upcoming FIXED rate portion. I bet it will dip low--- maybe even less than 1%)

              ==

              Skipping 1260 Messages...
              jdopple said: [Q]I dumped all my I-bonds a few months ago. the 1% base rate bonds stink. But dont feel too badly, Tips buyers are LOSING money over the last year.

              I'm not sure who started this rumor, but I think this is an urban myth. With more than 1% higher fixed rate on TIPS than I bonds, it's pretty hard for TIPS to do worse than I bonds.

              I've earned 4.90% APY on my April 2006 TIPS issue thru Dec 31 - not a loss. 2.5% of it was inflation adjustment, and 2.4% was the real interest rate. Not great, but certainly better than all of recent year's I bonds.

              I think where the rumor started is from looking at TIPS fund performance. Whenever real interest rates change, they affect the currect value, and therefore the value of the TIPS fund (especially for long bonds). The real rates for TIPS have gone from about 2% at the beginning of 2006 to 2.4% at the end of 2006, and coupled with a fairly moderate 2.5% year-over-year inflation rate, I can see how long bond funds, they would have lost value.

              But this shouldn't concern anyone who buys TIPS (not TIPS funds) and plans to keep the TIPS to maturity, especially when they bought at a time when the rates were around 2.4%, as they are now.

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