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I Bond Investors: It's Time To Buy

Mar. 08, 2020 5:42 PM ETTIP48 Comments
Tipswatch profile picture


  • Series I Savings Bonds purchased through April 30 will have a permanent "real yield" of 0.2%, well above TIPS yields of any maturity.
  • I Bonds carry many benefits over TIPS, including tax-deferred interest and rock-solid deflation protection.
  • Another Savings Bond, the EE Bond, is also very attractive under current terms, offering a 3.5% return for anyone who can hold it 20 years.

Series I Savings BondI've been writing about TIPS and I Bonds for nearly 10 years, and there have few times when I Bonds have reached the level of a SCREAMING BUY. Right now, in March 2020, it's time to say: "I Bonds are a screaming buy."

I've been pounding the table for I Bonds in recent months, often calling them the best inflation-protected investment in the world. But we've now reached a point where I Bonds are amazingly superior to similar very safe investments.

Normally, I would suggest that investors wait until closer to the May 1 reset of the I Bond's fixed rate to make a purchase, but that is clearly no longer an issue. The fixed rate has zero chance of going higher than the current 0.2% and about a 99% chance of dropping to 0.0%. So clearly, the case can be made to buy I Bonds in March, or April, but definitely before the fixed rate resets on May 1. And buy up to the full limit of $10,000 per person per year.

A primer on Savings Bonds

Barron's columnist Randall Forsyth wrote an excellent (and accurate) column this week extolling U.S. Savings Bonds as a "secret weapon for small investors." I noted "accurate" because it is rare to see these often-ridiculed investments -- I Bonds and EE Bonds -- correctly explained. He noted:

Savings bonds come in two varieties, series EE and series I. Their stated interest rates are trivial—0.10% and 0.20%, respectively. But both come with kickers that make them super deals.

Unfortunately, Forsyth's column is behind the Barron's paywall and a lot of people won't be able to read it. So here's some basic information.

Understanding I Bonds. A Series I Savings Bond is a Treasury security that earns interest based on combining a fixed rate and

This article was written by

Tipswatch profile picture
I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (48)

Andrew Stotz profile picture
Great article. Thoughtful. Well explained. Most importantly, actionable!
HaroldRamis profile picture
impressive recovery in TIP
HaroldRamis profile picture
More concerned with some kind of deflation soon, and a haircut on the 3% i-bonds
Tipswatch profile picture
Yes, it's possible. The current six-month rate setting period has only one month left, and inflation has been running at 0.75%, so we are likely to get a positive variable rate on May 1. Buying before May 1 would mean you'd get a positive rate for a year. The November variable rate could definitely be negative, though.

Let's say that deflation strikes, and you get a variable rate of -1.6% (this rate went into effect in May 2015). You would still be earning 1.4% on those old I Bonds, technically 3.0% higher than inflation. But you'd earn 0.0% on all I Bonds with fixed rates of 1.6% or lower (0.0% is 1.6% better than inflation that is running at -1.6%).

One of the side benefits of I Bonds is that your accrued principal can never go down, so in severe deflation times, you just get 0.0% interest. Then when inflation rebounds, you get the full benefit of the bounce. This isn't true of TIPS, where the principal balance goes lower and you need to rebound from the lower principal balance.
HaroldRamis profile picture

Oil at 20-25 will tank inflation. As will the recession

-1.7% , might be optimistic , -2,3 would not shock me. Would not expect it to last long though
Does the impending stimulus package change your thinking on committing to buying full allotment of iBonds now? I’m assuming trillion or 2 trillion dollar stimulus will ultimately be extraordinarily inflationary as our government will be simply printing money to pay for it.
g23riel profile picture
Ibond is a great inflation hedge as long as the world does not give up on the dollar as the monetary backbone. It is rather of whether the I bond is more appealing than equities, and at this time, I don't think so. So, I will be sitting out on the fixed .1 bonus, even through I fully anticipate the next fixed part will be 0- because I am thinking equities are safer than I bond at this time, in performance as safe assets, so will buy them coming up.
11 Mar. 2020
I have a question. What is your thought on ticker TLT( iShares Barclays 20+ Yr Treas.Bond) , I noticed it went upto 170 and is now dropping every day in price. Is it a safe place to put money in?
Tipswatch profile picture
TLT is the "ultimate hedge" against a stock market decline. When stocks plummet, long-term Treasury yields also plummet because of a safe haven demand. That sends the TLT price soaring. I don't own it. It probably hasn't had a great couple of days, because the 30-year Treasury yield dropped to 0.99% on Monday, but rose to 1.30% at the close today. That's a BIG swing. But TLT is still way up from its typical price over the last year.

