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Thread: Series I Saving Bond

  1. #1

    Default Series I Saving Bond

    On November 1st the interest rate on the U.S. Treasury Series I Savings Bond became 7.12%, very high! Before, it was at or near 0% for many years (under 1% for over 10 years). This is a dramatic change, I'm surprised there is not more news on it, and will this not effect interest rates in other areas? Or because there are limits on the purchase of such bonds ($10K per individual per year), will it not have much impact?

    No matter, though I've been anti-bond with all the low interest rate, 7.12% does have me getting back in, at least $10k, and I'll have my wife purchase $10K, then maybe each of my kids. Again, 7.12% is very good, wonder how long it will last, how long can the Treasury afford to pay such rates? (Then again, let's not forget how digits are created).

    Wondering if anyone else is biting on this hook, nothing like this has been out in a while, let's discuss....
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

  2. #2

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    Quote Originally Posted by motocat View Post
    On November 1st the interest rate on the U.S. Treasury Series I Savings Bond became 7.12%, very high! Before, it was at or near 0% for many years (under 1% for over 10 years). This is a dramatic change, I'm surprised there is not more news on it, and will this not effect interest rates in other areas? Or because there are limits on the purchase of such bonds ($10K per individual per year), will it not have much impact?

    No matter, though I've been anti-bond with all the low interest rate, 7.12% does have me getting back in, at least $10k, and I'll have my wife purchase $10K, then maybe each of my kids. Again, 7.12% is very good, wonder how long it will last, how long can the Treasury afford to pay such rates? (Then again, let's not forget how digits are created).

    Wondering if anyone else is biting on this hook, nothing like this has been out in a while, let's discuss....
    ~0% to over 7%+? Sounds like trouble to me. When was the last time you know of where the bond interest rate jumped 7% overnight? Sounds like a Weimar move to me.
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  3. #3

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    Yes, this jump NEVER happened before. So it looks like they are scared. Or maybe it's just a bluff and 6 months from now (they adjust every 6 months), they will go back to near zero?

    Still, for those in CD's or other bonds -- I say this is a far better deal in a more secure bond then anything else out there. Now if it all comes crashing down, I have my gold and other survival needs, and if not, over 7% is far better than anything else so secure will provide.

    Anybody else jumping on this? If not, what are you doing with your savings? PM's? High priced real estate? Stock? So long as the U.S. remains solvent, it's the best bond purchase I've made in my lifetime. Here is the link: https://www.treasurydirect.gov/indiv...nds_glance.htm
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

  4. #4

    Default

    Quote Originally Posted by motocat View Post
    Yes, this jump NEVER happened before. So it looks like they are scared. Or maybe it's just a bluff and 6 months from now (they adjust every 6 months), they will go back to near zero?

    Still, for those in CD's or other bonds -- I say this is a far better deal in a more secure bond then anything else out there. Now if it all comes crashing down, I have my gold and other survival needs, and if not, over 7% is far better than anything else so secure will provide.

    Anybody else jumping on this? If not, what are you doing with your savings? PM's? High priced real estate? Stock? So long as the U.S. remains solvent, it's the best bond purchase I've made in my lifetime. Here is the link: https://www.treasurydirect.gov/indiv...nds_glance.htm
    I would definitely purchase if I was a US citizen with a SS # which you must be.

    There are some drawbacks but they do not overcome the benefits, in my opinion.

    You must hold onto the bond for at least 1 year ( illiquid in short term)
    You must hold onto the bond for at least 5 years or pay 3 months interest penalty.
    There is no chance of having a capital gain, like other bonds, since can only be sold at face to Treasury.
    You are at the mercy of the government, posting their CPI figures each 6 months. ( rate will probably go down)


    That being said, hard to pass this up, at least for a year. If you need to sell, after 1 year, and rate goes down to say 5% in second 6 months, you
    will still get 6% minus 1/4 penalty or roughly 4.5%. (annualized) Pretty good considering alternatives, on a risk adjusted return.


    As for how can the treasury pay for this. The most citizens can buy is 10,000. Most will not, so this is paltry stuff. It is not that much different than the
    30 year TIPS they sell. Just looks good for this 6 month window ( probably) just like SS increase for 2022.


    That being said most should buy 10,000 if they can afford the minor illiquidity, and want some small diversification to go along with I assume their gold, and stocks, and crypto etc.

  5. #5

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    Brutus (reply quite still does not work),

    I don't mind no possible gain to value of the bond, as that also means no loss, and given all the room for interest rates to go up for other bonds, there seem to be more room for loss than gain.

    The 3 month interest rate penalty if you cash in before 5 years seems minor, especially because you will likely cash it in when the interest rate is low. The 1 year hold no problem for most who have other savings/investments.

    As for limits, as I understand, a family of four can get $60,000 -- $10K in electronic bonds, and $5k in paper bonds each 4 (10 + 5) = 60K; fetching $4,272 a year for a family of four, and as interests compounds every 6 months, it can actually be even more. And then you can get this $60K again in 2 months (every calendar year) - so $120,000 for every family of four, that's starting to look significant.

    Most American's should jump on this, get to the limit. Just wonder how it is going to payed for, and maybe this can actually add to inflation? Then again, I've received over $100K in free cheese since the pandemic began, and I know wealthier people who received even more, so I guess this is small change these days? And after reading up on NFT, the crypto currency worlds, I see so many digits getting created, I'm so glad I own something more tangible and rare, how so many others can have such great confidence in the digital world I don't get. Yeah, that something is gold, and now I got some bonds, getting over 7% -- anyone sticking to bonds yielding less than 4% is playing sucker to everyone else.
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

  6. #6

    Default

    Thanks motocat, Great tip. Now I do not know much about these. How would a person cash in the electronic I bond? Bonds for dummy's 101
    Last edited by vertical1; 11-02-2021 at 07:09 PM.
    Thomas Jefferson is credited with writing, “When injustice becomes law, resistance becomes duty.” The seceding states in the Civil War period issued a similar declaration using the word “tyranny” as opposed to “injustice.”

