topic Re: PLOC Banking Strategy w/ I-Bonds in Personal Finance

PLOC Banking Strategy w/ I-Bonds

Citylights18 — Sat, 23 Apr 2022 07:51:41 GMT

Is there a way to maximize cash flow with a PLOC? Here is a potential strategy I've been thinking about.

1) Have an interest only PLOC available (my interest only payment is $50 per $10,000).

2) Starting balance of 8,000 on the PLOC.

3) Place $800 dollars of bills on the PLOC.

4) Make a normal monthly payment of $200 to the PLOC.

5) Buy the I Series bond in both the electronic ($10,000) and paper ($5,000) with the extra cash flow.

Month 1

PLOC begining balance $8,000

Interest charged $40

Bills on PLOC $800

Payment to PLOC $200

PLOC ending balance $8,640

I-Bond balance $600x0.0712/12+($600)=$603.56

Month 2

PLOC begining balance $8,640

Interest charged $43.2

Bills on PLOC $800

Payment to PLOC $200

PLOC ending balance $9,283.2

I-Bond balance $1203.56x0.0712/12+($1203.56)=$1210.70

Month 3

PLOC begining balance $9,283.2

Interest charged $46.4

Bills on PLOC $800

Payment to PLOC $200

PLOC ending balance $9,929.6

I-Bond balance $1210.70x0.0712/12+($1810.70)=$1821.44

The problem after Month 3 is your PLOC is right up to the 10k limit so you will have to pay it down for a couple of months until you can stack it again.

Month 4

PLOC begining balance $9,926.6

Interest charged $49.63

Bills on PLOC $0

Payment to PLOC $200

PLOC ending balance $9,779.23

I-Bond balance $1821.44x0.0712/12+($1821.44)=$1832.19

Month 5

PLOC begining balance $9,779.23

Interest charged $48.90

Bills on PLOC $0

Payment to PLOC $200

PLOC ending balance $9,628.13

I-Bond balance $1832.19x0.0712/12+($1832.19)=$1843.06

Month 6

PLOC begining balance $9,628.13

Interest charged $48.14

Bills on PLOC $0

Payment to PLOC $200

PLOC ending balance $9,476.27

I-Bond balance $1843.06x0.0712/12+($1843.06)=$1853.93

Month 7

PLOC begining balance $9,476.27

Interest charged $47.38

Bills on PLOC $0

Payment to PLOC $200

PLOC ending balance $9,323.65

I-Bond balance $1853.93x0.0712/12+($1853.93)=$1864.87

4 months go by where you have to just pay down the line but by the 5th month you can fit your bills on the PLOC once again.

Month 8

PLOC begining balance $9,323.65

Interest charged $46.62

Bills on PLOC $800

Payment to PLOC $200

PLOC ending balance $9,970.27

I-Bond balance $2464.87x0.0712/12+($2464.87)=$2479.42

By this banking method what you are able to do here in 8 months is squeeze an extra $2,479.42 for I-Bonds out of thin air.

Regular monthly payments $200x4=$800

Full monthly bills $800x4=$3200

PLOC Interest $370.27

Total Expense for 8 months $4,370.27

This is netting you an ROI of 56.73% over the 8 months. But of course this includes the early run up months on the PLOC where you are skipping bills. In this example the $200 was 25% of the monthly bill amount but if you go to say 35% you would pay the PLOC down all that more quickly for the skip ahead payments.

Then I think with buying the I-Bonds instead of purchasing them all at once set aside 250 a month ($1250 if you are taking the max paper/electronic allowance). This way it also staggers the maturity of the notes and gives you discretionary power on whether or not to buy one that particular month.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Sat, 23 Apr 2022 11:36:17 GMT

It's still a bit early here: but here's some thoughts:

1) it looks like you were compounding the I bonds monthly. They only compound semi annually.

2) I bonds you buy this month will receive 7.12% APY for 6 months, then 9.62% for the next 6 months.

