High Yield Savings

[Praxit]

https://robinhood.com/us/en/

..thats my bad boy. Thanks to RH, I learned the basics to investing. Havent looked back.

 

[rags747]

I-series savings bonds are all you need. The only downside is you're limited to $10,000//yr electronically plus any tax refund in paper certificates.

All you need for what? The return is not that fantastic unless I’m missing something.

 

[morasp]

All you need for what? The return is not that fantastic unless I’m missing something.

The yield isn't what's important it's keeping up with inflation with zero risk. If inflation goes to 0 I don't care if they earn any interest because my budget, that I was happy with last year, can stay the same as last year w/o any loss in buying power. When you retire, once you have the standard of living you are looking for, Inflation is what will sink you. That's why the social security COLA is such a great deal. All of the "investments experts' I talked to will try to tell you that you need to risk your assets in stocks and bonds to keep up with inflation. If you ever try a good financial planning tool, the impact of inflation is glaringly obvious when you run the numbers out for 40 years of retirement.

 

[CalPolyTechnique]

I-series savings bonds are all you need. The only downside is you're limited to $10,000//yr electronically plus any tax refund in paper certificates.

The yield isn't what's important it's keeping up with inflation with zero risk. If inflation goes to 0 I don't care if they earn any interest because my budget, that I was happy with last year, can stay the same as last year w/o any loss in buying power. When you retire, once you have the standard of living you are looking for, Inflation is what will sink you. That's why the social security COLA is such a great deal. All of the "investments experts' I talked to will try to tell you that you need to risk your assets in stocks and bonds to keep up with inflation. If you ever try a good financial planning tool, the impact of inflation is glaringly obvious when you run the numbers out for 40 years of retirement.

In terms of what you’re describing as the value of an I-series bond, how is that any better than what a standard money market account offers?

Your money in a typical run-of-the-mill savings account is FDIC insured up to $250,000, so there’s no risk.

 

[morasp]

In terms of what you’re describing as the value of an I-series bond, how is that any better than what a standard money market account offers?

Your money in a typical run-of-the-mill savings account is FDIC insured up to $250,000, so there’s no risk.

The problem I would have is you aren't really protected against inflation. When it unpredictably spikes, as it did last year, a savings account won't increase it's interest to keep your hard earned savings from eroding. Here are the recent historical rates for I-Bonds.


NOV2022-APR 2023 6.89%
MAY 2022-OCT 2022 9.62%
NOV 2021-APR 2022 7.12%

I also forgot to mention that another small benefit is I-Bonds are exempt from State Income tax. If you had purchased $10,000 of I-bonds in APR they would still be earning 7.12% for the next 6 months. FDIC is safe, I'm just not sure about the process of getting the money back if the bank does fail. The I-Bonds are very liquid.

 

[morasp]

For fun I just back tested how much I would have if I bought $10,000/Yr of I-Bonds when I graduated from college in 1984 until today. A few caveats, I don't think I-Bonds existed in 1984 and this doesn't include paper I-Bonds I could have purchased with tax refunds. Also there are 2 components to the I-bond interest rate, the inflation component and a fixed rate component. this is only for the inflation component so the actual amounts would be higher. The average rate of inflation from 1984 until today was 2.78%. If I bought $10,000 per year the inflation component would be worth $681,716.17. The $10,000 limit isn't per household but per individual so if my wife had done the same the amount would be double that.

 

[CalPolyTechnique]

The problem I would have is you aren't really protected against inflation. When it unpredictably spikes, as it did last year, a savings account won't increase it's interest to keep your hard earned savings from eroding. Here are the recent historical rates for I-Bonds.


NOV2022-APR 2023 6.89%
MAY 2022-OCT 2022 9.62%
NOV 2021-APR 2022 7.12%

I also forgot to mention that another small benefit is I-Bonds are exempt from State Income tax. If you had purchased $10,000 of I-bonds in APR they would still be earning 7.12% for the next 6 months. FDIC is safe, I'm just not sure about the process of getting the money back if the bank does fail. The I-Bonds are very liquid.

When you say “(won’t prevent) savings from eroding” what do you mean?

Do you mean actually losing some of your savings or just not keeping pace with inflation?

Also, when the economy is experiencing inflation there is a direct correlation to banks offering increased APR/APYs to attract customers (i.e. money savers) which is precisely what we’re seeing now.

I’m not familiar with I-Bonds. Is there no penalty for early withdrawal? I did read that any yield is taxed as income. Also, the following:

• If you sell your I bond before five years, you will lose the previous three months of interest.
• They are taxable as federal income but are not taxable at the state or local level.

 

[morasp]

When you say “(won’t prevent) savings from eroding” what do you mean?

Do you mean actually losing some of your savings or just not keeping pace with inflation?

Also, when the economy is experiencing inflation there is a direct correlation to banks offering increased APR/APYs to attract customers (i.e. money savers) which is precisely what we’re seeing now.

I’m not familiar with I-Bonds. Is there no penalty for early withdrawal? I did read that any yield is taxed as income. Also, the following:

• If you sell your I bond before five years, you will lose the previous three months of interest.
• They are taxable as federal income but are not taxable at the state or local level.

Yes, loss of buying power due to inflation. A tank of gas cost $40 last year but costs $60 this year, Groceries were $500/mo last year but $650/mo this year etc.

It should be easy enough to compare interest rates, I posted the I-Bonds recent rates but haven't bothered to check savings accounts. It would surprise me but it's possible that some FDIC insured accounts offered rates that high but I'll leave that to you to research on your own. It kind of sounds like you are leaning towards some sort of FDIC insured savings account which should be a perfectly secure solution if you're happy with the interest rate. I've been extremely happy with the I series savings bonds and thought I would mention them as a possible option for people.

That's right they have a three month penalty on interest after year one until year five and after that the full amount is fully redeemable any time. The other limitation is you have to leave the money in for at least one year.