Speaker 1 (00:01.932)
Welcome to the Physician Family Financial Advisors Podcast, where physician moms and dads turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security. I'm Ben Utley.
And I'm Nate Rennecke. Today's topic is what every physician should know about eye bonds. So, Ben, you just bought some eye bonds. You maxed yourself out for the year. What are they? They're kind of a hot topic, but what are they?
What are I bonds? Well, these are bonds that you put in your eyes. No, I'm just kidding. I stands for inflation. So I bonds, which their long title is series I US savings bonds are bonds that are issued by the United States government and they pay interest that is very similar or exactly the same as the inflation rate, depending on how you measure it. So
Yeah, that's basically it in a nutshell. you know, you and I've talked about bonds. This is something that we discussed because we like boring financial advisor topics and bonds are the most boring investment. For those listeners who are not familiar with bonds, a bond is basically a loan. That's all it is. It's, you know, if your brother comes to you and says he wants to borrow some money and you say yes, then you've created a bond between you. And if you sign, seal and deliver that, then you have some paperwork behind it.
that's a bond and the United States government borrows a lot and this is one of the ways that they borrow and I bonds.
Speaker 2 (01:35.95)
Okay, so how exactly does it work? know, you know, way back when you had to go in to a financial institution and actually buy a piece of paper. You don't have to do that now, obviously. When you bought your bonds, how did it go?
Yeah. So, kind of the, with I bonds, you buy them from, from the United States government on their website. We'll, get into the exactly how you, how you do it, but you buy the bond, you have to hold it for at least a year. And then, while you're holding it, you accrue interest that, that interest is, same as the current inflation rate is. If there's no inflation, then you get zero. If there's deflation, then you still get zero.
If you hold it for years and years and years, you get a guaranteed rate of return. It's, you know, and that varies from time to time. It's resets. I'm not going to mention it on the air, but after you've held them for a year, you can, you can cash them in. And if you cash them in any time within the first five years of the bond, then you lose three months worth of interest. But your principal is guaranteed during that time. These are, these are backed by the full faith and credit of the United States government. So they're considered about the safest investment that you can make.
Mm-hmm. So for the purposes of our conversation today, I wanted to kind of set a framework for the listeners There's a little reason why you would set this framework but essentially when you're thinking about bonds and Specifically the I bond you're thinking about quote unquote guaranteed returns. It's guaranteed by the government's about as good as the guarantee gets You can kind of compare these to certificate of deposits at the bank. It's very similar you have
Certain amount of time you can't take the money out. Otherwise you pay a penalty the rates sometimes are somewhat comparable not not today with I bonds but many times they're comparable and so when you when you say Penalty, I think when I say penalty to physicians it kind of freaks them out But it's this almost the same penalty as it would be with a CD at a bank Yeah
Speaker 1 (03:38.326)
interest. And actually it's better than that. So if I go out and buy a five year certificate of deposit and you know, I wait a couple of years and then I cash that thing out, I'm usually going to pay a year's worth of interest. And some of them are more punitive than that. The most lenient five year CDs that I've seen do have a three month interest penalty, some six month interest penalty, but common is one year. So I think another difference is with bank certificates of deposit.
You can take that bank CD out today and you can cash it in next week. Whereas with iBonds, you literally can't do that. You're, you're in for a one year ride, whether you like it or not.
Yeah, that's the major difference. Okay. Some other things I learned about I bonds when getting into the details of them is that they are state income tax free. That's one that piece of how they work is pretty favorable for
Yes.
Speaker 1 (04:31.726)
Yeah, it's great for listeners in California and New York and New Jersey. Yeah.
Yeah, I mean that's what it's almost 10 % sometimes. Yeah. Let's see. You talked a lot to me about, mean, literally we were just talking about your experience and you said it was kind of a pain to buy them.
Yeah. Do, okay. So do we want to get into the, buying them now or do you want to talk about why and then, then.
talk about that.
Speaker 2 (05:00.686)
Well, I just, in discussing how they work, like how does their website work? That's just something that I think was interesting when you talked about that.
Well, the first time I bought us savings bonds was when I bonds didn't exist, but it was about, uh, 1995 or 1994 was the first time I bought us savings bonds. And at that time you could walk into any federally chartered bank and buy them like with cash or with withdrawal from your account. And they gave you some paper and those are paper I bonds and you could hold those in your, you know, in your drawer. then if you held them long enough, you can go in and cash them in.
