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So if I buy when I normally do at the end of January my fixed rate will be 0, but if I wait till May there is a chance fixed portion could be higher?

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RS4Rings said:   So if I buy when I normally do at the end of January my fixed rate will be 0, but if I wait till May there is a chance fixed portion could be higher?
  Keyword is a "chance" 

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MoneyOCD said:   October CPI-U is posted = 237.433 
Base line for next change (September) = 238.031
Total inflation for Oct = -0.25%

We have FIVE more months to go before new I-bonds inflation component rate will be set.

  Damn you oil, you're making my I-bonds earn less! (probably, in five months)

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ntr91 said:   
MoneyOCD said:   October CPI-U is posted = 237.433 
Base line for next change (September) = 238.031
Total inflation for Oct = -0.25%

We have FIVE more months to go before new I-bonds inflation component rate will be set.

  Damn you oil, you're making my I-bonds earn less! (probably, in five months)

Maybe oil going down is a good thing for your i-bonds.

No matter how much oil falls, your i-bond rate will still be zero.  So lets hope for a dramatic decrease in inflation.

i.e. Inflation falls for the six month period at a rate of -2.00% then goes up the next six months at 1.00%. For the twelve month period you earned 1.00% on your I-bonds yet inflation fell 1.00% for that 12 month period.  Your I-bonds did not match inflation as they were designed, they beat inflation. 

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From a macroeconomic perspective, you would not want that. Deflation will make inflation look like a tame child.

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Inflation does not effect everyone the same. I was doing much better when we had higher inflation but was making 6% on my money

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November CPI-U is posted =236.151
Base line for next change (September) = 238.031
Total inflation for Oct+Nov = -0.79%

We have FOUR  more months to go before new I-bonds inflation component rate will be set.

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With Barclay's 5 year CD you can earn 1.5% APY after 18 months since the penalty is only 180 days on a 2.25% APY.

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December CPI-U is posted =234.812
Base line for next change (September) = 238.031
Total inflation for Oct+Nov+Dec = -1.35%

We have THREE  more months to go before new I-bonds inflation component rate will be set.

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I have always bought at the end of January. However, it looks like we are going to have a six month period of zero interest rate. So unless they have a great fixed rate in May, I will buy in November this year.

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Maybe they'll up the fixed rate to compensate, we can hope

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Think I may buy EE rather than I this year. I can wait the 20 years for 3.5%.

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stormdog123 said:   I have always bought at the end of January. However, it looks like we are going to have a six month period of zero interest rate. So unless they have a great fixed rate in May, I will buy in November this year.
  Above is very uncertain though - last 3 months of the year historically had negative inflation rates, and first 3 months of the year historically had highest positive inflation rates that are usually offset negatives for I-bond May rate calculation.
That said, we still can have zero rate starting in May but at this point it is too early to really tell.

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Why don't you guys just invest in a bond mutual fund or ETF?

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Medikit said:   Why don't you guys just invest in a bond mutual fund or ETF?
  The put option makes I and EE bonds very attractive. There is a reason there is a Dollar cap on how much you can put into I and EE every year.

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psychtobe said:   Think I may buy EE rather than I this year. I can wait the 20 years for 3.5%.
 Why not simply deposit your money into a low cost Vanguard Total Stock Market Index fund or IRA? You can afford to wait 20 years then your money need to be within the stock market not within EE bonds. You are willing to wait the 20yrs and obtain 3.5% after 20yrs of investing from EE bonds? It is your money so its your choice. Go for the 20yrs 3.5% EE bond. Best of luck to you with that investment approach.

 

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The I Bond and EE Bond are guaranteed. That allows you to take more risk elsewhere in your portfolio. This is why I use I bonds, although EE Bonds are pretty worthless considering that long term CDs are available for over 2% and have a much smaller early withdrawal penalty than EE bonds do.

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enc0re said:   
Medikit said:   Why don't you guys just invest in a bond mutual fund or ETF?
  The put option makes I and EE bonds very attractive. There is a reason there is a Dollar cap on how much you can put into I and EE every year.

  Can you please explain this in more detail?

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http://www.investopedia.com/ask/answers/06/bondputoption.asp

Basically, if interest rates shot up, if your investment were in regular Treasury bonds (either TIPS or T-Bonds), the bond would lose value. Thus if you happened to need to redeem before maturity you would not get back what you put into it. The "free put option" allows you to redeem your savings bonds at any time and get the full principal plus interest back at any time. Personally, I think the cost for the EE bond put option (the pitiful 0.1% interest rate, not even at the 1 year Treasury Bill rate) is too high, but for the I Bond it is worth a maximum investment every year.

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January CPI-U is posted = 233.707
Base line for next change (September) = 238.031
Total inflation for Oct+Nov+Dec+Jan = -1.82%

We have TWO  more months to go before new I-bonds inflation component rate will be set.

My personal sentiment - we will have hard time to recover to positive territory in 2 months that left before rate reset, my guess we will have zero rate for next 6 month unless fixed component will be increased to offset and then some.

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Thanks for the monthly updates! I agree. I'm selfishly hoping it gets up close to zero from current negative so my 3% + bonds from 2001 at least get their 3% fixed rate. No hope for my 0% fixed rate to have any earnings even with gas up a bunch in February. I'd guess we will see a pretty decent positive number for February due to gas, but not near the positive point. I have some 0% fixed rate bonds less than 5 years old I will probably sell after 3 months of zero to minimize penalty.

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CPI-U (62.58kB)
Disclaimer
I think this will be first year I will not buy any paper bonds on tax refund and use money to pay off 5.25% mortgage. Also interesting development - this January is the first since 1999 that we have negative inflation for the month, wondering if that is a development of new trend or just one off.
 