3) I bonds you buy from May-October will receive 9.62% from the start.

4) Be careful if you're comparing your PLOC with a variable rate tied to the prime rate versus the I bond rates.

Overall I don't quite follow the logic yet, but I'll reread it later today. If you were sure that you could borrow for less than I bonds pay, then why not just buy the full amount from day 1, pay the interest only on the loan, and then settle up in 12-15 months?

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Sat, 23 Apr 2022 19:40:33 GMT

@tortoise_credit wrote:
It's still a bit early here: but here's some thoughts:

1) it looks like you were compounding the I bonds monthly. They only compound semi annually.
2) I bonds you buy this month will receive 7.12% APY for 6 months, then 9.62% for the next 6 months.
3) I bonds you buy from May-October will receive 9.62% from the start.
4) Be careful if you're comparing your PLOC with a variable rate tied to the prime rate versus the I bond rates.

Overall I don't quite follow the logic yet, but I'll reread it later today. If you were sure that you could borrow for less than I bonds pay, then why not just buy the full amount from day 1, pay the interest only on the loan, and then settle up in 12-15 months?

Thanks for the clarifications. I know there is a lot of excitement over I-Bonds but this is new ground for many of us on the board.

Since the maturity date of any I-Bond is 5 years out how does it make sense for the average person to lock up 15k for 5 years in one shot? But if they decided to alternatively buy $1250 each month, rainy day funds that would just be sitting in a savings account I think it would be a better strategic approach. Then if you really felt you did need the money or if inflation went back to 2.0% (which I doubt) you could just stop buying them.

I get that many peoople like the "all-in" approach to investing because they think a larger sum will earn them larger profits but one of the keys to successful investing is reducing risk. One could put all of their savings into an I-Bonds and lose their job. However I guess if you are retired that isn't a threat and if you have enough excess cash flow you could buy them without too much risk.

I-Bonds are not a bad strategy for 2022. The market is shot and the SEC is shutting down stablecoin products that were yielding investors 8-10%. Celsius is limiting its earn product now to accredited investors. They don't want competition with their treasury products. Even if you could find a platform for your stablecoins they'll probably be outlawed within a few months anyway. If I-Bonds are paying 9.62% that is in-line with stablecoin yields, if not better.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Sat, 23 Apr 2022 20:10:03 GMT

@Citylights18 I bonds have a final maturity date of 30 years, are redeemable after 5 years with no penalty, but can be redeemed after only 12 months (actually just 11 months and a few days), but there's a 3 month interest penalty if redeemed before 5 years.

So buying monthly does reduce the amount locked up at any point in time, but takes longer for a full years worth to be redeemable. This is important for some depending of cash flow for sure. But in your context I read it as taking a loan to buy I bonds which seems like simple rate arbitrage to me. It wouldn't really matter that amount is locked up because presumably you wouldn't have needed to take the loan otherwise.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Sat, 23 Apr 2022 20:31:40 GMT

@tortoise_credit wrote:
@Citylights18 I bonds have a final maturity date of 30 years, are redeemable after 5 years with no penalty, but can be redeemed after only 12 months (actually just 11 months and a few days), but there's a 3 month interest penalty if redeemed before 5 years.

So buying monthly does reduce the amount locked up at any point in time, but takes longer for a full years worth to be redeemable. This is important for some depending of cash flow for sure. But in your context I read it as taking a loan to buy I bonds which seems like simple rate arbitrage to me. It wouldn't really matter that amount is locked up because presumably you wouldn't have needed to take the loan otherwise.

Its using a PLOC as a cash flow management tool as its primary purpose over rate arbitrage.

The early run up period where you can stack money onto the PLOC isn't the best example for the longer haul. The better example is once you've hit the credit limit on the PLOC and making extra payments to it with the ability every 4th or 5th month to skip a payment. Present value of that cash flow is another positive factor.

It can be tried with multiple PLOCs.

