I haven't seen much discussion of whether it is worth buying these before the rates change at the end of the month.
There are two issues: (1) whether buying I-bonds makes sense this year (whether before or after April 30th) and (2) if so, whether it makes sense to buy now or wait for the new rates.
On (1), I am punting. I will buy I-bonds because I can always offset buying savings bonds with a 1.3% fixed rate by selling low fixed rate savings bonds I currently own. And I don't have to decide that this minute.
On (2), the few projections I have found suggest that the new fixed rate will be slightly lower than the current 1.3%. Further, the inflation adjustment available now (for the next six months), annualized, is about 1% higher than it will be in May. All of that argues for buying now if one is going to buy at all.
https://www.cnbc.com/2024/04/19/heres-why-it-may-be-better-to-buy-series-i-bonds-before-may-experts-say.html
Comments
From 4/10/24, https://tipswatch.com/tracking-inflation-and-i-bonds/
I previously scheduled an I Bond purchase on 04/26 via the Treasury Direct website.
The current 1.3% fixed rate is attractive and it may decrease (or not) in May.
I'll have to remember that when selling I Bonds.
Yes, that's pretty much the way that I see it also.
I regard them as long term cash, since they only accumulate interest, like a bank account or MMF. In this respect they differ from longer term treasuries (whether nominal or inflation-protected).
T-bills currently yield significantly more. I do use those for shorter term cash.
Some posters have expressed concern about having to remember 1099s. Compare that with TIPS, where you are sent 1099s, but you may have to do a lot of calculations on top of that info: IRS Pub 1212 (OID)
Thanks to @Observant1 for the comment on fixed rates, even though the comment amounted to "who knows?"
My I Bond holdings were accumulated over a number of years.
I haven't sold any of these bonds since they will be used for cash during retirement.
Fixed/base rate 1.30% (same)
Variable rate (semiannual) 1.48%
Composite rate = [0.0130 + (2 x 0.0148) + (0.0130 x 0.0148)] = 4.28%
It may be too late to buy now. A year ago, the Treasury Dept said that you had to buy on the second-to-last trading day to get the April rate. I don't know whether that was a one-time exception or whether you must always place an order a day before end of month.
https://money.com/last-day-i-bonds-current-rate/ (April 2023 end-of-month).
The purchase was credited to my account on Saturday, 04/27.
BTW, I own both now. As T bills mature, I like to reinvest them again. But which one?
Comparison should be with 5-yr T-Note (4.64%) and 5-yr TIPS (2.25% + inflation).
For maturing T-Bills, also consider Treasury FRN USFR; FRNs reset (variable) rates weekly to 3-mo T-Bill auctions (typically, Mondays).
I suppose that's as good a reference as any. I can infer the rationale for five years - that after five years one can cash out an I bond w/o penalty. But an argument can be made for comparing with 30 year T-bonds. They, like I-bonds, have a rate locked for 30 years.
I view I-bonds as cash, much as one might view a 5 year CD with a 90 day early withdrawal penalty as cash. No interest rate risk. And that may be the biggest flaw in comparing I-bonds with 30 year T-bonds. The latter is extremely sensitive to interest rates.
At current rates, one will do better with a five year TIPS (2.25% + inflation) vs an I-bond cashed out after five years (1.3% + inflation). That's true (though a closer call) after accounting for the fact that you'll pay taxes annually on the TIPS, bleeding returns. I-bonds are tax deferred until you cash out.
(To do an apples-to-apples comparison, I'm looking at taxable accounts, since I-bonds can't be held in tax-sheltered accounts.)
It's the classic trade-off. Certainty vs. expected return. In normal environments, yield goes up as the length of the debt instrument increases. I bonds are like cash, while Treasuries, especially multi-year or multi-decade ones, have uncertain mark-to-market (cash out) value.
And I-bonds have no reinvestment risk (risk of reinvesting divs after rates drop). With I-bond's greater certainty (ability to cash out w/o loss, no reinvestment risk) and more favorable tax treatment (deferred), they should normally yield less than Treasuries.
As I noted in the OP, one can hold and still improve one's position by swapping older, lower fixed-rate I-bonds for new, 1.3% fixed-rate issues. Though there is a tax cost in cashing out those old I-bonds.
I am not buying I bond either. The $10K limit per year is too small for us, including the $2.5K from tax refund. The other challenge is navigating through TreasuryDirect that requires lots of patience. Will hold what we have until they reach 5 years.
Since the yield curve remains inverted, we continue to buy T bill every month as part of a ladder in our taxable account. USFR is a good vehicle I learned from this board. The yields are very competitive to I bond. Moreover, they can be bought and sold readily at many brokerages.