Update 12/13/22: Reminder – the last chance to buy I Bonds toward your 2022 $10,000 allotment will be on Thursday December 29th. After that, we can begin buying our $10,000 allotment for 2023. (Tangentially, lots of people are reporting that the process for adding a second bank can now be done easily through the online login without the old onerous process of mailing in a form.)
Original Post 11/1/22:
U.S. Treasury Direct officially announced the 6.48% I Bonds rate for November 2022 – April 2023. This was widely reported before the official announcement today.
They also announced a fixed rate of .40% for I Bonds. This means that if you buy I Bonds now you’ll get 6.89% return whereas if you bought last month you’d get only a 6.48% return (when that rate kicks in). The 6.48% rate is called the ‘annualized rate’ which changes twicer per year and the .40% rate is called the ‘fixed rate’ which doesn’t change and gets added on top.
What’s nice about the fixed rate is that it continues for the entire 30-year term of the I Bonds. Someone can buy I Bonds anytime from November 2022 through April 2023 and get an extra .40% return on these I Bonds purchased for the next 30 years. For example, suppose the next I Bonds rate (beginning May 2023) will be 9.50%, you’ll get 9.90%. And suppose the rate after that (beginning November 2023) is 2.00%, you’ll get 2.40%. Etc, etc.
In recent history the fixed rate has always been a big fat zero, until this new announcement. However, some people have older I Bonds from many years back which have a fixed rate, and they’ve been getting their fixed rates added to the high I Bonds returns of late.
Did I make a mistake buying in late October at the 9.62% rate?
Lots of us are wondering whether locking in the 9.62% rate was smart since it means that when the 6.48% rate kicks in we’ll earn .40% less than those who buy in November. This is something we discussed in our I Bond post analyzing the 9.62% and 6.48% rates (at the time, guesses were a fixed rate of either zero or between .1% – .5%).
Indeed, given the .40% fixed rate, someone who will end up holding the I Bonds for 30 years (or perhaps even 10 years or less) might have done better not buying at the 9.62% rate.
However, for those who think it’s likely they’ll cash out the I Bond in a year, or even in 5 years, you were probably better off buying at the old rate due to the front-loaded increased earnings from the 9.62% rate. (I’ll let someone very math inclined crunch the numbers on exactly what the cutoff point is. 🙂 I believe it also depends on future I Bond rates, so not necessarily easy to compute.)
Our Verdict
Regardless, the news of this fixed .40% is interesting for those who have not yet purchased their 2022 $10,000 limit. And it’s interesting for all of us who plan on purchasing an additional $10,000 in I Bonds when our annual limit resets in January 2023. Aside from the 6.48% and future rates, we’ll get a .40% fixed rate added to all future I Bond earnings.
Sorry for my ignorance, but just to confirm, will Jan – Apr 2022 bond holders have received six months each of the 11/1/2021, 5/1/2022, and 11/1/2022 rates by Jul – Oct 2023?
If you bought in January 2022:
6 months of November 2021 rate (January to June 2022)
6 months of May 2022 rate (June to December 2022)
6 months of November 2022 rate (January to June 2023)
So yes, that sounds right.
CPI is now approximately even from Sep to Dec. Might even go negative by March, who knows. Could be more appropriate to look at the worst case scenario (semiannual inflation so negative that the combined rate is a negative number, in which case the bond returns 0% for the second six-month period) and another scenario that isn’t great (semiannual inflation of zero, so the bond returns 0.4% for the second six-month period). In the first case, the I-bond would return 3.45% for the year and in the second case the I-bond would return 3.51% for the year. Guess we’ll see what happens, but I wouldn’t hold my breath for a huge ramp up in inflation by March. Locking in a HYSA at MySavingsDirect for 4.35% now might make more sense than worrying about whether inflation will ramp up enough to make the I-bond worth it to buy in April. If it is worth it at that time, you’ll have already gotten several months of higher yield than your expected yield for a year in the I-bond with greater liquidity.
If it’s 0 percent for the next period, makes my decision easier on when to cash out. Will just wait 3 months into that period and then unload all of my I bonds with no interest penalty (since there was no interest for those last 3 months). Throw it in a high yield bank account and figure out my next move. Those that bought at 9.48 or the previous rate will make out nicely. Don’t forget if one bought at the end of the purchase month, there’s really only a 2 month interest penalty instead of 3.