PLOC 1: Mortgage 1, Mortgage 2 (pay 1/3 combined balance)

PLOC 2: Loan 1, Loan 2 (pay 2x minimum payment)

Use PLOC banking to artficially create a large cash flow which can go into the I-Bonds where there is no risk in losing your principal. Then if you do need to sell I-Bonds to raise cash just scalp the lower peforming ones first at let the better ones continue to mature. This helps again if the purchases are monthly with different 5 year maturiries than all at once.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Sat, 23 Apr 2022 21:00:53 GMT

@Citylights18 To be honest, I still don't really understand this.

You say you squeeze $2,400 in i bonds out of thin air, but the PLOC has gone up ~$2,000 in balance, and you had 4 months where you paid an extra $200 on top of your $800/mo bills. To me that seems like you spent $2,800 to get $2,400 in ibonds. This would make sense to me because you're paying approximately $400 of interest on the loan.

I can tell you my strategy with I bonds, which is to put 1/2 or 1/3 of your emergency funds into ibonds which represents the amount you can afford be be locked up for one year (not five years). Then the next year put another 1/2 or 1/3 in. After 2-3 years, your emergency fund is completely liquid in ibonds.

Re: PLOC Banking Strategy w/ I-Bonds

Anonymalous — Sun, 24 Apr 2022 01:13:53 GMT

A few considerations: You mentioned $10K in electronic I Bonds + $5K in paper. Except the paper is only available when paid for with a tax refund. Specifically, you have to include Form 8888 when filing your taxes. So it's not an option for most people, right now. And even when it is an option, it requires giving the federal government a $5,000 loan.

Also, April and October are generally considered the best months to buy I Bonds. The new CPI-U is announced, but the new I Bond rates aren't set until the 1st of May and November. That lets you lock in a high rate for almost 12 months. For instance, if you buy now, you get 6 months at 7.12%, and another 6 months at 9.65%. Even if you cash them in after a year and take the 3 months penalty, that's still an annualized return of roughly 6%.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Sun, 24 Apr 2022 12:06:16 GMT

@Anonymalous wrote:
A few considerations: You mentioned $10K in electronic I Bonds + $5K in paper. Except the paper is only available when paid for with a tax refund. Specifically, you have to include Form 8888 when filing your taxes. So it's not an option for most people, right now. And even when it is an option, it requires giving the federal government a $5,000 loan.

Another point on the I-Bonds I missed originally when looking into them.

With the 10,000 dollar limit per year then you are looking at being able to buy $833.33 per month, or rounding down to $800 a month for budgeting (a $500, $250, $50 dollar bond). It won't make you rich but if you sock it away for 5 years it could be enough for a car downpayment or a house down payment.

Re: PLOC Banking Strategy w/ I-Bonds

Anonymalous — Sun, 24 Apr 2022 13:00:01 GMT

@Citylights18 wrote:
@Anonymalous wrote:
A few considerations: You mentioned $10K in electronic I Bonds + $5K in paper. Except the paper is only available when paid for with a tax refund. Specifically, you have to include Form 8888 when filing your taxes. So it's not an option for most people, right now. And even when it is an option, it requires giving the federal government a $5,000 loan.
Another point on the I-Bonds I missed originally when looking into them.

With the 10,000 dollar limit per year then you are looking at being able to buy $833.33 per month, or rounding down to $800 a month for budgeting (a $500, $250, $50 dollar bond). It won't make you rich but if you sock it away for 5 years it could be enough for a car downpayment or a house down payment.