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I'd say a one off. The press release said

"The energy index fell 9.7 percent in January, its seventh consecutive decline
and the largest 1-month decrease since November 2008. The 18.7-percent
decline in the gasoline index was the main factor. (Before seasonal
adjustment, gasoline prices fell 17.1 percent in January."

So if gas had been flat, we'd have been positive for January.

This will be the first year since 2011 I will not buy I-Bonds and will most likely sell some, but some of that is my personal financial situation.

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MoneyOCD said:   I think this will be first year I will not buy any paper bonds on tax refund and use money to pay off 5.25% mortgage. Also interesting development - this January is the first since 1999 that we have negative inflation for the month, wondering if that is a development of new trend or just one off.
  

Why would you buy I bonds instead of paying off a 5.25% mortgage?  

You are borrowing at 5.25% to get a bond with a 1-2% interest rate.  Unless I'm missing something, this doesn't make sense to me.

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phisher4 said:   
MoneyOCD said:   I think this will be first year I will not buy any paper bonds on tax refund and use money to pay off 5.25% mortgage. Also interesting development - this January is the first since 1999 that we have negative inflation for the month, wondering if that is a development of new trend or just one off.
  

Why would you buy I bonds instead of paying off a 5.25% mortgage?  

You are borrowing at 5.25% to get a bond with a 1-2% interest rate.  Unless I'm missing something, this doesn't make sense to me.

  because you can always pay off the mortgage later; but the opportunity to buy $25k in I bonds (per couple) is gone if not used within the year. At some point you're right - the chances that a higher future inflation rate will overcome years of lower inflation rates start to diminish, and it makes sense to pay off a higher rate loan. But that may not be true early in the mortgage.

I've been buying I bonds for several years, but this may also be a year I don't buy any, or many. I may buy EE bonds instead. My mortgage is only 3.25%, close to 2% net of taxes. So an I bond is still reasonable, but an EE bond (3.5% or so to 20 years) is even better.

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phisher4 said:   
MoneyOCD said:   I think this will be first year I will not buy any paper bonds on tax refund and use money to pay off 5.25% mortgage. Also interesting development - this January is the first since 1999 that we have negative inflation for the month, wondering if that is a development of new trend or just one off.
  

Why would you buy I bonds instead of paying off a 5.25% mortgage?  

You are borrowing at 5.25% to get a bond with a 1-2% interest rate.  Unless I'm missing something, this doesn't make sense to me.

  
Low interest rate debt is good. It gets inflated away. Also, owning cash convertibles (rather than sinking cash into a mortgage)  allows you to rebalance when the stock market takes a dive.

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Good explanations, thank you.

But just to play devil's advocate:  Would you go out and apply to a bank for a 3-4% loan in order to buy more I-bonds?  (Or other bond instruments which roughly track inflation?)

Isn't this is the exact equivalent of not paying down a mortgage?

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phisher4 said:   Good explanations, thank you.

But just to play devil's advocate:  Would you go out and apply to a bank for a 3-4% loan in order to buy more I-bonds?  (Or other bond instruments which roughly track inflation?)

Isn't this is the exact equivalent of not paying down a mortgage?

What will the average I Bond rate be over the course of the mortgage term?

Prepaying your mortgage is the equivalent of buying a zero-coupon bond with a term that lasts until you pay off your mortgage.  Based on current interest rates, you get a superior rate on this theoretical bond compared to I-Bonds but in exchange for locking up funds.  An I bond allows you flexibility to cash out whenever you want (after a year).  

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For the 2008 l-bond holders can someone tell me when the interest posts again next and when to safely take the funds out without forfeiting the interest?

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vetiver said:   For the 2008 l-bond holders can someone tell me when the interest posts again next and when to safely take the funds out without forfeiting the interest?
  Interest posts monthly on the first of the month.  You can take the funds out without forfeiting interest after 5 years.

If you bought in 2008, you can cash in your bonds now without losing any interest. The earlier in the month, the better.

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I know I can cash out without penalty, I'm just trying to maximize interest and thought interest payouts were only every 6 months at fluctuating amounts. I never totally got a full grasp on how it worked.

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vetiver said:   I know I can cash out without penalty, I'm just trying to maximize interest and thought interest payouts were only every 6 months at fluctuating amounts. I never totally got a full grasp on how it worked.
 Bonds issued after May 1st 1997, interest is added every month.

Bonds issued before May 1st, 1997, interest is added every six months. The interest is added on the month you bought the bond and six months from the month every year.  For example if you bought in January, interest would be added in January and July.

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What's the current interest rate and what month is it supposed to change (and to what?)

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February  CPI-U is posted =234.722
Base line for next change (September) = 238.031
Total inflation for Oct+Nov+Dec+Jan+Feb = -1.39%  (was -1.82% as of January)

We have ONE  more month to go before new I-bonds inflation component rate will be set. 

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vetiver said:   What's the current interest rate and what month is it supposed to change (and to what?)
  http://eyebonds.info/ibonds/   
It should give you answers. Most likely next rate will be 0%  

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phisher4 said:   
MoneyOCD said:   I think this will be first year I will not buy any paper bonds on tax refund and use money to pay off 5.25% mortgage. Also interesting development - this January is the first since 1999 that we have negative inflation for the month, wondering if that is a development of new trend or just one off.
  

Why would you buy I bonds instead of paying off a 5.25% mortgage?  

You are borrowing at 5.25% to get a bond with a 1-2% interest rate.  Unless I'm missing something, this doesn't make sense to me.

  You are missing word "Liquidity", paying off mortgage = reducing liquid assets, would you put every single penny on hand into the mortgage in order to not pay 5.25% interest? 

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