Sorry I’m new to this what do you mean it’s possible to cash out without the 3 month penalty?
If the rate is bad, like 0 percent bad, they’d wait three months into that new rate, and cash out so the three month penalty is pretty much zero in that case.
Because I’d want my loss of 3 months of interest to be the crap interest rate, not the 6.48 of the current cycle.
oh gotcha! that’s right.. I forgot so everyone’s interest rate on a specific date will be different.. depending on when we bought the iBond
But they all follow the same rates regardless, up to six months behind. The point is to wait 3 months into a crap interest rate, whenever it is, before cashing out to minimize the 3 month penalty.
The rates change every six months. If you bought in June, your rate changes in November. Google how to determine your ibond rate, or there were links in these threads. Today the rate is 6.48. Everyone will have that rate for six months. Some started it in November when it changed, some will start it in the six months between November and May.
You should really log in and mark down your own investments so you know when to redeem them.
just signed up and did 10k for myself and 10k for my single member llc. no issues, ux is decent(equivelant to regional bank ux imo). u have to get this done by 930pm EST basically today due to maintenance. the 4 letter irs control name through me off for a bit but its the first 4 letters/# your llc name.
CPI has only risen ~0.3% between Sep and Nov (after falling ~0.1% between Oct and Nov). If we assume similar average month-over-month increases for the remaining 4 months of the term for calculating the May ’23 semiannual rate, we get about 0.9%. So the variable I-bond rate in May ’23 would be 2.2%. If I bought on Jan 1st–assuming this variable rate–average rate for 12 months in 2023 would be ~4.55%. Since the last three months of interest is subtracted if withdrawing right at 12 months, we get more like ~4%. Apples to apples with 12 months in >4% HYSA not looking great with this estimate. There’s also the 1 year lockup period for the I-bond.
You’d need inflation to ramp up considerably in the next few months to give much higher yield than HYSAs in 2023. Probably will wait until mid-April when CPI data is released for Mar 2023 so I can get a better idea of what the variable rate will be for the final 6 months of the bond.
Hey
Nick, nice calls on the TSLA long puts and sub 20k BTC in the other bond thread from way back in April. If you had 100k to throw around, where would/wouldn’t you put it right now?
Hey
MC, thanks. Still have the TSLA puts but covered my BTC short position around $16k. Although I think that will continue to be a great trade as bitcoin plummets below 10k (my long term target). So it wouldn’t necessarily even be too late for a short BTC trade, especially on this recent pop above ~20k. I would wait for hard rejection (possibly as high as $25k on this pop) to target another 50%+ short. This pop is the perfect opportunity to jump on the short BTC idea for any on the fence.
There are other scattered shorts I entered last quarter which may continue to work well over the next year. Personally have had a large short open on Enphase Solar (ENPH) since 9/8/22, which has been one of my better short positions. Take a look at the chart and outrageous P/S & P/E, has plenty of room to fall over the medium to long term, although I did take 20% off the table last week.
For upcoming positions, looking to short Japanese 10 year bond prices, looking into the possibility of joining the short Hong Kong dollar parade. Small short on Taiwan Semiconductor (TSM) potentially. Bought some gold, platinum, and silver to hold for the next few years. Maybe scattered, smaller longs on materials and energy as we get some ramp up in inflation into the summer months.
Aside from select shorts (no more than 20% of net worth overall), I’m personally looking at preservation over growth strategies, which I’m sure you and many on this thread are currently doing as well. Above all else, I’m increasing the percentage of my portfolio in shorter-term yield, which has gotten more attractive relative to the longer end of the curve in the last year as you well know. I love this type of environment because it rewards risk-off behavior, and I’ve gotten a little too comfortable with taking higher risks when yields were next to nothing. But the returns in ’20 and ’21 were well worth the higher risk.
Not apples to apples, CD I’d have to pay an additional 6.5% to state taxes while the bond is exempt
If my math works 6.5% state taxes on 4% yield of $10000 ($400) would be $26 in state taxes. So you would need to beat 4.26% elsewhere if you think ibonds would get you about 4% in 2023. I am thinking I will cash out towards the end of the year when my current rates drop and three months of lower earnings go through and find a 18-24 month 5% cd if there are any still around at that time.
I try to add second bank account yesterday (twice) and today again but can’t. Is it just me?
“TreasuryDirect is unavailable.
