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Old 04-16-2008, 10:36 AM   #1
Cjchaps
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Default Finance Peeps: I Bonds currently a good safe investment during April

http://www.mymoneyblog.com/

C/N: If you buy I bonds during April you get 4.28% for 6 months and then 6.06% for the next 6 months guaranteed. This is one of the safest investments you can make.
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Old 04-16-2008, 10:52 AM   #2
Indocti Discant
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or you can just go out and buy TIP...

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Old 04-16-2008, 11:01 AM   #3
Cjchaps
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Quote:
Originally Posted by owace View Post
or you can just go out and buy TIP...

There are many differences, the biggest being I Bonds are safe, you can lose with treasury bonds if you don't hold them until maturity. This isn't meant to be a thread about gambling away your money or investing in something non-secure. This is about a super safe investment vehicle with a decent return for those who don't want to play in the market at this time.


Stolen from FW:

Non-marketable (I, EE savings bonds) vs. marketable (bills, notes, bonds, TIPS) treasuries

1. Savings bonds are considered "non-marketable" because they cannot be sold to anyone; they can only be redeemed by the Treasury (or by a bank that acts on behalf of the Treasury). Also, you can only buy them from the Treasury (or a bank). The other treasuries are "marketable" in the sense that you can buy and sell them on the secondary market (brokerage, etc). Even so, they are always issued by the Treasury and at maturity, redeemed at the Treasury by the last owner.

2. The rate for savings bonds is determined by the Treasury and seemingly doesn't always follow market forces. The rate for marketable Treasuries is determined at regular auctions by the bids of auction participants, and does follow market forces. In practice, for treasuries issued at the same time, marketable rates are always higher than savings bond rates (with the exception that savings bond rates use an average over 6 months, so savings bond rates could be higher if the six-months average is higher than the current rate).

3. The value of a savings bond is always principal + accrued interest. The same is true for marketable treasuries IF HELD TO MATURITY. Marketable treasuries bought and sold on the secondary market can have a different value, i.e. price, than the principal, based on market conditions.

4. Savings bonds have certain federal tax advantages (income deferred to redemption, can be tax-exempt when used for education) that marketable treasuries don't have.

5. Savings bonds are issued year round, 24/7 on TreasuryDirect. Marketable treasuries are issued at specific times at auction. Some of them (bills) are sold in one week intervals, others (especially TIPS) only a few times a year. Already issued marketable treasuries can of course be purchased every day on the secondary market.

6. Savings bonds MUST be held for a minimum of one year. Marketable treasuries can be sold immediately on the secondary market. Bills even have a term to maturity of less than a year. TD imposes a 45-day hold on newly auctioned issues through its system. (still TBD how this applies to selling, and if it's different when bought through a brokerage)

7. Savings bonds CAN be held for up to 30 years and are not callable (i.e. the Treasury cannot force you to redeem them earlier). A 3-month penalty applies in the first 5 years. Marketable treasuries have a defined maturity date at which the principal is repaid (for individuals, 28 days to 30 years); some of the marketable treasuries issued before 1985 are also callable, i.e. the Treasury can choose to repay you principal earlier and not pay you any more interest. Currently auctioned issues are all non-callable.

8. With a savings bond, interest will be added to the principal and compounds. Marketable treasuries pay interest (coupon) in 6-month intervals and principal is returned at maturity. Bills are zero-coupon bonds, meaning principal and interest is paid at maturity.

9. When redeeming a savings bond, you're always guaranteed principal + interest. When selling marketable treasuries, you're only guaranteed principal at maturity. When selling on the secondary market, you might get more or less for your bond, depending on prevailing interest rates for similar maturities. The closer to maturity, the less flucuation.
10. Savings bonds are issued as paper (from banks) or electronic bonds (from TreasuryDirect). Marketable treasuries are only electronic and auctioned through TreasuryDirect, Legacy Treasury Direct, and brokerages.

11. Some mutual funds and ETFs invest in marketable treasuries, but never in savings bonds. Also, derivatives like STRIPS exist for marketable treasuries but not savings bonds.

12. The Treasury issued debt instruments consist to only about 2% as savings bonds and 98% as marketable treasuries.

13. There's a $60,000 cap on savings bonds per year, per person. No such limit exists for marketable treasuries.
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