Using Ibonds As A Place For Emergency Money

Ltssharon | Oct 31, 2023 | 471 posts since 2020

Hi. I just have a comment. I think I will view some of those ibonds that have no fixed interest, and soon will be having low inflation rate, for a while, at least, as emergency money. It will be earning a little over 3 percent I think for the upcoming 6 months, and I could access it in just a couple of days if I actually needed it, since the associated checking account is already established. i know this is a mediocre rate, but seems to me, that at least for the upcoming 6 months that this plan is a fairly reasonable thing to do, though not the absolutely best approach financially. Maybe others of you that don't feel right now like shifting money around would like to consider this perspective foe a few months.

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CuriousDave | Oct 31, 2023 | 233 posts since 2018

Bear in mind though that if you purchase new I Bonds, you are locked in for the first 12 months. The Treasury will not redeem them, not even with a penalty, and there is no secondary market for selling them, even for a loss. For emergency funds they make sense only if you already own them and have held them for at least 12 months, and in the case of needing to redeem for an emergency, you are willing to give up the penalty of the last 2 - 3 months of interest if you have held for less than 5 years. A good alternative is to buy short dated Treasurys like 3 or 6 month Treasury Bills, currently paying almost 5.5% annualized. They are very liquid because they can be sold on the secondary market at any time if you suddenly need the money. Unless interest rates continue to rise significantly, you are not likely to lose much if you need to sell before maturity, and if market rates fall, you will have a small capital gain. Also, like I-Bonds, the interest is exempt from state income tax. However, the interest is not tax-deferred.

Rightdx | Oct 31, 2023 | 43 posts since 2022

The new I bonds rates have just been published. Starting Nov '23 the variable rate is 3.94% plus fixed rate of 1.3% for a total of 5.27%, not so bad.
https://www.cnbc.com/2023/10/31/treasury-series-i-bond-rate-is-5point27percent-through-april-2024.ht...

I maxed-out on I bonds in '22 and '23, including some with zero fixed rate. I like that they are state tax free and tax deferred until you redeem, but the main reason I plan to keep them and buy more is the risk of hyperinflation due to our country's excessive deficits and record high debt. It's nice that social security is adjusted for inflation, but I want to make sure more of my funds are also covered.

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