It depends what happens to inflation. If it drops back to the old Fed target of 2% or so, then there are better alternatives. Especially if interest rates rise back to historical norms, though that seems unlikely, because it would make paying interest on the national debt difficult. That's why buying now, and not a week from now, is so attractive. It locks in a 7%+ rate for a full year, even if inflation drops by November. Unless we're heading into a new period of stagflation, the inflation is likely to burn out at some point, and returns will bottom out again. When that happens, I Bonds can still be useful as part of an overall asset allocation plan. They won't lose any nominal value, so they serve as a hedge, similar to TIPS. But if you're chasing returns, it might make sense to hold them an additional 3 months (to not lose any of the high interest rate), and then redeem them and put the funds in something with a higher APR.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Sun, 24 Apr 2022 20:34:53 GMT

@Anonymalous wrote:
@Citylights18 wrote:
@Anonymalous wrote:
A few considerations: You mentioned $10K in electronic I Bonds + $5K in paper. Except the paper is only available when paid for with a tax refund. Specifically, you have to include Form 8888 when filing your taxes. So it's not an option for most people, right now. And even when it is an option, it requires giving the federal government a $5,000 loan.
Another point on the I-Bonds I missed originally when looking into them.

With the 10,000 dollar limit per year then you are looking at being able to buy $833.33 per month, or rounding down to $800 a month for budgeting (a $500, $250, $50 dollar bond). It won't make you rich but if you sock it away for 5 years it could be enough for a car downpayment or a house down payment.
It depends what happens to inflation. If it drops back to the old Fed target of 2% or so, then there are better alternatives. Especially if interest rates rise back to historical norms, though that seems unlikely, because it would make paying interest on the national debt difficult. That's why buying now, and not a week from now, is so attractive. It locks in a 7%+ rate for a full year, even if inflation drops by November. Unless we're heading into a new period of stagflation, the inflation is likely to burn out at some point, and returns will bottom out again. When that happens, I Bonds can still be useful as part of an overall asset allocation plan. They won't lose any nominal value, so they serve as a hedge, similar to TIPS. But if you're chasing returns, it might make sense to hold them an additional 3 months (to not lose any of the high interest rate), and then redeem them and put the funds in something with a higher APR.

I would not even be looking at I-Bonds if it were not for the SEC clamping down on all the stablecoin products.

Even if inflation goes back to 2 or 3 percent it still is better than what banks are offering in the way of savings and particularly if that inflation number does drop back down.

Like putting away money into a Roth IRA or backdoor Roth IRA I can see where I-Bonds could be a regular part of your financial strategy.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Mon, 25 Apr 2022 05:44:53 GMT

@tortoise_credit wrote:
@Citylights18 To be honest, I still don't really understand this.

You say you squeeze $2,400 in i bonds out of thin air, but the PLOC has gone up ~$2,000 in balance, and you had 4 months where you paid an extra $200 on top of your $800/mo bills. To me that seems like you spent $2,800 to get $2,400 in ibonds. This would make sense to me because you're paying approximately $400 of interest on the loan.

I can tell you my strategy with I bonds, which is to put 1/2 or 1/3 of your emergency funds into ibonds which represents the amount you can afford be be locked up for one year (not five years). Then the next year put another 1/2 or 1/3 in. After 2-3 years, your emergency fund is completely liquid in ibonds.

Maybe a better way to illustrate it is if I started with a maxed out PLOC (month 4) and walk it through a couple of cycles. I]ll update a few of the assumptions based upon what we've been mentioning. To see if this makes more sense.

-Rate of 9.62% (the May-Nov 2022 rate).

-Semi annual compound on the I-Bond.

-Asssume the first month (Month 4) is May 2022 and Nov 2022 is a compounding month.

-$300 month regular payment to the PLOC (money always there beyond what you need for bills)

-$800 in bills a month.

