How to invest in Series I bonds
October 27, 2022 5:56 AM Subscribe
My husband and I are thinking about putting some of our savings into Series I bonds. What do we need to know?
Apparently you can invest as little as you like and make 9.62% if you buy them by end of day tomorrow and they earn interest monthly, but I am assuming that 9.62% is an annual rate. I can see the interest rate changes every six months. If we cash it out early we lose the last 3 months of interest. It seems fairly straight-forward, but we've never invested in bonds before and don't know what we're doing. Are there any pitfalls (besides tying up the money we invest)? Things you wish you'd known before investing?
Apparently you can invest as little as you like and make 9.62% if you buy them by end of day tomorrow and they earn interest monthly, but I am assuming that 9.62% is an annual rate. I can see the interest rate changes every six months. If we cash it out early we lose the last 3 months of interest. It seems fairly straight-forward, but we've never invested in bonds before and don't know what we're doing. Are there any pitfalls (besides tying up the money we invest)? Things you wish you'd known before investing?
Best answer: I-bonds have become increasingly popular in this high-inflation environment. They are an extremely low-risk investment in real terms.
Caveats:
posted by justkevin at 6:21 AM on October 27, 2022 [11 favorites]
Caveats:
- You cannot redeem them in the first year, period.
- As you mention, if you redeem them in the first five years, you lose a little interest.
- You have to interact with Treasury Direct website, which is frustrating even when it's working (it's down right now, but that's a bit unusual).
- Some people when they try to create their account can create it easily. Other people are given a quest to get a signature guarantee from their bank, seemingly at random.
- A year ago, they were objectively better than TIPS (Treasury-Inflation Protected Securities) in almost every dimension, because TIPS' real return (that is, inflation adjusted) was negative. Now it's around +1.5% (depending on duration), so TIPS are better, if held to maturity. In other words, I-bonds over the long run should have the same purchasing power, while TIPS bought today over the long run will increase their purchasing power. But TIPS have interest rate risk if redeemed before maturity.
- Both I-Bonds and TIPS have the theoretical risk of default from the US government, which is very, very small. If that happened, it's not clear that dollars would be worth anything.
posted by justkevin at 6:21 AM on October 27, 2022 [11 favorites]
The most important thing is that you can't get the money out AT ALL for a full year. So this is not a good place to stash an active emergency fund that you are at all likely to need in the next year. Because of this, they don't actually show you the interest until you are able to redeem, so it will look like it's not earning interest at all for the first year.
It may also be too late to get your treasurydirect account hooked up to your bank account to transfer the funds to buy before end of day tomorrow - I don't remember whether they do a "confirmation deposit" kind of thing.
And yes complex passwords on treasurydirect.gov are a pain in the ass but, it is possible to turn off the "virtual keyboard only" thing - see this reddit comment for a quick explanation.
posted by mskyle at 6:23 AM on October 27, 2022 [7 favorites]
It may also be too late to get your treasurydirect account hooked up to your bank account to transfer the funds to buy before end of day tomorrow - I don't remember whether they do a "confirmation deposit" kind of thing.
And yes complex passwords on treasurydirect.gov are a pain in the ass but, it is possible to turn off the "virtual keyboard only" thing - see this reddit comment for a quick explanation.
posted by mskyle at 6:23 AM on October 27, 2022 [7 favorites]
The site has been hammered for a week, I think because of a CNN piece on I-bonds.
Your best bet may be to try early in the morning (US time) tomorrow -- that's how I finally succeeded today.
posted by humbug at 6:58 AM on October 27, 2022 [3 favorites]
Your best bet may be to try early in the morning (US time) tomorrow -- that's how I finally succeeded today.
posted by humbug at 6:58 AM on October 27, 2022 [3 favorites]
Best answer: You will not actually make 9.62% on I-bonds purchased by the end of tomorrow. You will get 9.62% for the first six months, and then the rate will reset to 6.48% for the next six months, so for a full year for bonds purchased this month the interest earned will be closer to 8%. In other words, every time six months passes from the month of purchase, your bond will be assigned the interest rate then prevailing, so you get a blended rate over the course of every year. Most of the time, you won't know what the rate for the next six months will be, but towards the end of April and October they will announce the rate for the next period. That's why people are piling in now; the rate starting in November, while still attractive, is down more than 3%.
Still beats online savings if you don't need immediate access to the cash.
Because of this, they don't actually show you the interest until you are able to redeem, so it will look like it's not earning interest at all for the first year.