We apologize for the inconvenience and ask that you try again later.”
same here. Tried a few times and all failed with that error message.
Still fail today.
I wonder they are already on holiday and might need to wait until 2023 to fix this …
Called 844-284-2676 today, after a long wait of 1 hr 15 min, the person helped add second bank account to without any issue in like 2 mins lol
I’d like to add that T-Bills are a good short term investment right now and don’t have any purchase limit.
How you do t-bills
“How To Buy Treasury Bills & Notes Without Fee at Online Brokers”
https://thefinancebuff.com/treasury-bills-cd-money-market.html
Can I buy $10,000 by Dec 29, and then buy another $10,000 in Jan? So technically, I would have a total of $20,000 in holdings per person. I found the wording quite confusing.
Yes. The $10,000 limit is per calendar year.
yes if you hadnt bought anything else in 2022. its 10,000 per calendar year
Yes, $10k per person (SSN) per calendar year
have a single members llc, can do an additional 10k if it has ein # right?
I don’t see it here but I have read on the nets that i-bonds are a great replacement for an “emergency fund”. From everything I’ve seen however, i-bonds lock up your money for 1-year. That seems to be a terrible place to put emergency fund dollars, which are intended for unforseeable expenses at any time. And, if you have funds that you don’t think you MAY need within the next year earmarked for an emergency fund (which usually is around 3-6 months), then why are they in the emergency fund to begin with?
I-bonds are a great option, don’t get me wrong, especially if you some excess money in non-retirement accounts, but there may be some risk to consider in giving up immediate liquidity going into a likely recession for a lot of folks unless I’m missing something.
It’s a good emergency fund after 1 year but I wouldn’t put your entire safety net into it for the short term
OTOH, anyone on this forum likely has credit cards where in a true emergency, a 0% balance transfer with a 3% or 4% fee is only a few minutes away. Pay it off once the I Bond funds are eligible to be withdrawn and you still come out ahead.
For a true emergency fund as you have described, I suggest a No Penalty CD.
I keep my 1 year emergency fund in HYSA. IBonds are my 1+ year emergency fund.
Anyone have any speculation what the rates will be for the 2023 calendar year, or is it impossible to estimate at this time?
General question: will you be dumping another $10k into I-Bonds at the start of 2023, or holding off? I have $10k disposal to invest in them for next year and wondering if it’s still a good move. I assume yes given that 2023 may be uncertainty with the markets/inflation still, but I’m not really an expert on analyzing this stuff.
My spouse and I both maxed out the $10k in spring of 2022
Gonna do it and max it out at the beginning of 2023 just like I did in late 2021 and Jan 2022. Worst case scenario, if the rate drops below the point where selling my old bonds, losing 3 months of interest, and putting it in a higher interest HYSA at 4% or whatever we have at that point, I have at least $20k + interest of bonds that can be cashed in while this $10k sits there for a year.
In your case, you could always cash out the $10k in Spring ’23 at some point where the 3 months of interest lost doesn’t matter to you and you’d still come out ahead with the $10k you sunk in in Jan ’23 because of the interest you got in the first year.
Hard to imagine inflation being lower than Fed rates. Based on today’s Fed projections, they are looking to go to ~5.1% in 23′. I suppose it’s possible and they overdo it and inflation falls lower than that. I wouldn’t have a clue how to figure out the likelihood. That’s a longwinded way of saying that I don’t think you’ll lose out to high yield savings accounts or anything like that. So if that $10K is to stay in cash equivalent, you’re probably going to do a little better with i bonds. Of course that does come with all the well known downsides of i bonds. The yield between i bonds and hysa/money markets/cds is probably going to end up being pretty similar next year IMHO.
Not hard to imagine, we’re basically already there. If I bond rates were reset next month using CPI data from the last six months, the variable rate would only be 3.7%. Add the forecast December CPI and remove June 2022 (the last month we saw high inflation) and it drops to 0.92%. Yikes…
Personally I already have 2023 and 2024 gifts purchased and don’t plan getting any more unless the fixed rate moves significantly higher.
The answer, of course, is that it depends on when you need the money. 1+ years? I-bond will probably do better than HYSA, and no state tax. Longer than a few years? Dollar cost average into VTI is never a bad idea, maybe VBR if you want to spice things up a little.