A lot of investors like TLT for the its hedging quality, but now doesn't seem like the time to buy a huge allocation in it. The price is $156.53 today, up 15.5% year-to-date. But on Monday it was up 26.4% year-to-date. This thing is volatile.
HaroldRamis profile picture
Nothing but cash , and maybe not even that in the long run , is really 'safe'.

Lots of pipe dreamers just found that out the hard way
Tipswatch is it advisable for a 68 year old to buy EE bonds?
Tipswatch profile picture
If you think you are likely to live to 88, then certainly. Or ... if you wish to pass the EE Bonds along in your estate, to be sold after 20 years.
CorpRaider profile picture
Really wish they would bring back paper bonds for all purchases (as opposed to just tax overpayments). Just nice to have the physical bond especially for gifting and teaching kids.
xokiereturns profile picture
You say: "If inflation in the next 30 years suddenly soars to 7%, 10%, 15%, your principal will increase by that amount because of the inflation-adjusted interest rate." Think that you were thinking TIPs for a second; the principal on I-Bonds is fixed at face value and the interest rate is adjusted. Would be nice to get both, but no such luck.
Tipswatch profile picture
Well, you are wrong. I Bonds carry an inflation-adjusted interest rate, plus the fixed rate, with interest paid every six months, and that interest payment increases your principal balance for the I Bond, meaning that the principal grows with inflation. Every time new interest is paid, your principal increases, and so you have higher principal growing with inflation.
HaroldRamis profile picture
I'd think folks would get that , but maybe not.

The only downside is, as I've mentioned, you can 'sell the top' of an interest rate move.

Given the top looked like it was in many times before this TOP, thats probably kept me and others from doing something STUPID
Indeed, I agree about I Bonds as a great investment. We purchased $60,000 (60 bonds) in 2001 at a fixed rate of 3.0%. For the past 20 years they have paid us between 5-6 percent a year with no possibility of loss. Of course, interest rates were sky high at the time.
preserving profile picture
As always this advice is wonderful, thanks Tipswatch. Just to clarify you can max out an Ibond and an EE in the same year per Treasury Direct: "an individual can buy a maximum of $10,000 worth of electronic savings bonds of each series in a single calendar year, or a total of $20,000
John Malcolm profile picture
What happened to TIP today? It lost 2.5 points while TLT gained 4. Any news?
Tipswatch profile picture
This would happen when inflation expectations drop substantially, which they did today. Take a look at the 10-year yields:

March 6 10-year real yield = -0.56%
March 7 10-year real yield = -0.32%

March 6 10-year nominal yield = 0.74%
March 7 10-year nominal yield = 0.54%

March 6 inflation breakeven rate = 1.30%
March 7 10-year inflation breakeven rate = 0.86%

TIPS yields actually increased (24 basis points) while nominal yields fell (20 basis points). This sets up a 0.86% 10-year inflation breakeven rate, which is pricing in an extremely dire future, for 10 years.

A very low inflation breakeven rate is a positive for TIPS versus nominals moving forward. I'd say TIPS became much more attractive than nominal Treasurys today.
John Malcolm profile picture
Wow! SPX may have reversed directions today, but TIP sure didn't: down 4.8% in two days. Volume is high and up-trending but my oversold indicators aren't flashing. I had suspected that ETF was full of froth, and now I suspect the speculators are running for the exits. Wonder how low it can go? I might soon get back into the market as a buyer of TIPS, which I haven't been for 14 months.
HaroldRamis profile picture
I dont usually look at TIP , but clearly it follows the long bonds , which also fell very sharply . TLT panic high was 180 Monday and closed at 162's Tuesday !!!!!! This is an epic move.

TIP is back to DEC levels , where the long bonds are still well above that , so its inflation expectations neg , + bond movement
HaroldRamis profile picture
The 30 year bond in the futures markets now trading at an unimaginable 188 , up a staggering 4+ % tonight alone.

Actually hit 191, before a sharp retrace back to 187. Margin calls and buy ins ,no doubt

