I recently left HSBC Direct due to interest rates that were nothing special and an ugly interface. My new choice, a money market fund at Vanguard, really isn’t all that different in terms of the rates I’m getting, but I like having my money there.
It seems what is hot this month in the pf blog world is Series I Savings Bonds. Xin Lu at Wisebread posted a great article about them yesterday . E.C. and Ms. MiniDucky recently talked about purchasing them, and the always informative Jonathan at MyMoneyBlog spelled out the details of them as well.
If I buy before the end of April (on the 30th, if possible), my one year yield will be roughly 4.04%. There is a mentions of 4.44% yield for those in high tax states (that’s me!) but it seems the exact rate depends on whether or not you itemize your state taxes (I don’t).
The only downside I see is I’d lose all liquidity. This means I won’t put my entire efund (almost 10k now!) in these bonds (which is the limit: 5k online and 5k paper), but it seems like a reasonable investment for a solid chunk of it. Is it too scary to lock away half of my cash reserves?
I tried to open a Treasury Direct account, just in case. They need me to mail in some sort of form to prove my identity, so perhaps I’ll go the old school route and just get them from my bank. I’m going to think about it for a few days, and if I decide it is a go, I’ll buy on April 30th.
What do you think? Is it even worth it? The difference in interest is currently only about 2% (so, on $5000, about $200 a year) and I lock away my money for a whole year.
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April 23, 2008 at 11:29 am
sfordinarygirl
The WSJ’s Personal Journal section had a story on I-Bonds today. If you don’t need the cash, it’s not a bad idea. What about commodity ETFs or inflation-linked annunities? The payout is higher as you age and keeps up with inflation.
April 23, 2008 at 11:30 am
tom
I would say for an efund, you are better off in the Vanguard fund.
As tempting as 4.44% is, liquidity of your cash, IMHO, is more important than an extra couple % interest. I think the purpose of an efund is to have quick access to cash in times of an emergency. I keep my efund in my wamu savings (3.33%… not good, not bad), that way if I am in a bind, I have easy access to that cash through a WaMu debit card.
April 23, 2008 at 11:43 am
Stacey
I agree with Tom - a liquid emergency fund helps me sleep better at night.
We keep our efund and enough for annual bills (oil, insurance, taxes, ect.) in our local bank’s e-savings account at 3%. That account is linked to the checking account and debt cards.
Everything else goes into long-term savings such as bonds and laddered CDs. We “roll over” funds into long term every few months as the liquid account grows.
April 23, 2008 at 12:04 pm
StackingPennies
Thanks for the thoughts so far. I’d keep my liquid fund at 5k (and growing another 5k over the year, hopefully). (i have check writing set up for the account, so access is instant).
I also have about 1.5k in cash in an account designated to offset my student loan. So I wouldn’t wipe out all my liquidity, just some.
But yeah, still might not be worth it…. Debating with myself!
April 23, 2008 at 2:36 pm
A
I’m putting half of my efund into I Bonds as the rest is sitting in HSBC watching the interest lower. I’m comfortable doing it for a few reasons:
a) it’s only half
b) You forfeit 3 months interest when you withdrawl, so if I have an true emergency in the next few months, I’ll break even.
c) the lack of liquidity, have to justify touching it that much more.
d) better interest
There was talk on the diehards forums that you might want to give yourself a day or two buffer before May to make sure everything goes through okay.
April 24, 2008 at 2:52 am
L@SpillingBuckets
I did this in highschool when I lived at home and knew I didn’t need the money for a whole year. This way I also had some guaranteed cash for college. I don’t think I would do it now, “in the real world”, because I like the liquidity. If you have other cash though, it is probably a good choice. Maybe you could put half away?
April 25, 2008 at 8:09 am
tom
If you are interested in investing in I Bonds or E/EE Bonds, check with your employer on paycheck deductions. Some employers allow you to deduct money from your paycheck to invest directly into Treasury Bonds. I don’t know the tax implications, but it’s an easy way to invest.