Comments on: Not Too Thrilled About 1.2% I Bonds http://thefinancebuff.com/2008/04/not-too-thrilled-about-12-i-bonds.html like a friend telling you about money ... Thu, 19 Nov 2009 19:44:17 -0600 http://wordpress.org/?v=2.8 hourly 1 By: TFB http://thefinancebuff.com/2008/04/not-too-thrilled-about-12-i-bonds.html/comment-page-1#comment-624 TFB Mon, 21 Apr 2008 20:27:00 +0000 http://blog.thefinancebuff.com/?p=251#comment-624 Anon - Thanks for the love! For anyone else interested in the previous post about EE bonds, here it is:<br/><br/><a HREF="http://thefinancebuff.com/2007/05/redeemed-may-2002-ee-bonds.html" REL="nofollow">Tax and Inflation Penalize Savers</a><br/><br/>I'm glad you brought it up. It can still happen with today's 1.2% I Bonds. Say the inflation is 3.5% and you pay 28% tax. Your after tax return is (1.2% + 3.5%) * (1 - 28%) = 3.384%, which a hair lower than the 3.5% inflation rate. The higher the inflation rate, the more you lose after tax and inflation.<br/><br/>Don - That's a good point. I also redeemed some EE bonds last year and saw my taxes go up. Anon – Thanks for the love! For anyone else interested in the previous post about EE bonds, here it is:

Tax and Inflation Penalize Savers

I'm glad you brought it up. It can still happen with today's 1.2% I Bonds. Say the inflation is 3.5% and you pay 28% tax. Your after tax return is (1.2% + 3.5%) * (1 – 28%) = 3.384%, which a hair lower than the 3.5% inflation rate. The higher the inflation rate, the more you lose after tax and inflation.

Don – That's a good point. I also redeemed some EE bonds last year and saw my taxes go up.

]]> By: Don http://thefinancebuff.com/2008/04/not-too-thrilled-about-12-i-bonds.html/comment-page-1#comment-623 Don Mon, 21 Apr 2008 19:13:00 +0000 http://blog.thefinancebuff.com/?p=251#comment-623 The 12 month to cash wouldn't have to be a severe limitation to using I bonds for emergency fund, particularly if you were expanding from an adequate emergency fund to a "more" adequate amount. You'd just have to stagger so an overly large amount of cash is not tied up.<br/><br/>However, there is one thing that I think does make bonds inferior. I had a substantial amount of my emergency fund in EE bonds (from back in the day when the terms were better). When I had need of some of that money I it caused a big increase in my taxable interest that year (I had deferred my earnings).<br/><br/>That's sort of a negative in my mind. Just when you need more money, your taxes go up and you need more money.<br/><br/>I am resolved to keep only the bonds I have under the best terms and cash them for my daughter's education (taking the related tax credit). I am building the greater portion of my emergency fund in non-deferred ways. The 12 month to cash wouldn't have to be a severe limitation to using I bonds for emergency fund, particularly if you were expanding from an adequate emergency fund to a "more" adequate amount. You'd just have to stagger so an overly large amount of cash is not tied up.

However, there is one thing that I think does make bonds inferior. I had a substantial amount of my emergency fund in EE bonds (from back in the day when the terms were better). When I had need of some of that money I it caused a big increase in my taxable interest that year (I had deferred my earnings).

That's sort of a negative in my mind. Just when you need more money, your taxes go up and you need more money.

I am resolved to keep only the bonds I have under the best terms and cash them for my daughter's education (taking the related tax credit). I am building the greater portion of my emergency fund in non-deferred ways.

]]> By: Anonymous http://thefinancebuff.com/2008/04/not-too-thrilled-about-12-i-bonds.html/comment-page-1#comment-622 Anonymous Mon, 21 Apr 2008 18:07:00 +0000 http://blog.thefinancebuff.com/?p=251#comment-622 Love your blog! <br/><br/>Just read that you had an old entry on EE bonds. I had some EE bonds bought in 2003. I really don't see a point to keeping them, not to mention that they will be out of the 5-year penalty by May. I too lose money on them after tax and inflation! Well, at least I earned some cash back because I bought them by credit cards. Love your blog!

Just read that you had an old entry on EE bonds. I had some EE bonds bought in 2003. I really don't see a point to keeping them, not to mention that they will be out of the 5-year penalty by May. I too lose money on them after tax and inflation! Well, at least I earned some cash back because I bought them by credit cards.

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