Since then, the Federal Reserve has decided or the Treasury has decided that the only way you can buy those is by buying them online. And they have a website called treasurydirect.gov. That's the only place now that you can buy U.S. savings bonds. And you can buy all kinds of other government debt there, including e-bonds and EE bonds and all that good stuff. that's the only place that you can buy them now. So you have to go to their website. And their website, I wrote about this in the newsletter where I first mentioned the I bonds that got us here.
Their website's clunky. It's kind of what you would expect from a United States government agency. And the clunkiest thing about this, it's crazy, is when you go to enter your password, you can't use a form filler, you can't paste it in. There's a little on-screen keyboard, and you have to actually click each one of the keys, the on-screen keyboard, to enter your password. And I think they're doing that to defeat hackers and automated systems that would go in and purchase things.
whatever reason they're doing it for, it's logging in is just really clunky. So this is, this is not really a modern, a modern financial experience. But when you look at the yields that these things are getting these days, it's eye popping how high those, those yields are. So for me, it was, it was totally worth the effort. Yeah. But treasuredream.gov that's where you go.
Speaker 2 (06:59.694)
That's right. Okay. And so the the the last piece here and I think it's actually the main reason why people end up not buying eyeballs is in exactly how to do this is is the the limits so yeah hear about these really great returns but then you go in there and Right. And so can you tell us what the limits were for when you got them?
So this is, um, the, the maximum amount that any one person can buy in a calendar year is $10,000. Right. So, um, $10,000 is a lot of money, but you know, in terms of an overall physician's portfolio or the size of the emergency fund, $10,000 is really just like, that's your starter emergency fund in most cases. So there's a limit of $10,000. Any person can purchase through treasury direct and, um,
there is a way around that by overpaying your taxes and using your tax refund to buy more, more US savings bonds, but it just seems really a hinky and kind of a pain. so I'm not going to, I just want to let you know that I know about that. And if, and if you're interested in buying more and you're just hell bent on it, then yeah, you can do that, but it's kind of a mess.
Okay, so just to recap here what an I bond is they're tied to inflation Which means you know if inflation goes up return goes up if inflation goes down return goes down and they're that return changes semi-annually So every six months or so it's they recalculate that your inflation rate in the country. Yeah Okay, so ten thousand a year tied to inflation state income tax free
There's some penalties if you pull it out early, you cannot get to the money for at least one year. Okay. So that's kind of what they are and a little bit of how to do it, which is essentially go to Treasury Direct, like you said, but if you can only get 10,000 per person, obviously, traditionally, or not traditionally, I guess is the wrong word, but historically,
Speaker 2 (09:10.378)
Our inflation rate has been pretty low in this country. So why would a physician want to buy an eye bond?
Well, I think the reason you'd want to buy an I-Bond is as a component of your emergency fund.
Right? So, know, our emergency fund is supposed to be safe. It's supposed to be accessible. It's supposed to be federally backed. You know, it's, it's all those good things. I mean, you can go back and listen to the, the, uh, episode that we did about emergency funds where we briefly touch on I bonds, but yeah, they're, they're a good component in really what you want out of your emergency fund is for it to be really safe and really accessible and for it to at least match inflation. And that's what I bonds are. They are those things. And so I think.
the reason a physician would want one of these would be to have in their emergency fund. But you know, a of the physician emergency funds that we see, I think the smallest one I've ever seen is like 40 grand. The biggest one I've seen is like $150,000. So you have to ask a question like, does $10,000 do for me in this environment? Right? But that's why you would want to have one of these.
Right. So I have a, uh, I've actually thought through this with several clients, no matter the size of their emergency fund. There's, I actually love the fact that you can only buy 10,000 for emergency fund purposes. And the reason is, let's say you have a physician, a family of two, two, two spouses. And so really you can buy $20,000 per year. And let's just say you had a $60,000 emergency fund. Be really tempting.
Speaker 2 (10:50.99)
to put in that full 60,000 into iBonds while the rate is so high. But you cannot get to this money for a whole year. So you're sort of risking a lot of your emergency fund in order to stuff it in this account where you're getting this decent rate for a year. Better than that, sort of, it forces you to only buy 20,000 in the first year and then ladder your emergency fund so the next year you can buy another 20 and then the third year you can buy the last 20.