Anyone short volatility or Treasuries, has been carried out on a slab.
The Series EE bonds already purchased with the 20 doubling deal would not be affected by the Govt lengthening the double to 30 years on future purchases.
HaroldRamis profile picture
I would think not.
HaroldRamis profile picture
ps, where are you getting the 30 years thing from ?
Tipswatch profile picture
Correct. The EE Bond terms do not change even if the Treasury sets new terms for new bonds in the future.
g23riel profile picture
One other point, annuities are appealing because the ownership of money is transferred and it cannot fall prey to creditors. The users are beneficiaries, not owners. Every state is different, but an EE could become part of an pension but in CA it would require a lawyer drafting it up, and the person following the document with rigid diligence. I have not found a good annuity that is appealing and at our current yields I am not sure I ever will.
g23riel profile picture
Thanks, this time I guessed it as well! If the fixed bonus falls to zero, I am not sure that i would buy the I Bond anymore, because by the time the taxes are taken out of the growth, it significantly underperforms inflation. With a .2% extra at a 2% inflation, one would only lose .2% from a 20% capital gains tax, splitting the difference on losing inflation. However, if inflation is really high, that .2 doesn’t cover too much of the capital gains, as it is. I looked up modern economy theory, and the stagflation concern that I had, was mitigated: there can still be a supply shock causing it, such as rare metals held by China, but with enough monetary loosening it can be helped, so at some point EE may become more appealing compared to the Ibond.
@g23riel When you redeem your I bonds the difference between your purchase and redemption prices is ordinary income not capital gain. It is interest that has been deferred. Therefore, you tax rate will be much higher than your 20% capital gain rate.
g23riel profile picture
@Bikerguy _Thanks for the correction_ After I wrote it, I thought about it as well. Which is even more depressing, because the fixed bonus does not cover taxes to allow the I bond to inflation neutral, unless during the time period that I bond paid the interest rate was ridiculously low.
Tipswatch profile picture
Roughly speaking, if inflation runs at 2% and your marginal tax rate is 24%, you need a taxable real return of nearly 0.5% to cover the future taxes. If the marginal tax rate is 22%, you'd still need a fixed real return higher than 0.4%.

And ... tax rates will probably increase in the future.

However, every other safe inflation-protected investment is going to under-perform inflation, even if held in a Roth account. A 10-year TIPS, purchased today, will get you a real return of -0.45%.

Most safe fixed-rate nominal investments will also probably under-perform inflation of 2.0%, but bank CDs could slightly beat that target in a Roth account. If inflation averages 2.0%, the EE Bond will do very well, even after taxes.
TAS profile picture
I held almost $450g investment value in minimum 4% yield I and EE Bonds which began maturing in 2017. I have many, many years of enjoying what my spare change bought back in the day.

One of the best inadvertent financial moves I made - I only purchased them for the hell of it as I was much more interested in stocks and real estate.
FinancialDave profile picture

What I find tiring is the 8 mouse clicks per EE bond to get it redeemed. So to redeem a years worth of $50 a month EE bonds its almost 100 mouse clicks. Have you found any short cut to this?
Baldy2000 profile picture
Harold, you sound like my wife and I who have $60K face value of I-Bonds bought in 2001 at 3% fixed rate. A great investment that has compounded at approx 5% rate over 20 years. Only catch are the taxes due. Yes, a great annuity. Cheers
HaroldRamis profile picture
Yeah, its a ways off, but thats some balloon tax that we will owe
You don't have to convince me. For years have been buying 10k for spouse and me plus 5k from tax return (We always owe but use 4868 direct pay to overypay so I can get the 5k refund in bonds).

On a side note, I've read various articles on using EE bonds as a make shift annuity. I'm torn/confused if its too late too start. I'm 52 and wife is 47. Not sure if I missed the boat on that one. I see most try and time to start redeeming at 65 and delay SS. Do you have any thoughts on the matter?

Thanks again I love your bond articles and base my i bond timing purchases on your insight.
Tipswatch profile picture
I'd say you are just about the ideal age to do this. It would be great to start at 45 so you can start redeeming at 65 and delay Social Security until 70. But it still works. Here is a link to Mel Lindauer's article for Forbes: www.forbes.com/...

One potential problem would be that you'd have an extra $20,000 in taxable income each year after age 72, when RMDs might also be pushing you into a higher income bracket and/or higher Medicare payments. But that's a nice problem to have ... too much money!
HaroldRamis profile picture
as a curiosity, what would an i-bond with 10 years to go at 3% base , trade for today, if you could sell it

unless we get massive deflation, It would have to be a lot.
Tipswatch profile picture
I have pondered this before and you are right, those would be worth a lot more than face value. You can get an idea by looking at some TIPS with high coupon rates with about 10 years remaining:

-- A TIPS maturing in April 2028 with a coupon rate of 3.625% has a market value of 133.26 for 100.00 of value, so a 33% premium. At that price, it has a real yield of -0.476% to maturity.
-- A TIPS maturing in January 2029 with a coupon rate of 2.5% has a market value of 127.06, so a premium of 27%. At that price it has a real yield of -0.511%.
HaroldRamis profile picture
Since the Ibond has no NET downside from deflation, and tax deferral, maybe 135-145 ? I know it can eat into the base rate ,and has, rarely.

Just a ball park , since its quite academic.
Im. buying both im 69 if I don't make the 20 years then the kids will get the 3.5% after 20.Its like buying a 20 year Treasury and dyeing first.
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