Fed fund rate is 4.25% and will likely break 5% early next year. Even with 8% state tax, I-bonds would have to break 4.6% for the current and next rate cycle to beat that. As much as I love them, I don’t see it happening, and that doesn’t even take the 3 month penalty into account.
Nick will weigh in with his crystal ball lol
Given that we’re likely going in or already in a recession, conventional wisdom would say put your money in consumer staples and utilities…hopefully
Consumer staples and utilities?
MC
Haha
MC, you nailed it, but I disagree on the conventional wisdom. Looking like consumer staples and utilities are in a choppy multi-year topping pattern that should resolve downward. Maybe they will do better than other stock market sectors during a “hard landing,” but I’m looking more at shorting specific stocks that are still in bubbles and hard assets to weather whatever type of landing the Fed is able to achieve for the economy.
It’s definitely looking more and more like the I-bond won’t be able to beat HYSA this year. I am looking at opening a MySavingsDirect account, which is at 4.35%, right in the current Fed funds range. Who knows if they’ll exactly keep pace with fed funds rate as it rises to around 5-5.25% by mid-2023. Maybe a 15-month CD with a current rate around 5-5.1% would be better to consider. It is a more appropriate comparison to liquidity of I-bonds. Leaning toward HYSA for higher liquidity.
how far in advance can you pre-buy I bonds and gift to someone else? I didn’t know you can buy in 2022 for 2023 and 2024
As far in advance as you want, the only limit is you can only deliver 10k/year in gifts to someone as it counts against their annual purchase limit. See this post for more info
https://www.doctorofcredit.com/gifting-us-treasury-bonds-to-circumvent-10000-limit-i-bonds/
Based on the last two month-over-month CPIs and the projected December CPI, inflation is rapidly de-accelerating. The May 2023 I-Bond will likely be 2.5-3.5%. The November 2023 rate is too distant to predict
If, for example, the I-Bond rate drops to 3% and you can transfer that balance into a 4% interest checking/HYSA, you’re still $25 ahead even if you lose 3 months interest on $10k assuming you’ve had them <5 years. I’m referring to my previous 2 years’ contributions which total $20k plus interest which I can take out any time in 2023. It would actually be more than a $25 difference per $10k because I wasn’t counting interest. I’ll leave it to others to do more accurate calculations/comparisons.
You could do it now if you wanted. Just buy gift for your spouse and vice versa.
It’s so annoying that you can’t switch banks online. You have to get it signed by a bank official and mail it in. Then they sit on it for “up to 13 weeks for review and processing”
I just added a second checking account on my TD account online. No need to get a stamp and mail in.
https://www.youtube.com/watch?v=PEWRMfbNgLs&t=463s&ab_channel=DiamondNestEgg
Heck I just added an alternate bank now too. Like Matt, I’d been getting a message telling me it needed to be signed by an authorized party at a bank whenever I’d tried to do it the last year or so. Maybe we’ve been entering something incorrectly causing it to be rejected. I know I’d changed bank info in the past and figured it was stricter due to hacking concerns.
Nudder one, try it again. I just tried this morning after my whiny post and was able to add it manually. They did receive my authorized letter a few days ago, but I’m not sure if that was necessary or not since they didn’t actually add the account I mailed them.
It seems to be a recent change that TD made. According to that video Harry linked, they now try to automatically verify your account, and give you 3 attempts; only after that will they require a form to be mailed. vs. for the past couple years they seemed to always require a form when adding another bank.
Added a note
Thank you!! Finally was able to add an 2nd account as I wanted to close my 1st/primary as I didn’t know it was so difficult to change bank.
now, I can just add a 2nd bank, and make it a primary (checkmark it when adding)without having to mail anything in.
Wow, finally – I just added two more banks easily. This feature was sorely missing.
Welcome to the 21st century, Treasury Direct!
It’s even more annoying that they lock you out before the first purchase.
I was actually able to switch by calling them. There’s a phone number that’s listed on the page after you log in
Thanks for your comment. After reading it, I remembered that the account I linked with TreasuryDirect was closed 🙁
However, I just clicked on ‘ Add new account’ to add secondary bank account. While adding it, I was given an option to tag it as primary 🙂
After new account became primary, I simply deleted the old account with no issues.
However, if you just click the ‘Edit’ button on primary account, it is asking me to do what you said. So this seems to be a nice workaround ;-D
yeah i got fucked scrambling for the last minute October 10% lock in rate. Sent in August, got it confirmed November gg.