And by the second year, a big chunk of your emergency funds available. And then let's say by the fourth year, it's all available. Right. So you give up a little bit of time of that interest return, but you keep your security of having your fully liquid emergency fund. Yeah, I agree. And just like you mentioned, keeping up with inflation, keeping that purchasing power in your emergency fund is actually pretty difficult to do without taking a ton of risk.
outside of I bonds. CDs, certificates of deposit at the bank don't always keep up with inflation.
That's true.
Speaker 1 (11:56.556)
Yeah. Yeah. It's like, you know, if inflation, if inflation rises and interest rates rise and you have a CD, then that CD might roll over into something that doesn't perform well, especially if you bought a teaser rate. I agree with you. You know, the thing about the I bonds is you're always matching inflation. And as a result, you there's, there's really, buy it you're done with it. I think the, thing that I like about these, these I bonds is sometimes we see kind of what I'd call a sloppy emergency fund.
And it's, you know, it's that bank account that's got a couple hundred thousand dollars in it. know, maybe 50, maybe 80, maybe 77,324 dollars and 56 cents of that is the emergency fund, but nobody really knows. Like he doesn't know. She doesn't know. There's some emergency fund in there. There's some tax money. There's vacation. There's a car thing in there. It's like, you know, if we want to take a trip, it's like all in the same account. It's sloppy, sloppy emergency fund. The cool thing with I bonds is.
This thing is so, it's so on the moon. It's so separate, you know, with all those strange logins, it's like it's its own thing. And it's like, it's, it's inescapable that that is the emergency fund. You're not going to go raid this thing and buy a car because of all the, you know, kind of all the, the arcana that goes with getting one of these things.
Right. Yeah. Yeah. And no matter how small the penalty, I've noticed that most physicians don't want to pay the penalty unless they really need to. Yeah. So it's a small penalty, you know, after you get through that first year. But it really does keep you honest with using your emergency fund how it's meant, which is for emergencies.
the penalty is having a login to the site.
Speaker 2 (13:39.726)
Yeah. Yeah. Okay. So you would use this pretty much for your emergency fund. There is it is an option. Sometimes you're kind of in a holding period with your cash. Like you might be buying a house in three years and you want to do something with your money and it's CD or I bonds. It's the same story. But the reality is this is for most families, this emergency fund.
keeps up with inflation, which is one of the main goals of your emergency fund, simply to keep up with inflation, keep it separate, and keep it available. So I wanted to talk about the availability. It's available, but this website is not going to play nice with the non-financial spouse. So, I mean, it's going to some
There's some legwork involved in the beginning to show your non-financial spouse how to get to the emergency fund.
Yeah, yeah. I navigated that. you want me to talk about how that goes? So obviously I'm kind of the more financial of the spouses in our household. My wife keeps up with all the finances and handles money really well.
Yeah.
Speaker 1 (14:59.508)
Literally when I talked to her about bonds it puts her to sleep like I have to be careful about talking about bonds if it's late at night we're on the road and she's driving because I'm Running risking my own life talking about bonds and she will tell you this if you meet her She'll tell you the bonds put me to sleep. So
My solution to this is my concern was, you know, we get this this great vehicle, but she has a hard time getting to it if something happens to me, you know, I'm not there to coach you through and guide her through it. So I bought, I bought, you know, my $10,000 worth of bonds in my account in joint title. And then I asked her to set up her own account and buy her I bonds in her name with me as a joint holder. And
you know, rather than sitting down and doing the work for her, asked her to actually sit down and do the work herself. So she became familiar with the website and the login and she managed her own username and password and all those good things that you need to be able to do to be able to log into the account. And we log into it, know, once a year just for, for drill, just to make sure that, you know, we can get into there. And I want her to be comfortable that if, you know, something happens and she needs that cash, that she'll be able to get to it without me intervening. And,
You know, I urge our listeners, if you have a non-financial spouse, A, you want to make sure that they know these I bonds are here and that they're part of the emergency fund. And B, you really want to pull them into the loop as you go through the purchase of these things and the maintenance of it so that they are, they're aware that it's here. It's very different than, you know, having a joint certificate of deposit where you just call the bank and you can yank the money out of there. So,
you know, be mindful as you pick these up and you make it part of your world. again, I think that the inflation adjusted return is worth your effort.