Month 4 (Compounding May 22)

PLOC begining balance $9,926.6

Interest charged $49.63

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $9,679.23

I-Bond balance $0+($0x0.0962)=$0

Month 5

PLOC begining balance $9,679.23

Interest charged $48.40

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $9,427.63

I-Bond balance $0+($0x0.0962)=$0

Month 6

PLOC begining balance $9,427.63

Interest charged $47.14

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $9,174.77

I-Bond balance $0+($0x0.0962)=$0

Month 7

PLOC begining balance $9,174.77

Interest charged $45.87

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $8,920.64

I-Bond balance $0+($0x0.0962)=$0

Month 8

PLOC begining balance $8,920.64

Interest charged $44.60

Bills on PLOC $800

Bills not PLOC $0

Payment to PLOC $300

PLOC ending balance $9,465.24

I-Bond balance $800+($0x0.0962)=$800

Month 9

PLOC begining balance $9,465.24

Interest charged $47.33

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $9,212.57

I-Bond balance $800+($0x0.0962)=$800

Month 10 (Compounding Nov 22)

PLOC begining balance $9,212.57

Interest charged $46.06

Bills on PLOC $0

Bills not PLOC $800

Payment to PLOC $300

PLOC ending balance $8,958.63

I-Bond balance $800+($800x0.0962)=$876.96

Month 11

PLOC begining balance $8,958.63

Interest charged $44.79

Bills on PLOC $800

Bills not PLOC $0

Payment to PLOC $300

PLOC ending balance $9,503.42

I-Bond balance $800+$876.96+($0x0.0962)=$1676.96

By this banking method what you are able to do here in 8 months is squeeze an extra $2,479.42 for I-Bonds out of thin air.

Extra monthly payments $300x8=$2400

PLOC Interest $370.27

Total Expense for 8 months $2,770.27

I-Bond value $1676.96

Analyzing this example one could have put a $50 a month ($400 over 8 months) interest only payment on the PLOC, taken $2,000 and bought I-Bonds with it. If those I-Bonds were bought right before the compounding month you would have $2,192.40 ($515.44 more).

My idea works better if you can let that PLOC build up from zero and be able to drop in $5000 semi annually into the I-Bonds because of it for a while.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Wed, 27 Apr 2022 02:47:02 GMT

@Citylights18 Your compounding is still not quite correct:

> Month 10

> I-Bond balance $800+($800x0.0962)=$876.96

a) You added the entire 9.62% after only six months, it should add only add half that.

b) It compounds six months after purchase, which was in month 8, so it wouldn't compound until month 14.

I'm still not following how this makes sense assuming you could avoid the PLOC altogether and pay the $800/mo bills in cash plus an extra $200/mo towards I Bonds.

Here's what I have for your scenario. This is the cash leaving your pocket. I ignored the I Bond interest, because it's not relevant in my opinion.

Month	Interest	Bills not PLOC	Payment to PLOC	I Bond Contribution
4	$49.63	$800.00	$300.00	$0.00
5	$48.40	$800.00	$300.00	$0.00
6	$47.14	$800.00	$300.00	$0.00
7	$45.87	$800.00	$300.00	$0.00
8	$44.60	$0.00	$300.00	$800.00
9	$47.33	$800.00	$300.00	$0.00
10	$44.79	$800.00	$300.00	$0.00
11	$44.79	$0.00	$300.00	$800.00

TOTAL:	$372.55	$4,800.00	$2,400.00	$1,600.00	$9,172.55

Here's what I have for my scenario:

Month	Interest	Bills not PLOC	Payment to PLOC	I Bond Contribution
4	$0.00	$800.00	$0.00	$200.00
5	$0.00	$800.00	$0.00	$200.00
6	$0.00	$800.00	$0.00	$200.00
7	$0.00	$800.00	$0.00	$200.00
8	$0.00	$800.00	$0.00	$200.00
9	$0.00	$800.00	$0.00	$200.00
10	$0.00	$800.00	$0.00	$200.00
11	$0.00	$800.00	$0.00	$200.00

TOTAL:	$0.00	$6,400.00	$0.00	$1,600.00	$8,000.00

So overall, in my scenario I pay $1,172.55 less, but in your scenario you reduced your PLOC balance by $423.18, so that's a net difference of $749.37. In other words, you've paid an extra $749 to get the same amount of I Bonds, but worse because my I Bonds will have been earning interest earlier.

