My spouse and I each bought $10k in I Bonds in April. We bought another $10k through an EIN last week. So now we have $30k in I Bonds. We were planning on keeping them as our emergency funds.

I am starting grad school this spring or summer. It will be a total of $15k. I have separate savings in an HYSA for this. I know that if I use I Bonds for education then the interest is not taxed. Should I use our I Bonds that we purchased in April to pay for tuition? Or let the I Bonds continue to accrue interest and just pay cash from HYSA for tuition?

If it makes any difference, we plan to buy another $20-$30k in I Bonds in January for short-term investing. TIA!

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Loutro-Fift t1_iuetioe wrote on October 30, 2022 at 8:00 PM

Downside about I bonds as an efund is that they are locked up for 12 months. If you need that money tomorrow, you can’t access it.

Yukycg t1_iuf0ich wrote on October 30, 2022 at 8:47 PM

IBond is not really a short term investment IMO (I personally view them like a 5 years CD) since less than 5 years there will be a 3 months interest penalty.

To me it is kinda strange. On April 2023 you will need to pay a tuition bill, you are planning to sell the ibond to pay for the tuition and then buy iBond again?

The math would be the interest you save by using iBond for payment minus the early withdraw fee

Longjumping-Nature70 t1_iug0mxc wrote on October 31, 2022 at 1:08 AM

I agree with Yukycg.

IBonds cannot be cashed until after 12 months. then you lose 3 months of interest or something. All CLEARLY explained on the treasury website. I found it and read it, and I am old and dumb.

Can you do a 529 on yourself?

Short term cash goes into a HYSA or a 6 month CD. Not into iBonds or stock market at this time. Or that other weird thing, crypto currency.

I truly wonder how many young people bought Bitcoin at $60,000(or a fractional share) and are now down to $20,000 taking a 67% haircut.

zacce t1_iuelf1n wrote on October 30, 2022 at 7:07 PM

withdraw from whichever has lower interest rate.

TheKingJacobo t1_iug1mib wrote on October 31, 2022 at 1:16 AM

I'm in a similar boat. Option 3 is a CD (3, 6, 9 a 12mo term). Rates are 3 and even 4%+ in those time horizons. Do that so it's truly liquid after that time. I bonds are stuck for a minimum of 12mo, with a 3 month penalty.

I bonds are NOT an emergency fund. Emergency funds belong in a HYSA.

Varathien t1_iugovm8 wrote on October 31, 2022 at 4:40 AM

I bonds can serve as an emergency fund after the first year.

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Rxpert83 t1_iuhrf0x wrote on October 31, 2022 at 1:03 PM

Ibonds are not a good vehicle for an emergency fund. It's not liquid.