Investing in EE bonds / I saving bonds

[aim-high]

I have all of my Emergency funds in savings account. In addition, I read somewhere about EE bonds and I savings bonds . Is it a good time to invest in these bonds in this current market condition. Is it good to put some portion of my emergency funds in these bonds so the funds are diversified and I get little more interest rate.

[feh]

Some people keep a portion of their EF in I Bonds. You need to be aware that after purchase, you cannot redeem them for 1 year, and there is an early-redemption fee until you've owned them for 5 years.

Depending on the size of your EF, it may or may not be worth the hassle. We do own them, but don't consider them part of our EF.

I can't speak to EE Bonds.

[cooliemae]

Right now the fixed rate for I-bonds right now is .2% and EE bonds are paying .1%. Even with the inflation adjustment for the I-bonds only brings it to 1.38%. My suggestion would be to get a 5-year CD at a bank that pays better (ally has 1.6% 5 year CD). This way the money is more liquid and getting a better return.

[feh]

Right now the fixed rate for I-bonds right now is .2% and EE bonds are paying .1%. Even with the inflation adjustment for the I-bonds only brings it to 1.38%. My suggestion would be to get a 5-year CD at a bank that pays better (ally has 1.6% 5 year CD). This way the money is more liquid and getting a better return.

The comparison isn't that straight forward; there are other advantages to I Bonds. They are tax-free at the federal level, and will provide inflation protection (if/when that occurs).

Again, if your EF is small, the difference between a money market account, I Bond or CD is not worth the time spent on analysis.

[SeanH]

I'm not going to sing EE bonds' praises, but their selling point is frequently misunderstood or not reported. If you hold an EE bond for 20 years their value is doubled (through an adjustment described below). That means their interest rate comes out to ~3.53%, but until you hit 20 years it will be reported as something absurdly small.

I kid you not - I read on another forum a person asking if they should dump their underperforming EE bonds that were 19-something years old.

"Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference."

[scfr]

I'm not going to sing EE bonds' praises, but their selling point is frequently misunderstood or not reported. If you hold an EE bond for 20 years their value is doubled (through an adjustment described below). That means their interest rate comes out to ~3.53%, but until you hit 20 years it will be reported as something absurdly small.

I kid you not - I read on another forum a person asking if they should dump their underperforming EE bonds that were 19-something years old.

"Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference."

Correct! So 2 questions to ask yourself OP are: How many more years am I statistically expected to live? Can I reasonably expect to hold EE bonds for 20 years? If it's your "minimal EF" the answer to the last question may be "no."

[Like2Plan]

The comparison isn't that straight forward; there are other advantages to I Bonds. They are tax-free at the federal level, and will provide inflation protection (if/when that occurs).

Just to clarify. The I-Bond interest may be tax free at the federal level if they meet the requirements for education tax exclusions.

Tax Considerations
•Interest on savings bonds is subject to taxes imposed under the Internal Revenue Code of 1986. The bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
•Interest earnings are subject to Federal income tax.
•Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

Source TreasuryDirect Tax Considerations

[feh]

Just to clarify. The I-Bond interest may be tax free at the federal level if they meet the requirements for education tax exclusions.

Source TreasuryDirect Tax Considerations

My bad; I meant to say they were exempt from state taxes.

Thank you for the correction.

[snafu]

For those wishing to park EF for a slightly higher rate than savings account and accessible in two business days, I suggest looking at short term, corporate bond EFT [Exchange Traded Fund]. It's not a buy and hold like a savings account. You will need to monitor the fund and pay attention to any hint of increasing interest rates. As interest rates increase, Bonds decrease in value and that will lower the NAV [Net Asset Value] of any Bond EFT