Edit: and I also pay less per month. $1,000/mo for me vs approx $1,150/mo for you.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Wed, 27 Apr 2022 02:48:41 GMT

@tortoise_credit wrote:
@Citylights18 Your compounding is still not quite correct:

> Month 10
> I-Bond balance $800+($800x0.0962)=$876.96

a) You added the entire 9.62% after only six months, it should add only add half that.
b) It compounds six months after purchase, which was in month 8, so it wouldn't compound until month 14.

I'm still not following how this makes sense assuming you could avoid the PLOC altogether and pay the $800/mo bills in cash plus an extra $200/mo towards I Bonds.

Here's what I have for your scenario. This is the cash leaving your pocket. I ignored the I Bond interest, because it's not relevant in my opinion.

Month Interest Bills not PLOC Payment to PLOC I Bond Contribution
4 $49.63 $800.00 $300.00 $0.00
5 $48.40 $800.00 $300.00 $0.00
6 $47.14 $800.00 $300.00 $0.00
7 $45.87 $800.00 $300.00 $0.00
8 $44.60 $0.00 $300.00 $800.00
9 $47.33 $800.00 $300.00 $0.00
10 $44.79 $800.00 $300.00 $0.00
11 $44.79 $0.00 $300.00 $800.00

TOTAL: $372.55 $4,800.00 $2,400.00 $1,600.00 $9,172.55

Here's what I have for my scenario:

Month Interest Bills not PLOC Payment to PLOC I Bond Contribution
4 $0.00 $800.00 $0.00 $200.00
5 $0.00 $800.00 $0.00 $200.00
6 $0.00 $800.00 $0.00 $200.00
7 $0.00 $800.00 $0.00 $200.00
8 $0.00 $800.00 $0.00 $200.00
9 $0.00 $800.00 $0.00 $200.00
10 $0.00 $800.00 $0.00 $200.00
11 $0.00 $800.00 $0.00 $200.00

TOTAL: $0.00 $6,400.00 $0.00 $1,600.00 $8,000.00

So overall, in my scenario I pay $1,172.55 less, but in your scenario you reduced your PLOC balance by $423.18, so that's a net difference of $749.37. In other words, you've paid an extra $749 to get the same amount of I Bonds, but worse because my I Bonds will have been earning interest earlier.

Edit: and I also pay less per month. $1,000/mo for me vs approx $1,150/mo for you.

Yes I concluded as much in my last post that it wasn't worth running a PLOC tight like that to make an occassional I-Bond contribution.

As to when the bonds compound, I believe another poster on this thread said semi annual compounding means "May & Nov" so the poster would recommending buying in "April & Oct". If there is no advantage to timing your purchase then there is no reason to buy them in bulk at once.

The fact that the current bond rate is 7.12% and going to be 9.62% is also immaterial becase it could be 12.92% when the next CPI-U is calculated. There is no reason to normally buy 10k of them at once.

Most people are in a job for a while and stock away money which they'd like to see grow and have a level of immediate access to. If they lose their job the emergency plan might be to immediately move back in with parents or sell their home. They will tap into some of that money they put away but most likely they'll deplete 25k to 18k over a job loss. The emergency fund concept where you'll keep $7500 in a seperate savings account doesn't appeal as much as having 25k in a mutual fund that can grow together.

This is why I believe $800 a month after 6 month savings in reserve is pulled together could be a workable plan. If the said person gets in trouble or if they feell like the I-Bond rate is low they can stop contributing. Better than saying they have 20,000 and sticking 10,000 (1/2 of their savings/emergency fund) into I-Bonds because they are excited about the CPI-U number.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Tue, 26 Apr 2022 05:05:05 GMT

@Citylights18 The other poster, Anonymalous, definitely knows what they're talking about, but the answer is more complex than indicated in there post.