No, they start showing it to you after three months (i.e., once there is something you could redeem, once you reach the end of the lockup period).
posted by praemunire at 7:28 AM on October 27, 2022 [4 favorites]
Still beats online savings if you don't need immediate access to the cash.
Because of this, they don't actually show you the interest until you are able to redeem, so it will look like it's not earning interest at all for the first year.
No, they start showing it to you after three months (i.e., once there is something you could redeem, once you reach the end of the lockup period).
posted by praemunire at 7:28 AM on October 27, 2022 [4 favorites]
It seems like a good idea and I was on the verge last month but chickened out. Reason being the kludginess of the website and lack of customer support if you have a question or problem. There is a customer support line but when I tried to call it the wait time given was in hours, many hours! Also, it seemed like it would be a big problem for anyone else to access the funds if I were to die as I may do. So, as a newbie in the world of bond buying, I backed out.
posted by charlesminus at 7:40 AM on October 27, 2022 [2 favorites]
posted by charlesminus at 7:40 AM on October 27, 2022 [2 favorites]
it seemed like it would be a big problem for anyone else to access the funds if I were to die as I may do
FYI, you can name a beneficiary on the site. The bonds won't need to go to probate. Now I doubt they will be instantaneously accessible, but it shouldn't be much worse than what you'd have to do for a POD savings account at a bank.
posted by praemunire at 7:49 AM on October 27, 2022 [2 favorites]
FYI, you can name a beneficiary on the site. The bonds won't need to go to probate. Now I doubt they will be instantaneously accessible, but it shouldn't be much worse than what you'd have to do for a POD savings account at a bank.
posted by praemunire at 7:49 AM on October 27, 2022 [2 favorites]
Possibly also worth noting that I-bond proceeds are state/local-income-tax-free. Depending on where you live, that can provide a small yield boost.
posted by humbug at 8:11 AM on October 27, 2022 [1 favorite]
posted by humbug at 8:11 AM on October 27, 2022 [1 favorite]
I've been trying since early this morning and the site is so bogged down with traffic that it's basically inaccessible. I already have an account and just getting logged in took me an hour with the pages continuously timing out, and I haven't been able to progress any further than that. I'm not super optimistic about the ability to actually make a purchase by end of day.
posted by anderjen at 8:25 AM on October 27, 2022 [1 favorite]
posted by anderjen at 8:25 AM on October 27, 2022 [1 favorite]
The site is in a horrible state. I was unable to create an account all day yesterday right up until 1am but was successful at 7am. At 7:30am the site crashed when I actually tried to buy something. I'll start trying again early tomorrow.
posted by gerygone at 8:42 AM on October 27, 2022
posted by gerygone at 8:42 AM on October 27, 2022
The virtual keyboard is laughably bad, and I will also confirm the aforementioned supremely annoying "signature guarantee" from your bank as a security measure. I had to do this three times in the past few months. Once when my address changed. Another time when that was rejected. Once again when I changed the source bank account to a credit union. Annoyingly, my credit union's seal was rejected by Treasury Direct, so I had to go back to my original bank that I was trying to leave in the first place to verify my identity. Just mindboggling to need to print forms out and send them through the mail in 2022 just to get into a website.
posted by oxisos at 9:06 AM on October 27, 2022 [3 favorites]
posted by oxisos at 9:06 AM on October 27, 2022 [3 favorites]
I was able to make a purchase a few minutes ago. The site was painfully slow (with a few initial page loading errors) but it worked.
posted by oxisos at 10:01 AM on October 27, 2022
posted by oxisos at 10:01 AM on October 27, 2022
Pro tip for password manager users who are reasonably comfortable with developer tools: you can avoid using the ridiculous Treasury Direct GUI keyboard thing by right-clicking on the password field and editing the HTML to remove the "readonly" attribute from the element. Your password manager will then work.
posted by caek at 10:39 AM on October 27, 2022 [4 favorites]
posted by caek at 10:39 AM on October 27, 2022 [4 favorites]
I think if you get a tax refund, you can also request for that to be in I bonds but I can't remember the specifics. I'm sure it's on the irs.gov website. Doesn't help you right now, but could be less of a hassle in the future.
posted by VyanSelei at 11:04 AM on October 27, 2022
posted by VyanSelei at 11:04 AM on October 27, 2022
Best answer: Found it:
"The federal tax refund is often the largest single check many people receive. It’s an opportune time to start or add to your savings. You can divide your refund into two or three additional financial accounts, including your Individual Retirement Account, or purchase up to $5,000 in U.S. Series I Savings Bonds."
