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%.
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.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
Message edited by: dyenu on 2006-01-04 19:16:27 CST
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.
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
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.
I just purchased I-Bonds with some airlines CC. Now, I opened up Discovercard (because they were giving away $35 ) 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.
sunrise, good question...short answer is "I'm not sure." 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.
<< 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.
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