  7. #7

    Default

    Quote Originally Posted by motocat View Post
    Brutus (reply quite still does not work),

    I don't mind no possible gain to value of the bond, as that also means no loss, and given all the room for interest rates to go up for other bonds, there seem to be more room for loss than gain.

    The 3 month interest rate penalty if you cash in before 5 years seems minor, especially because you will likely cash it in when the interest rate is low. The 1 year hold no problem for most who have other savings/investments.

    As for limits, as I understand, a family of four can get $60,000 -- $10K in electronic bonds, and $5k in paper bonds each 4 (10 + 5) = 60K; fetching $4,272 a year for a family of four, and as interests compounds every 6 months, it can actually be even more. And then you can get this $60K again in 2 months (every calendar year) - so $120,000 for every family of four, that's starting to look significant.

    Most American's should jump on this, get to the limit. Just wonder how it is going to payed for, and maybe this can actually add to inflation? Then again, I've received over $100K in free cheese since the pandemic began, and I know wealthier people who received even more, so I guess this is small change these days? And after reading up on NFT, the crypto currency worlds, I see so many digits getting created, I'm so glad I own something more tangible and rare, how so many others can have such great confidence in the digital world I don't get. Yeah, that something is gold, and now I got some bonds, getting over 7% -- anyone sticking to bonds yielding less than 4% is playing sucker to everyone else.
    As I said, I agree, that it is a very good idea ( short term at least)

    It is always good to look at things that look too good to be true, as they usually are. ( in longer term)

    I am not familiar with these bonds, as I am not US, but most of it is explained pretty simply on their web site.

    1) If the inflation rate is negative, do you get this deducted from the bonds 30 year coupon rate component? ( around 2% now I assume along with the inflation rate currently of +5%) ?

    2) Do you actually think that if the Treasury states that the inflation rate is 5%+ again over the next 6 months ( annualized) that all he-l is not going to break out in the markets?
    They will be forced to increase rates significantly, which will put huge downside pressure on the total rate of these bonds. It will also increase the demand for regular bonds as rates go up and inflation down.

    3) You are putting your trust in the government, giving you the straight goods on CPI, especially if they are put in a corner.

    4) Not sure about your taxation, but probably like ours and interest income taxed full, like wages, unlike dividends and capital gains. ( I do see you can defer with this bond but still pay in the end.)


    As I said, I think everyone should go for them, but as I said they are really not much different then what you can buy now ( 30 year TIPS) over long run. and you can buy as much as you want.

    No real down side in buying and checking situation out after 1 year. I would too, if I could, but doubtful they will be any better than regular TIPS other than this short term peculiarity in pricing.

  8. #8

    Default

    If this is just short term, I'll get out after 1 year and never return. However if they bring back the these Series I savings Bonds to near zero after only 6 months, their credibility will be destroyed, few will jump back in next time they try this

    TIPS is a lot less predictable, and even if all goes well, will not gain much more than the these savings bonds. Bonds should be more predictable, otherwise I'll just go to cyber-currency, or so many ETF's for my digital fund plays.

    Given the inflation they now officially admit, I'm wondering why more people are not abandoning so many regular savings, CD's, REIT's & low interest rate government & corporate bonds millions of people hold vast amounts in, many still getting interest rates still near zero.

    And again, how is this going to effect payment of public debt? Especially if it goes on?

    Regarding trust in government -- seeing that 7% is better than the 0% the funds I'm using for this are now getting does not require such trust. Simple math. And even if true inflation is 10%, 7 is till much better than 0! Hopefully others do the math, and put as much as possible here, abandoning so many other bond funds that are less predictable while promising less.
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

  9. #9

    Default

    Still can't edit - meant crypto-currency of course.

    Also, I don't follow the official CPI at all, it's a farce. I knew and observed the inflation well before they were willing to acknowledge it over the last few months (with 5%+), it's as if they are late to the game, only following behind when it can no longer be denied, so as not to get dismissed as loons by those who would rather believe things they can see with their own eyes. Government is in alliance with big banks/finance -- which means the name of their game is illusion to create their needed followers, it is never about revealing truth.

    Still, no matter how you frame it, 7% is much better than the 0% of only yesterday, so I've gone in with recent savings (knowing I also already have enough PM's unlike so many who can only digest the stock and bonds pushed all their lives).
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

  10. #10

    Default

    Vertical wrote: Thanks motocat, Great tip. Now I do not know much about these. How would a person cash in the electronic I bond? Bonds for dummy's 101

    It's all electronic now. Just go to this website: https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm

    And you set up an account with treasury direct as per instructions. Once that's done, you can transfer funds from your bank to them, and then after 1 year (or more), you can sell and it gets transferred back into your same bank account. You can also gift your kids 10K, so for each kid you have, you can put in another 10K. Your rate is guaranteed for 6 months, and every 6 months they come up with a new rate supposedly based on inflation data. (I have never seen such a big jump from yesterday's rate)

    And you can also ask for any tax refund in bond form, fill out the bottom of this form: https://www.irs.gov/pub/irs-pdf/f8888.pdf You can get another $5K in this Series I bond fund that way.
    “Of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.”Daniel Webster (1782-1852)

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