Speaker 2 (16:48.042)
Yeah, that is, I think for the majority of people, that's how they're going to coach their non-financial spouse to get there. One other thing to add would be if you have an advisor, tell them you have the bonds and if something happens to you, they can call your advisor and they can direct, because it's the same for everyone. Just go to the site and teach you how to log in.
Yeah. Yeah. Tell somebody that you have write it down on your balance sheet or something, you know? Yeah.
Yeah, write it down exactly because it's searchable There are some I Wouldn't say hiccups, but some some nuanced Ways that we talked about how you wish you would have bought your iPod So you actually were the guinea pig for our listeners. Yeah, can you talk about splitting them up?
Yeah. So, the story is that I bought some, bonds last year. had some loose cash and I put some away and I was kind of migrating my emergency fund from, from bank to treasury direct. And so I bought my $10,000 bond last year. And then this year it came time to buy and I was, I have a pretty low yielding CD. And so I went to tap that CD. And when I found out in the process is that in order to get out of that CD,
I couldn't take part of it. I had to take the whole thing and every bank works different. Some of them will allow you to tap a little bit of the CD. Others make you basically redeem the entire certificate of deposit in order to be able to get any money out of it. And that was what I experienced. I'm not going to name the credit union that put me through that, but I'll tell you how it was miffed. So, um, and so in the process of that, I thought, Oh, well, I bet the same thing happens if I go to redeem my I bonds in the future.
Speaker 1 (18:29.262)
And so as a result in this, in this around, I bought several bonds that total up to 10,000. So, you know, you can buy 10 I bonds for a thousand, or I would think that the least you'd want to buy is like two $5,000 I bonds. And as I approached that decision, I was like, Oh, this is going to be a pain. It's going to be really hard to buy them. Well, the good news was that the second time I went to buy them, it was super easy because it was already linked to my bank account. It already had my identity. It was literally just click click. think it took me maybe two minutes to.
to log in and buy those I bonds and then to buy that second I bond was just like two more clicks. And so was super easy to do that. So that's one of the things I'd say is when you buy smaller tranches so that if you do have an emergency and you want to cash some of it out, you don't have to wait the whole year when you put the money back in, you know, just get close to what you need. And I'm trying to think of an emergency that costs less than $5,000 that you need to tap. yeah, I'd buy smaller tranches when I buy them.
Mm-hmm. Yep. Some other notable facts is that you can buy your iBond toward the end of the month and still get the full credit for that month's interest. Yeah.
That was sweet. bought them on like the last day and I got credit for interest for the entire month.
Yeah, which is great. It's not really a... It's more of like, hey, if you're gonna buy them at the end of the month, hurry up. Don't wait a couple more days because it's know, free little bit of money. Yeah.
Speaker 1 (19:56.94)
think it's like worth like 50 bucks Nate. I think that's what it came down to.
Mm-hmm. Yeah, the last thing was a couple of Physicians that had bought I bonds. They're like, where's my interest and we found out that it Doesn't show up till a few months later because they're withholding that that penalty. Yeah, and so Are that potential penalty so that it's there it's gonna show up and so kind of it big picture here if you have a fully funded emergency fund
You can carve off a little bit for I bonds every year, get a decent rate that keeps up with inflation, keep your purchasing power. And really the other big takeaway is make sure everybody in the house knows how to get to it, just like you would if your emergency fund was anywhere else. Yes.
Yeah, that's it. Yeah, exactly. Yeah, I think that that is it. That's that's pretty much everything you need to know to buy I bonds. I'll take us out. So I have a new call to action today. The the reason we're talking about I bonds today is because I've I've had and Nate's had probably but on our team here, we have five people. We probably had
couple dozen conversations about I bonds. And we went from not talking about I bonds at all to talk about I bonds all the time in most of our meetings. And it's because it's new and our people found out about our clients found out about it through our newsletter. So newsletter sometimes has juicy little bits in that. Sometimes it's got some silly stuff that I wrote that kind of helps you stay the course and keep your courage up about your investing and your family. So
Speaker 1 (21:39.372)
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Speaker 1 (22:22.734)
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