I bonds have a variable rate published every May and November. However, each individual bond changes rates every six months from when you buy it. So if you buy in April 2022, you get six months of November 2021's rate, then six months of May 2022's rate, then six months of November 2022's rate, etc. This particular bond compounds in April and October of each year. If you bought in in January, it compounds in January and July.

Additionally, the 12 month lockup clock starts from when you buy the bond, so a bond bought today is available to be cashed on April 1 2023.

For the fact that you want as much available to be withdrawn it's better to buy early and often if you cannot afford the entire $10k at once.

> The fact that the current bond rate is 7.12% and going to be 9.62% is also immaterial becase it could be 12.92% when the next CPI-U is calculated. There is no reason to normally buy 10k of them at once.

This doesn't matter, the $10k would get the hypothetical 12.92% rate as well.

I don't agree that you should put an emergency fund in mutual funds, unless it was a fixed income fund. What a happens if you lose your job because the stock market crashes? Then your emergency fund is very diminished at the very time you need it.

Emergency funds don't need to even keep up with inflation, you can view it as insurance costs to have liquid cash floating around. However, since I bonds exist you can have your emergency fund indexed to inflation, you just have to be mindful of the 12 month period where each I bond purchase cannot be cashed.

Heres a few links I think you might find interesting:

https://www.bogleheads.org/wiki/I_savings_bonds

https://eyebonds.info/ibonds/index.html

https://earlyretirementnow.com/2021/05/26/the-emergency-fund-is-still-useless/

The last link is because it gives some interesting thoughts on how to look at an emergency fund.

On mobile, excuse any typos.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Wed, 27 Apr 2022 02:49:43 GMT

I found an I-Bond calculator on Treasury Direct and ran a few numbers.

-Interest accrual begins on the 4th month. If you were to buy an I-Bond today you receive an accrual August 1st.

-Had you been buying I-Bonds the proceeding 12 months you would have only earned 140.80 in interest. That is about 1% return on your money in one year. However if you spent $1000 on an I-Bond on 09/1998 it would be worth $3700 today which is almost 4 times what you paid.

-If someone bought 10,000 then for 5 consecutive years and needed to tap that money they could start with those they've held 12-18 months and keep the later ones until maturity to allow them to continue to develop in value over time.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Tue, 26 Apr 2022 05:38:34 GMT

@tortoise_credit wrote:
@Citylights18 The other poster, Anonymalous, definitely knows what they're talking about, but the answer is more complex than indicated in there post.

I bonds have a variable rate published every May and November. However, each individual bond changes rates every six months from when you buy it. So if you buy in April 2022, you get six months of November 2021's rate, then six months of May 2022's rate, then six months of November 2022's rate, etc. This particular bond compounds in April and October of each year. If you bought in in January, it compounds in January and July.

Additionally, the 12 month lockup clock starts from when you buy the bond, so a bond bought today is available to be cashed on April 1 2023.

For the fact that you want as much available to be withdrawn it's better to buy early and often if you cannot afford the entire $10k at once.

> The fact that the current bond rate is 7.12% and going to be 9.62% is also immaterial becase it could be 12.92% when the next CPI-U is calculated. There is no reason to normally buy 10k of them at once.

This doesn't matter, the $10k would get the hypothetical 12.92% rate as well.

I don't agree that you should put an emergency fund in mutual funds, unless it was a fixed income fund. What a happens if you lose your job because the stock market crashes? Then your emergency fund is very diminished at the very time you need it.

Emergency funds don't need to even keep up with inflation, you can view it as insurance costs to have liquid cash floating around. However, since I bonds exist you can have your emergency fund indexed to inflation, you just have to be mindful of the 12 month period where each I bond purchase cannot be cashed.

Heres a few links I think you might find interesting:

https://www.bogleheads.org/wiki/I_savings_bonds

https://eyebonds.info/ibonds/index.html

https://earlyretirementnow.com/2021/05/26/the-emergency-fund-is-still-useless/

The last link is because it gives some interesting thoughts on how to look at an emergency fund.

