Design for grouping undo steps when editing text

Some undo for text editor editors handle text input differently.

• Every key press is a single undo step.
  Typing in a word N characters long, requires N undo steps.
• Undo steps use word boundaries
  Undoing will undo each word entered.
• Undo steps use timer-based boundaries
  If you stop typing N milliseconds - this adds an undo step.
• Undo steps add boundaries every N characters entered.

Given these different ways of handling undo for text input, are there strong reasons to pick one of these over another?

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Edit, asking about this for text entry fields for a widget-toolkit.