don't wanna hijack the other saving bond thread

[irmanator]

So here is my question.... if you have a small ef what do you think of buying saving bonds thru payroll deduction... kinda the pay yourself first theory.

I was thinking that if I do that I would be paying myself first and it would make it harder to touch for impulses that I am still struggling with. I do have a small ef that could cover things for a short time till i could get to the bonds or could cover the small emergencies.

your opinions greatly appreciated

[kork13]

A perfectly good idea. As I mentioned in the other SB thread, I've recently started buying a bunch of I-Bonds, for both my EF and a home DP. However, I'm doing it through treasurydirect.gov -- not payroll deduction. That way I'm able to better control what/when I'm buying them. Also, come time to cash them in (whenever that may be), it'll be alot easier than contacting my pay office in writing, requesting the bonds, having them mailed to me (they're in paper form), then cashing them at the local bank. Doing it online at treasurydirect.gov allows me to do all of that electronically.

[disneysteve]

The one thing to keep in mind when using bonds as part of your EF is that you can't redeem a bond at all for 1 year. Then there is a 3-month interest penalty if cashed in before 5 years.

Other than that, I see nothing wrong with have savings bonds as part of your EF.

[irmanator]

Thanks guys!

The reason I wanted to do this thru payroll deduction is that I am terrible with self control. I wouldn't have to think about it.

With the points Kork13 brought up, I will probably split my direct depost to 2 accts. between my checking and saving. That will eliminate the problems he brought up and still take it out of my hands.

[kork13]

Thanks guys!

The reason I wanted to do this thru payroll deduction is that I am terrible with self control. I wouldn't have to think about it.

With the points Kork13 brought up, I will probably split my direct depost to 2 accts. between my checking and saving. That will eliminate the problems he brought up and still take it out of my hands.

I wouldn't totally abandon the savings bond idea. I think that using them for at least some part of your savings is a great idea (as long as you have other, more liquid funds available). If you want the decisions out of your hands, you can set up automatic purchases through treasurydirect.gov to pull money from your account and buy the bonds. That's what I'm doing. Works great, and at least for the I-bonds (haven't looked at the EE-bonds), the rate is higher than most checking or savings accounts.

[jIM_Ohio]

One other issue with bonds, if you have to sell them before maturity, you will do so on the secondary market, and if rates go up, you will not be able to recover all your principal.

Not an experienced bond trader, but its something like this

If you buy a $1000 bond paying 1% interest ($10/year), and rates go up in 2 years to 3%.

That means a $1000 bond paying 3% interest ($30/year) is worth more than your $1000/bond paying 1% interest ($10/year). So the value of your original $1000/1% bond is now lower to keep up with bond market.

I tried doing the math, but could not get it right, but I know the bond value goes down if rates rise...

[disneysteve]

Jim, OP is talking about US savings bonds. Your response refers to corporate or municipal bonds. Savings bonds don't trade on the secondary market as far as I know.

[jIM_Ohio]

Jim, OP is talking about US savings bonds. Your response refers to corporate or municipal bonds. Savings bonds don't trade on the secondary market as far as I know.

Treasury bond funds would use same secondary market that corporates would. A bond fund manager would sell low yielding issues for longer term higher yield issues on occasion.

Ultra-short term bond funds are the types of funds which buy these securities among other types.