Purchase I Bonds
Link: Source
posted by VyanSelei at 11:08 AM on October 27, 2022
"The federal tax refund is often the largest single check many people receive. It’s an opportune time to start or add to your savings. You can divide your refund into two or three additional financial accounts, including your Individual Retirement Account, or purchase up to $5,000 in U.S. Series I Savings Bonds."
Purchase I Bonds
Link: Source
posted by VyanSelei at 11:08 AM on October 27, 2022
If you're open to banking apps, I just bought via the Yotta app on a tip from some teammates (I swear we are not associated w this app in any way). The whole setup and i-bond purchase took around 5 minutes.
posted by internet of pillows at 11:15 AM on October 27, 2022 [1 favorite]
posted by internet of pillows at 11:15 AM on October 27, 2022 [1 favorite]
Yes, and buying them with your tax refund is the only way to get paper bonds. Collect 'em all! Or just convert them to electronic by mailing them in.
posted by amarynth at 11:16 AM on October 27, 2022
posted by amarynth at 11:16 AM on October 27, 2022
Some people when they try to create their account can create it easily. Other people are given a quest to get a signature guarantee from their bank, seemingly at random.
Also: you will need the same paperwork guarantee to change your checking account associated with TreasuryDirect. Make sure you don't hate the bank you link TreasuryDirect to!
posted by pwnguin at 1:33 PM on October 27, 2022
Also: you will need the same paperwork guarantee to change your checking account associated with TreasuryDirect. Make sure you don't hate the bank you link TreasuryDirect to!
posted by pwnguin at 1:33 PM on October 27, 2022
Just as another data point: I bought an I-bond back in June and it was relatively painless; the site is outdated but I didn't have to jump through any security hoops, and everything worked satisfactorily. 9.62% is a great rate as long as you know you won't need the money soon.
posted by demonic winged headgear at 3:15 PM on October 27, 2022
posted by demonic winged headgear at 3:15 PM on October 27, 2022
Best answer: If you're open to banking apps, I just bought via the Yotta app on a tip from some teammates (I swear we are not associated w this app in any way). The whole setup and i-bond purchase took around 5 minutes.
I don’t recommend this. It might be fine, but the only way to buy I bonds is through Treasury Direct. If you go through Yotta, they set up a TD account for you and while it’s possible to work with their customer service to get the account details so you have direct access to it, I really hate having a third party setting up a financial account in my name. Realize what happening if you choose to use Yotta.
From their site:
Please note that By transferring funds to the I-Bonds Bucket through the Yotta Technologies Inc. ("Yotta") application, you are permitting Yotta to create an account and purchase US Treasury issued I-Bonds on your behalf through treasurydirect.gov. The I-Bonds will be held in your name. I Bonds can be purchased through October 2022 at the current rate of 9.62%. That rate is applied to the 6 months after the purchase is made. You cannot transfer less than $25 into the I-Bonds bucket. Please contact support@withyotta.com for direct access to your treasurydirect.gov account.
posted by Pater Aletheias at 3:33 PM on October 27, 2022 [2 favorites]
I don’t recommend this. It might be fine, but the only way to buy I bonds is through Treasury Direct. If you go through Yotta, they set up a TD account for you and while it’s possible to work with their customer service to get the account details so you have direct access to it, I really hate having a third party setting up a financial account in my name. Realize what happening if you choose to use Yotta.
From their site:
Please note that By transferring funds to the I-Bonds Bucket through the Yotta Technologies Inc. ("Yotta") application, you are permitting Yotta to create an account and purchase US Treasury issued I-Bonds on your behalf through treasurydirect.gov. The I-Bonds will be held in your name. I Bonds can be purchased through October 2022 at the current rate of 9.62%. That rate is applied to the 6 months after the purchase is made. You cannot transfer less than $25 into the I-Bonds bucket. Please contact support@withyotta.com for direct access to your treasurydirect.gov account.
posted by Pater Aletheias at 3:33 PM on October 27, 2022 [2 favorites]
One thing I wish I'd known sooner is that it's stupidly easy to get around the on-screen keyboard thing.
posted by mosst at 7:01 AM on October 28, 2022
posted by mosst at 7:01 AM on October 28, 2022
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Other than that, Series I bonds are a pretty simple way to 'invest' - for me it seems like less of an investment and more of a place to park some cash so that it will earn more interest in the short/medium-term than just about anywhere else.
posted by entropone at 6:14 AM on October 27, 2022 [11 favorites]