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C Of I Of I-BOND

IGR
  |     |   580 posts since 2020

Any insight or shared personal experience re-purchasing I-Bond via C of I?

"C of I" as Certificate of Indebtedness, not the The College of Idaho or The Church of Ireland.

I have only vague understanding how it would work and very light on the knowledge of the timelines of such transaction.

The purpose of this exercise is that some I-Bonds eligible for redemption are currently earning 6.48% annualized rate, in a meantime Newly Issued Bonds earn 0.4% Fixed Rate premium or 6.89 % Combined annualized Earnings Rate.

Worst case scenario is a difference between 3.24% and 3.64% Earnings Rates.

over next 12 months of holding.

3.24% is no go, but 3.64% may make sense depending on tomorrow release of October CPI

One way to repurchase I-Bond is to recycle I-Bond Redemption proceeds through linked Bank Account, another is by keeping funds at TD as C of I.

Anybody has done it?

I wonder if there is a real life timeframe difference and also, what would be the best timing to execute such transactions...first days of month, perhaps.

Income tax implication is not taken into consideration.

I could find virtually no reliable information for self-study.

Thanks

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2


Answers
GreenDream
  |     |   358 posts since 2019
No experience with purchasing via C of I but hopefully I can still offer some useful advice (take with the appropriate doctor recommended amount of table salt). As for timeframe, unless they're very, very slow, I shouldn't think it makes much difference timing wise given when you'll be redeeming vs when you'll be purchasing. Due to the way interest works on I-bonds, you'd want to redeem at the beginning of the month and purchase at the end. which gives you twenty some days leeway in between. Since C of I does not pay interest (as far as I'm aware) probably best to put the money in your linked bank account (where you can get interest) when you redeem at the beginning of the month and then withdraw it from there to purchase at the end of the month. Hope that helps.
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IGR
  |     |   580 posts since 2020
Not much, really. Thanks anyway.
I was looking mostly into the logistics of the transactions, from the point of view of maximizing the efficiency, rather than the return. What ore we talking here $$$ wise, 25 bucks? headache medications will cost me more! and that is if linked account is Interest bearing!
I don't consider 11 months annualization to be valuable metric. When Bonds are hold through several rate periods and 18+ months the impact of timing the transactions is negligible and notoriously difficult to calculate.
I'm looking into the issue from the point of view of record keeping and effort investment. in particular I'm curious about TD notation "The payment destination you provided should be credited within two business days."
would it apply to C of I as well?
Since there is no option to reinvest into I-Bonds, I could schedule bidirectional transactions in one sitting without having to worry about going back and forth between Bank and TD accounts.
I have tested scenario empirically, TD allows to schedule the purchase without actually having C of I balance on TD account.
It is not a big deal, just a few $$ but I wonder if I should schedule Redemption and Purchase transactions 2, 3...5 days apart.
I don't have much experience with TD Record keeping and can't find any information about innerworkings of Treasury.

Deleted what?
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GreenDream
  |     |   358 posts since 2019
I have to question your idea of "efficiency". Due to the way interest works on ibonds, it makes no sense to wait until the end of any given month to redeem. You'd want to redeem early in the month, freeing up the money to work for you elsewhere for the rest of the month. For the same reason, there's no real point in purchasing early in the month, you'd want to wait until late in month to purchase, letting that money work for you elsewhere until then. So where's the efficiency in redeeming in the 1st week of the month, holding the money in the C of I for 20 some days (just sitting there doing nothing for you) and then purchasing during the last week of the month? just to shave a business day or two off of the purchase wait? Is effectively stuffing your mattress for 20 some days really worth the possible "savings" of a day or 2? Particularly when simply moving the money to/from your linked account costs nothing and isn't really a hassle record keeping wise. nor takes much of any effort on your part. Sorry, just not seeing where you are expecting to "gain" any efficiency by holding in the C of I once the whole process and it's timing is taken into account?
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Choice
  |     |   937 posts since 2020
Wow! Can't wait to see how this evolves given all the "labor" related to the "GTE Early Withdrawal Penalty" thread! Let the games begin...what self-study sources have you accessed?
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IGR
  |     |   580 posts since 2020
Yeh, it's take two...expecting sequel myself.
Couldn't find any... with TD, it's either you know, you guess or you don't
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Choice
  |     |   937 posts since 2020
Deleted by PM
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IGR
  |     |   580 posts since 2020
I have to retract my question for now.
I overlooked one critical issue.
Assumingly, it is going to be a Purchase no matter what the funding is, and I am maxed out for this year Purchases.
Comes next year, it is going to be complicated with next year Purchase limit and having to surrender the past Bonds that would still earn some Interest.
Cute design though... Once you hyped into Purchasing Bonds because of record Inflation rate, you stuck for life with 0% Fixed rate, or Redeem it!
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Choice
  |     |   937 posts since 2020
One, technically, never maxes out given various possible TD accounts, gift box, etc
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IGR
  |     |   580 posts since 2020
Yes, you right of course. But practically, it becomes huge headache and I need to draw the line somewhere, to maintain some degree of manageability.Gift, especially tricky ones. I don't want to stuck with many of them because the recipient is maxed out.
Beside, lately I was getting all kind of issues, with IRS issuing EINs, and with TD demanding verifications of all kinds, still waiting for last account to clear.
The point was not redeeming bonds, but to keep accumulating them without having to earn less Yield than available.
"Technically" doesn't always translate in practically
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Choice
  |     |   937 posts since 2020
I redeem in conjunction with the best current CD rates available AND the tax bracket that I plan for that year, i.e. how much interest income from ibonds do i want when considering other income during the year. I buy when I want to park some money.
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IGR
  |     |   580 posts since 2020
Good points!
I never bothered myself pre-considering tax brackets prior to January 1st. Should try perhaps.
And I never thought of ibonds as queasy liquid accounts. But if such, my point is even more actual.
If you park it, you better guaranty yourself some fix rate?!
would you agree?
But the main issue you have brought forward, how would you/me decide on surrendering prospect of earning potential but unknown future ibond interest for the benefit of one time income tax saving?
I am, let's make money first and worry about the expense later kind of person, but i'll be better one if i combine make more money pay less expense.
ibond is tricky creature! how would you know that surrendering in December and paying less taxes will cover your unrealized Income if bonds surrendered April next year and next year taxes are increased.
This is purely rhetorical. exact answer requires quantum computing calculations...
just to clarify for myself, do you judge ibonds against CD with the same degree of liquidity?
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Choice
  |     |   937 posts since 2020
Money first and then expenses? Really? Let’s be clear I made (not old money) my money years ago! Have had no debt for years. You, in my view will ALWAYS be chasing the $. And as others have said…capital preservation rather than return on capital is the goal…it is management of expenses not income! If one doesn’t have a corpus of funds, they, in my opinion, are not ready for retirement…unless they live by having assets in order to feed the debt on same! And in the latter, they’ll never have enough! Keep working on that income, the irs likes people like you!  

