Quote:
Originally Posted by daniel200
There is another option for regular taxable accounts. Right now it is very easy to purchase treasuries that were issued in the last few years that have a bond coupon interest of only 0 to 0.5%
These bonds offer a yield to maturity of 4.0 to 4.7% depending on the maturity date. So if you purchase 0.50% bond maturing in 2027 (5 years) … you have a small yearly taxable interest of $5.00 per $1000 bond. But when it matures in 2027 you will have a long term capital gain $156 per $1000 bond (This is how you get your yield to maturity of 4.03% on this bond).. So almost all of the yield is tax deferred until the bond matures… And in this case most of the income is taxed at the lower long term capital gains rate.
This is based on todays price of a US Treasury 10/31/2027 note with a 0.5% interest rate. The cost to buy one $1000 bond is only $844 based on todays market price on Fidelity.
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I understand the concept of buying at a discount and paying capital gains rates. But, looking at the CDs available at Fidelity, you can buy a 2 year CD that pays 4.85 percent interest and then see what interest rates do in 2 years. I can't see committing money for 5 years at a lower interest rate, when interest rates are rising.