Looks like it is 6.89% at least through April, since my mortgage is 2.75% it is a no brainer for stuff like emergency fund.
I’ve also been considering something like MDT just to beat out a savings account, but all stocks seem pretty risky right now, wouldn’t be surpised if we see another 15% drop at some point this year.
There is a possibility the rate could go higher during April, because the base rate could go up. I guess, I am not going to wait and just drop 10 k now and forget about it.
I think they just raised the fixed rate from 0.0 to 0.4%. But they do sometimes make frequent fixed rate changes, like May '17, Nov '17, May '18, and Nov '18 had 4 sequential fixed rate changes (0.0, 0.1, 0.3, 0.5%).
Every May and Nov you start with new fixed rate. How they determine fixed rate is unclear, but once it is fixed, it doesn’t change, only inflation component changes. There are folks speculating that fixed rate could be as high as 3%, I am not sure it is going to jump that much. Separately, I think government should give much higher rate for some minimum amount (say 3K or 5K) to encourage long-term saving by lower income households.
The I-bond rate is set based on inflation measured in six month period. What would inflation be in April 2023 vs Oct. 2022? It could be small and the I-Bond rate could be way lower than 6.89%. It may worth waiting until April to invest new money.
While this is true, it is possible to buy I-bonds which are kept in a “Gift Box,” earning interest until they are gifted. DH and I bought “Gifts” for each other to take advantage of the high yields which we will deliver in 2023. We have to plan ahead since the maximum per person per year is $10,000 whether bought or gifted.
Wendy
I-bonds have two components, a fixed rate, and a variable rate based on inflation. I would argue that the fixed rate is the more important one to focus on. That’s because all I-bonds pay the same inflation rate each half year (on their own schedule, of course, depending which month you purchased them), but the ones purchased with higher fixed rates will pay a higher rate EVERY YEAR for 30 years. For example, I bonds purchased in their heyday, around 2000, with fixed rates between 3.0 and 3.6%, will pay far more over the 30 years than I bonds purchased during the long period of near-zero rates, roughly 2008 through now (all fixed rates are below 0.7% during that time).
Hello Wendy, I am planning to buy bonds as gift. So how long you can hold these bonds in the gift box, before you eventually deliver? The reason I am asking is some gifts like my son, niece can be given right away, on the other hand if I buy anything for my wife, I cannot give her in 2023.
Thank you in advace.
My understanding is that the bonds can be kept in the gift box indefinitely. They continue to accrue interest.
Wendy
Does the interest rate on the gift-box i-bonds continue to fluctuate over time based on the rate changes, or are they locked in at the time of purchase, earning at that rate annually, until redeemed?
I’m sure the interest rate will fluctuate. There’s no way the Treasury will continue to pay 9% on I-Bonds indefinitely just because of the spike in late 2021.
Wendy
Interest rate is reset every 6 months including the ones you purchased for gifts.
The fixed rate portion remains fixed for the entire duration of the bond. It is currently 0.4%.
The variable rate portion changes every 6 months depending on changes in the CPI index.
Why not sell BRK put $265 for Jan 2024 which is 1.29 PBV.
Collect ~3% interest + ~4% on money market for total of ~7%
Fairly safe and no limit on investment. Rinse and repeat. Worst case scenario, you will own BRK at 1.29 PBV.
How do you know what book value will be in Jan 2024?
It is based on today’s BV. In theory, you could have back to back down years for BRK (which has never happened ). Living on the edge with $10k.
Instead of selling put, you should do covered call and get 8.22% annualized yield. Not bad, it also provides 20% downside protection;
Covered call requires a lot more capital outlay … need to buy each share for ~$308 and sell the call for ~$10, that’s net $298. Over the year, that $298 alone is costing you about 4.5% alone in foregone interest.
Selling the put allows you to keep all that capital in your own account earning interest (it still needs to be there in case you have to buy the shares in a year for $265) for yourself.
But really the comparison is much more complex because when you own the shares, the probability of gain is quite high, since it goes up in most years. And therefore the probability of it being called away is higher than the probability of the put being exercised (assuming roughly equidistant prices). I sell brkb puts every month or two in the hopes of getting the shares put to me so I can get a discount on net price. It hasn’t been working out, and they keep expiring worthless, so I just end up keeping the premiums. For example, depending on how the stock trades today, I might sell some Mar 300 puts if I can get $5+ for them, that would give me a $295 net price for the shares which is acceptable to me.
NOTE: This is NOT a good strategy for general investing, it’s just good for “playing”.