On mobile, excuse any typos.

They usually say as a rule have 6 months of liquid savings. You could have it all sitting there as cash in a brokerage. 1 month emergency find is like when you stick $2500 under your mattress type of thing.

I would have that money saved in full first before I would direct toward I-Bonds and I would buy I-Bonds incrementally so you could cash out the less valuable ones if you needed money. Its time in market more than anything else which is important with I-Bonds. Had you bought 1,000 in September of 1998 it would be worth $3700 and we know how deinflationary the environment has been in the past 25 years. Think if we instead had a prolonged period of hyper inflation.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Tue, 26 Apr 2022 06:00:56 GMT

@Citylights18 What exactly do you mean by "less valuable i bonds"?

For at least two months of the year, every I bond ever purchased will be earning the same variable rate. The only thing that never changes is the fixed component, currently 0%.

The ideal cashing strategy is to cash bonds older then 5 years, with the lowest fixed rate between all i bonds you've purchased.

You can also redeem less than the full amount. It doesn't matter if you buy one single $10k bond, you could cash out as little as $25 at a time.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Wed, 27 Apr 2022 02:50:42 GMT

I ran the numbers from May 99' on I-Bond to May 07' to see its really about holding them for as long as possible rather than flipping them after a year (from the calculator that is 1.7 percent return).

For example if you were out of college and able to save 10,000 and put into I-Bonds for 5 years but then lost your job for 3 months you could take the bonds which are 12-14 months in maturity and redeem for extra cash while continuing let those old I-Bonds age out. Its like losing your job when you own a house, you are still putting away equity with time. The bonds that you had at 12-14 will be worth more than what you paid for them (albeit not much) so its no worse than having that money in the bank.

How much would 10,000 in notes be at final maturity? 50,000 after these deflationary decades? If we go through inflationary times 10,000 could be worth 80,000+. Definitely something to consider getting into.

Re: PLOC Banking Strategy w/ I-Bonds

tortoise_credit — Wed, 27 Apr 2022 02:51:49 GMT

@Citylights18 I am not sure how you got your numbers, but if you bought $10k the very first month I bonds were introduced in 1998, it would be worth $37,004 today. And that's with a 3.4% fixed rate that you're not getting any time soon; the fixed rate is currently 0%. Source: https://eyebonds.info/ibonds/10000/ib_1998_09.html

To simplify my previous point; it is better to cash out a bond that's older than 5 years versus one that's between 1-5 years old, assuming they both have the same fixed rate. You're considering the 3 month penalty on the less than 5 year bonds, correct?

Also, you're assuming you must cash out the whole bond, this is not true. You can cash out any amount from an electronic bond.

I hope this clears some things up. I bonds can be a bit confusing. The temporary hype is real. I've been investing in them for a few years now since rates were still pretty normal and will keep investing in them when rates go back down.

Re: PLOC Banking Strategy w/ I-Bonds

Citylights18 — Tue, 26 Apr 2022 07:20:11 GMT

@tortoise_credit wrote:
@Citylights18 What exactly do you mean by "less valuable i bonds"?

For at least two months of the year, every I bond ever purchased will be earning the same variable rate. The only thing that never changes is the fixed component, currently 0%.

The ideal cashing strategy is to cash bonds older then 5 years, with the lowest fixed rate between all i bonds you've purchased.
You can also redeem less than the full amount. It doesn't matter if you buy one single $10k bond, you could cash out as little as $25 at a time.

If you needed like 5,000 then you could take a nibble of an under performing year where it was valued at 15,000 and save on higher performing years.

I just wouldn't put 10,000 of your 15,000 of your savings at one shot into I-Bonds. I think its wiser to say have 15k or 20k saved up before you started doing it and then do it on a monthly basis to hit the target. Long term it won't matter too much if you buy them over a sequence of months or immediately in a calendar year. Maybe you get to a certain point where they are worth 100,000 in total and don't feel like buying more.