I bond, you bond?
April 21st, 2008The Series I Bond bug just bit me on the butt.
If I invest half of my emergency fund in iBonds before the end of April (and leave them there for at least 14 months), the money will compound at a rate of ~4.04%. The other half, left in my HSBC account, will 3.05% until the Fed decides to cut it’s rates again.
Assuming no rate cut, my emergency fund will have an average interest of ~3.45% for the next year. I could raise my net interest rate by laddering the non-bonded in CD’s. But alas, I don’t have that big of an emergency fund and I’d like to keep some of the money liquid.
Update: For an excellent primer on Series I Bonds, check out I bonds take off with Interest @ The Financial Engineer or Series I Savings Bonds @ My Money Blog.
Both are excellent primers / explanations of Series I Bonds and interest calculations.
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April 21st, 2008 at 2:09 pm
I don’t know a thing about Series I bonds, so I’m hoping you could educate me a little bit. What’s the penalty if you need to tap the emergency fund early?
April 21st, 2008 at 4:59 pm
An addendum to the post has been added.
In short, if you cash in before five years, you lose the previous three months interest. But there’s a trick with ibonds that if you buy at the end of the month, you still get the months interest. Thus if I buy at the end of this month and hold for 14 months. I’ll only lose the final two months of unknown interest as I’ve gained interest from my bank account this month.
It can be rather confusing
April 23rd, 2008 at 9:44 pm
Thanks for the mention. The Fed’s rate cuts have really hurt the returns on fixed income assets. Either we take on more risk or fall behind because of inflation.
April 26th, 2008 at 1:36 pm
I finally got around to reading up on the Series I Bonds - sounds like a solid investment/savings plan. Thanks for the links