Posted on by Steveark

I Bonds are My Bonds

Do you ever tell yourself that you really need to do something yet find months passing and you have taken zero steps to accomplish it?  Guilty here.  But this week I finally did knock something out that had been on my mind for a while.  I bought I bonds from the US government.  And it was embarrassingly easy. 

This is a different kind of post for me, I’m actually writing this to try to spur on those of you who read this, who procrastinate like me, to actually go ahead and take action.  You know who you are, you’ve thought about these inflation protected treasury bonds but have allowed inertia or your busy schedules to get in the way of doing something about it. 

Here is the way to do it, and I promise it isn’t difficult.  Here is what I did step by step.  The first thing I did was to research I bonds. Just google I Bonds and you’ll find tons of information.  I found out that you can buy $10,000 per person per year.  So, my wife and I could buy $10,000 each for 2021 and then next month buy another $10,000 each for 2022.  That will give us $40,000 in I bonds.  I also learned they are paying 7.12% and that interest rate is periodically adjusted for inflation.

I also learned the place to do it is Treasury Direct, a US government website.  You can open an account there with no money and there are no fees.  I had to open one for myself and one for my wife.  When you do that, you can link a bank account to your Treasury Direct account to transfer the money to buy the bonds.  In my case I linked our checking account to both my and my wife’s Treasury Direct (TD) accounts. 

Next is the only hard part, find $20,000 and transfer it to the bank account you linked to TD.  In our case I transferred it from my Vanguard money market account to our checking account.  Then you wait two or three days for the “pending” label to come off the money you transferred.  Its amazing that in this modern connected era that transfers put your money in  “pending” purgatory for days, but that’s how banks like to roll.  Once they let you have your money back then log on to your TD account and hit the buy button, select I bond as the type of purchase and $10,000 (or whatever lesser amount you want to purchase) as the amount  and hit the submit button.  Then in my case I did the same thing with my wife’s account.

Next month I’ll repeat the process for 2022.  It really isn’t very much work and even though $40,000 isn’t a huge amount of money, you’ll be hard pressed to find any other zero risk savings account or CD that pays even close to that much. The interest rate isn’t usually this high and if it drops too much in the future, I’ll move the money somewhere else.  But for now this is a real deal.

Downsides?  Well it isn’t good for emergency fund money because you can’t cash out for a year. After that you can get it any time you want with the only penalty being you’d lose the last three months’ worth of interest, no big deal. After five years there is zero penalty for withdrawing your money.  And you can keep them for up to thirty years.

If you have cash sitting around in excess of your emergency fund ask yourself why you wouldn’t do this right now?  And right now is the best time because you only have a few days of 2021 left.  It’s the last time you can buy for 2021.  And then next month you can buy for 2022.    I don’t monetize my site, I don’t take ads and I surely don’t promote government programs.  But this is such a no brainer of a deal I just thought I’d try to encourage you think about it. 

Anybody actually take my advice on this?  Or Sam’s over at Financial Samurai.  I saw he posted on this same thing yesterday. 

If you don’t have I bonds…why?

42 Replies to “I Bonds are My Bonds”

  1. I’ve been buying I-bonds for the past 6 years. Glad to see the rest of the blogosphere “discovering” them with the recent announcement of the big interest rate increase due to inflation runup. Exactly why I have them in my portfolio! Welcome to the I-club!

    1. Well of course you have Fritz! Believe me, by the time I figure something out its usually old news. You ought to write a book, oh wait, you did! By the way when I got out of college two of my eight job offers were in the aluminum industry. That was back when bauxite was still being mined in Arkansas and Alcoa and Reynolds both made offers. But I went with oil instead. Did you ever know a guy named Jim Rice?

        1. Thanks Fritz, I knew it was unlikely but you never know, it was surprising how small my part of big oil was. It seemed like we all knew each other, almost.

  2. I just bought $20k of these for my wife and I earlier this week. I wish I would have been aware of these 5 years ago. I’m planning to buy another $20k after the 1st of the year. Also, you can purchase up to $5k using your income tax refund each year, so I’m planning to do that on my 2021 return as well to put me at $45k total early next year.

    1. Me too, but we didn’t miss out as bad as I thought, they paid lower interest rates most of the previous years. Missing this year would have been way worse!

    1. Great IF! I wondered if anyone else would think it was a good a deal as I did. Or if so if they already had I Bonds.

  4. I am 100% stocks but maybe these make sense. Would you buy them if you were mid 30’d and had maxed out your tax-sheltered accounts?

    1. Julia, I would buy them if you don’t need the money in less than a year and like smart Mrs. RFL commented, after one year you can use them as emergency fund money. But not the first year, that’s locked up.

  6. We purchased our allowed $20k in I-bonds earlier this month, and plan to repeat the process in January. It was super easy, and I also had put off the decision by a too long (fellow procrastinator here).