It’s a mindset, not yours, as I sense
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IGR
  |     |   580 posts since 2020
Let's not to be a mindset Judge.
You've done well. Good. I am glad for you... and all others who's done or doing the same.
Let's not be here to validate ourselves.

Let's agree that Wealth consists of two components, creating Capital and Preserving Capital.
while Capital Preservation has an aspect of mental comfort, what is more important is a matter of personal preference, will have to let individuals to decide.
One thing is indisputable, there is no issue of Capital Preservation without the Capital.
BTW, did you ask yourself why would you need to talk about I-Bonds? EE Series is as good for Capital Preservation.
I could say EE-Series even better. They guaranty the return of at least 3.5% and EE Series consistently outperform I Series, although, not currently.
Doesnt it look that you are chasing $ by going after I-Bonds with higher Return on the short term?

Let's not sense in Black or White ONLY.
Let's add some color...green perhaps.
No real Wealth is made (not old money) without smart debt.
Imagine, you took on the Long Term Debt about one year ago at about 2% APY?
it's been reported by FED that currently nearly 8% of Americans are smart or lucky enough to pay lesser rate managing the expenses of their Borrowings than they received as an Income from their Capital Savings
So, now they are competing with us using the money we Lent to them, take OUR money to IRS and still keep some as an Asset.
Cant say anything for you, but I'd like to see myself to "Keep working on that income".
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GreenDream
  |     |   358 posts since 2019
"I could say EE-Series even better. They guaranty the return of at least 3.5% "

That's only true if one holds then from 20 years. If, for whatever reason, one needs to cash in before then, it's currently less than 3.5%
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IGR
  |     |   580 posts since 2020
Correct! Exactly and Absolutely!!!
I am glad we are in understanding!
"currently" is a key though. "Currently", some of EE-Bonds I am incidentally holding are "currently" pushing past 4%.
EE-Bonds that I redeemed last year for for pennies more than 3.5% would "currently" have an annualized return(Yield to Redemption) forward of 4%.
Treasury makes all the information available for those who want to verify that.
When my statement is considered beyond the quote, when the statement is considered in the entirety of the conversation, where "capital preservation rather than return on capital is the goal" and "chasing the $" sounds like a sin, EE-Bonds are by far superior to I-Bonds!.
My point there was that we are all different, we have different circumstances and ensuing priorities.
We can only learn from each other by respecting the differences.
I think @Choice gets that, but that is his/her choice.
By no means I try to pretend that I have an understanding how Bonds work, for that you'd have to go to trolls like CDsuckers.
It is perplexingly difficult gamble to understand and would require quantum computing to preach.  
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GreenDream
  |     |   358 posts since 2019
Indeed. it all depends on one's perspective and holding time.

I-bonds bought 20 years ago had a rate of return above 4%, beating out the EE's guaranteed double rate of 3.5%. Mainly because ibonds bought 20 years ago had a positive fixed rate of 1.6%. Ibonds bought in May of 08 (the first 0 fixed rate year) have, to date, an average rate of return somewhere around 2.6%, which while less than the guaranteed double rate of 3.5% is more than the 2008 EE's fixed rate of 1.4%. So, if you sold those 2008 bonds today, the Ibond would have been the better bet, even at 0% fixed, whereas if you wait 6 years, the EE bond would double and thus most likely be the better bet, unless inflation remains unusually high (thus giving ibonds unusually high rates) for the next 6 years.

Bottom line, if you know you are going to hold for at least 20 years, the EE is a good choice, If you think you might want to cash out in less than 20, the I bond could be the better play.
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IGR
  |     |   580 posts since 2020
I can't confirm that!
I don't have right tool for such performance comparison.
If you have an access to Series I and Series EE historic performance chart, please share..
Perspective has absolutely nothing to do with actual performance!
Holding time is to be the criteria, but not the only one and apparently not the most important one.
BEST EVER Bonds Rate of the Return("Yield from Issue") was achieved with the holding period of 19 years and 5 months?
All best performing EE were issued in 1980, and next best in 80s, and next 95-00. Recent I series performance is only beginning to approach EE historic levels.
We are not going to try to say how the competition will look like after May 2023

Bottom line, As a rule of thumb 20 years is an acceptable benchmark.
If one's perspective is to hold for at least 20 years, to me it is more like a Religious experience than Savings strategy. I happened to have some EE Bonds which were accumulated since it was a form of Cash Back from some of my credit cards.
I can't and won't dispute the likelihood that in Modern time I series marginally outperform EE.
I can only repeat that there are so many combination that quantum computing is required.
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