Just thought I’d mention that I used TreasuryDirect today to purchase another $5,000 of Series I savings bonds. If you buy them by the end of April, you can lock in an investment that will get you about 3.08% APR over 11 months. The deadline is fast approaching, and I didn’t want to cut it that close. More details here.
Since the interest on savings bonds is exempt from state and local taxes, based on my tax situation that will bring my tax-equivalent yield to over 3.5%. Not too shabby. I might buy some more, as I think it’s a nice place to store emergency funds – which I see as a permanent cash allocation which I hope not to use – as long as you can wait out the initial lack of liquidity over the first 12 months.
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I am going to be very curious of what the new fixed rate will be. I doubt it but if they do offer an attractive fix rate, I would buy some now as a future hedge against rising inflation. A higher fixed rate is what makes earlier purchased I bonds so attractive. If we stay in a deflationary period for a number of years, the treasury may offer attractive fixed rates to bring in revenues.
Not too familiar with bonds, haven’t done anything with them in the past except for the small % handled by my mutual fund, but why not get into a high yield checking account that offers north of 4.5%? Have you already maxed out those types of accounts or do you not want to hassle with account requirements? Or possibly do you suspect those APY’s are going to drop even more?
In my case I prefer the liquidity.
Miguel, where did you find checking account with 4.5% return? Best on the Bestcashcow.com is 3.1% now. Also, how sustainable do you expect this 4.5% rate be?
Vlad,
Term APY Notes* Minimum Bank
ChA 5.25 m1,p,r6 $1 Redneck Bk
ChA 5.15 m3,n,p,r16 $1 Connexus CU
ChA 4.44 m6,p,r1 $100 First Arkansas Bk & Trust
ChA 4.15 m6,p,r1 $50 NewportFed
ChA 4.01 m3,p,r1 $50 Phelps County Bk
ChA 4.01 m3,p,r15 $100 Charter Bk
from http://bankcd.com/moneymarketrates.html
I’ve been with Charter for about 8 months now. Parked 25k there and and was getting 6.01% up to two months ago. It might drop a little, but it seems to me that the high yield checking accounts are the only way to made significant interest on liquid cash these days. My guess is the top 5 banks will stay competitive enough to get a return north of 4% throughout 2009.
Miguel, thanks for the link. However, they all require significant number of debit card transactions per month to be eligible for the stated rate. You constantly need to hold your fingers on the pulse otherwise you run the risk of missing a whole month worth of interest on your balance. This is totally different story from high yield savings accounts, at least for people who don’t normally use debit cards. Moreover, the limits are pretty small, all under $100K. All in all, this is not an equivalent alternative to long term investments like bonds and TIPS. Thanks for the information anyway.
Vlad, sure thing. You’re right they are two different things geared for two different situations. Ours just happens to be that we don’t need anything larger than 50k, and we can create easy systems to satisfy the debit card transactions without much time or worry on our part. 20-30 somethings might find it more attractive, and for me, keeping the assets liquid is key.
I don’t have much knowledge at all in bonds so thanks for the insight .
This morning (30 April) I finally got around to logging in to Treasury Direct (I’d set up an account months ago) and tried to purchase an I-Bond. After entering the amount and checking that it was set for a single purchase, today, I submitted the form to go to the next page, where I saw that they had changed my purchase date to tomorrow, 1 May! They also had a message stating that they might have adjusted my purchase date. Not very cool of them to do that, but at least I noticed it. I could not get the date to stay at 30 April, so I guess I’m out of luck. A similar thing happened to me 6 months ago when I bought an I-Bond in person on the last day of the month–it was credited as being purchased on the first day of the next month. So don’t try to cut things too close!
May 1 – 0% rate…. oh joy
New ibond rates fixed .01% + inflation rate of 0%. Not such a good deal! I was hoping for a generous fixed rate to make up for the low inflation rate.
I am also Curious to get info about what the new fixed rate will be.