Stupid I-Bond Advice

Albert Einstein i-bondI came across this personal finance article today in the Philadelphia Inquirer today that gives the following advice regarding I-Bonds:

Thinking of buying inflation-adjusted U.S. savings bonds? Then gather your cash quickly. Chances are, you’ll get a better deal with I-bonds purchased this month than with the ones coming to market Nov. 1.

The reasoning?

Bonds sold from the start of May through the end of October pay annual interest of 2.41 percent. That comes from a variable rate of 1.01 percent, plus a fixed rate of 1.4 percent…

The bonds coming next month may pay a fixed rate as low as 1 percent, says Daniel J. Pederson, author of Savings Bonds: When to Hold, When to Fold, and

...

[Continue Reading at SavingAdvice.com]

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7 Responses to Stupid I-Bond Advice

  1. LOOPY says:

    It is awful advice. This self-proclaimed ‘expert’ probably is not an investor.

    HSBC / other banks also give better liquidity than those bonds.

    Many people think internet banks are scams. Most are actually a very safe way to keep your money growing above the inflation rate.

  2. Steve Torso says:

    You can almost get better returns from leaving your money in the bank.

    I wonder if this person has ever invested in stocks. Your right… it is ridiculous advice.

  3. Hong says:

    Playing the devil’s advocate to the blog author (great blog by the way), IBonds can be tax deferred until you take them out. This tax advantage is similar to a non-deductible IRA which makes the assumed 4.6% rate a better deal depending on your tax bracket.
    Also, if you use them for higher education, they can be tax free which makes them even a better deal.

  4. pfadvice says:

    Playing the devil’s advocate to the blog author (great blog by the way), IBonds can be tax deferred until you take them out. This tax advantage is similar to a non-deductible IRA which makes the assumed 4.6% rate a better deal depending on your tax bracket.
    Also, if you use them for higher education, they can be tax free which makes them even a better deal.

    If it was all 4.6% I might be able to see the devil advocates argument (although I could argue there are still a lot of other ways to get a much better rate with the same, if not less, risk), but since he is encouraging you to lock in a rate of 2.41%, it makes little even when those considerations are taken into account. Just a bad piece of advice that I hope readers of that paper don’t follow…

  5. Brian Turner says:

    Agreed – people really need to watch their savings options, and despite the recent issues in Asia, those markets are running bullish. Here in the UK they’re talking about the FT 100 potentially reaching 7000 by the end of the year. I’d forget bonds and just push on equities.

  6. scfr says:

    Granted the rates aren’t terrific, but don’t forget that their earnings are exempt from state & local taxes. Gotta look at the big picture. I’m not going to buy them, but there may be someone out there for whom these make sense.

  7. Jim says:

    Hmmmm. So as of now (late 2011), who looks smart, and who looks…stupid??
    Maybe just throwing a few I-bonds into one’s MIX OF DIVERSE INVESTMENTS isn’t such a bad idea. I bought a bunch eleven years ago, and they’ve almost doubled in face value–admittedly not accounting for inflation. And, hmmm, let’s see, how well the stock markets have done…

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