    I actually think these are a great addition to emergency funds for anyone who carries more than the bare minimum. They couldn’t make up your entire E-fund, but once you get through the first year, they are redeemable (loss of only last 3 months interest). I’m risk adverse so we usually carry 9-12-months expenses, so these will replace some of our cash holdings and provide a much better return. And if inflation falls and rates aren’t attractive anymore after a year, those last 3 months of interest lost wouldn’t be worth much anyway. Another perk, no taxes on the interest until you redeem them!

    1. Mrs.RFL, great point on them being ideal as emergency fund money after the first year. Looks like I was among the last to get off the couch and buy these. Better late than never!

  7. Thanks so much for sharing this information with the world! I see government bonds get a bad rap in the finance sphere; when so many folks are also nervous over smaller stock market returns in the next decade, it’s hard to argue against this >7% return. I know what I’ll be doing this month for sure, hooray for a 3 paycheck month!

  9. You and Sam convinced me that buying I bonds is worth doing and I just got this done. I figured if I’m willing to play credit card and brokerage account games to get bonus money, this hassle is worth the return too. My concern is that I feel this 7.12% rate is a one shot deal and that in 6 months, the rate will be back to dismal levels. But given how easy it was to open accounts and fund (took me about 40 minutes to do both me and my wife’s and I’m slow at this sort of stuff), I took the time to do it. Besides, if I didn’t do this, I’d probably waste my time watching some stupid Amazon show instead (it’s the holidays).

    1. Phillip it is very possible they’ll drop but who knows? I am glad I got it done finally. I just wish I had beaten Sam to the post!

  10. Ka-Ching! We just bought $20k, and planning another $20k right after the new year. Thanks for the nudge Steve! I read Sam’s blog first, and did a little research, but never sat down and actually pulled the trigger. Your post was a great reminder and just the kick in the butt that I needed. Done!

    1. Steve, I meant to ask… it appears you can’t assign a beneficiary to the overall account (like a saving account POD). Do you assign beneficiaries once the actual purchase is completed on the bond issuance itself?…I set up beneficiary registrations but it appears you can’t assign them until after a purchase. I guess I’ll find out in a day or so when my first purchases clear…

      1. https://www.bogleheads.org/forum/viewtopic.php?t=274230
        That link tells you how to add a beneficiary after the bonds have been bought. Its rather unwieldy and when you do the edit registration you enter the primary owner info in the top set of fields and the beneficiary info in the second set and click on the beneficiary circle before you submit. Then you hit enter, twice it seems, which is strange. Then you as owner with beneficiary POD will appear as a choice in the drop down registrant window. They could hardly have made it less straight forward. Your tax money at work. Then you repeat the process in reverse for your spouse’s account. It took me a couple of tries but I did get it to work. There is no option for a contingent beneficiary where I usually list my grown kids.

        1. Thank you for the detail Steve. The beneficiary process is a little unwieldy for sure, but the overall purchase was not bad.

          1. Thom, glad it was helpful. I just pulled the next $20K out of Vanguard to buy 2022 i Bonds next month.

  11. I’ve been wanting to invest in ibonds ever since PoF highlighted the information on his blog! I’m glad to know that it’s a ridiculously simple process.

    I recently quit my job so I have zero income stream coming in and the $10,000 limit would wipe out my entire emergency fund so I sadly decided not to move forward with the iBonds 🙁 I hope next year, they still pay a 7%+ rate, though I hear the Fed is targeting a 2.5 – 3% inflation..

    1. David, you are wise to keep that emergency fund liquid. iBonds tie it up for that first year so not good. Good luck on finding a better job, it may be a good time to change jobs.

  12. We were just talking about I bonds. This helps me understand what they are a little more and exactly how to get some of my own.
    I felt you were talking directly at me with that procrastination speech. Why push off what you can get done today until tomorrow? Maybe to stop procrastinating will be our new theme for 2022!
    Thanks for the information and the encouragement. Off to go buy me some I bonds.

    1. Good for you Jenni! I’m glad I finally did it myself. I just transferred another $20K into checking so I can pull the trigger which is bearing down on us like a freight train.

  13. Hope you’re well, Steve. I’ve been so busy over the past couple months I haven’t been keeping up with others’ blogs.

    I moved $10k of our ‘excess emergency fund’ into I Bonds back in June, when I realized they were paying 3.5%. The fact that they’re over 7% now is pretty awesome. I’m still deciding whether we will buy more in 2022. Yes, they could pay north of 5% for a year or two, but if I put the same money into VTSAX it’ll do better in the long run.

    1. That’s a great point Adam. I just moved cash into iBonds because I am very conservative in keeping a pretty big cash bucket. I know that’s not optimum from a performance standpoint but it’s in line with my wife and my risk tolerance. I Bonds vs cash is a different proposition than iBonds vs Index funds for sure.

    1. FFC, sure you can if you’ve got kids or a company or a trust but in our case we don’t have any of those currently so without setting up an new entity we were limited to $10K each. Thanks for pointing that out.

    1. Mrs FCB, not my original idea but at least I did finally execute on it. Going to do that again next week for 2022. I hope your family is having a great holiday season.

  17. Thanks for the tutorial on I Bonds! I had heard of them before but didn’t know that they were paying quite that much. Will investigate! Happy New Year to you.

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