The latest CPI numbers are out and it looks like a low rate (0%)for the next 6 month period on the I Bonds I currently hold.
If I calculated it correctly, the 6 month inflation rate is minus 2.776, and it is doubled for an annual rate of minus 5.55%. This will, if I got it right, make all current I Bonds yield 0%, since the highest fixed rate was 3.6% in May 2000.
Could someone please check and see if my calculations are correct.
I was smart(dumb luck)enough to buy my 3% fixed rate I bonds near the end of their 6 month run, so I have an extra 5 months to decide if I want to sell them when they go to 0%.I will then have 5 months of data to see how they might yield on the next 6 month period.
To date, they have been very good to me. If inflation goes wild with all the new spending, they may again be very good. I can handle one or two periods of low or zero rate if I can get high rates in the future.
Now if you meant while the govt. still can cash them, that is a whole different discussion.
If you buy before May 1, you will get 2.82% - 3% state/local tax free, fed deferred.
Bank Deals said: Buying I Bonds before May 1st
If you buy an I Bond this April, you can still earn a decent rate for one year. You'll earn 5.64% for the first 6 months and 0% for the second six months. There's a 3-month penalty if you redeem before 5 years, but since this is the last 3 months, this won't matter. So this results in a one-year rate of 2.82%. The effective interest rate could be pushed up a little higher if you buy the I Bond near the end of the month and redeem it at the start of the month. This could push the annualized rate for 11 months to just over 3%. The other nice I Bond feature is that the interest is exempt from state and local tax. The federal tax will be based on the interest when it's redeemed, so you won't have to worry about that until 2011.
Swivelguy
Senior Member
posted: Apr. 15, 2009 @ 11:15a
brentpresley said: LOL.
Interest free loan for Uncle Sam.
The I-bonds having a 0% total rate for a 6 month period is a very good thing for I-bond owners. When owning an I-bond, you get the full upside of the volatility in the CPI with none of the downside. It's like owning a stock that goes up when the market does, but isn't allowed to go down.
TheManWhoExcaped said: dj said: SnoopDoug said: Wonder what the new fixed rate will be on May 1st...
It will be interesting to see what they do.Fixed would have to be over 5.5% to yield above zero. I don't see that happening. Who would buy them at 0%?
I will buy if the fixed goes even above 3%.
Who wouldn't? 3% + CPI inflation, with a guaranteed minimum return of 0% would be dreamy.
But let's face it, they probably won't move the fixed component above even 1.5%.
polaris
Senior Member
posted: Apr. 15, 2009 @ 12:51p
enc0re said: But let's face it, they probably won't move the fixed component above even 1.5%.
I'd be surprised if the fixed component was even that high. It looks like the TIPS real yield is a bit over 2% right now, so I would imagine that the I Bond fixed portion would continue to be set well below that number.
if you have plan to withdraw the funds out of ibonds wait 3 months after 0% rate kicks in ( as the interest are paid 3 month late to adjust for 3 month interest penalty if withdrawn within 5 years ).
enc0re said: TheManWhoExcaped said: dj said: SnoopDoug said: Wonder what the new fixed rate will be on May 1st...
It will be interesting to see what they do.Fixed would have to be over 5.5% to yield above zero. I don't see that happening. Who would buy them at 0%?
I will buy if the fixed goes even above 3%.
Who wouldn't? 3% + CPI inflation, with a guaranteed minimum return of 0% would be dreamy.
But let's face it, they probably won't move the fixed component above even 1.5%.Why not? Theyve offered 3-3.5% fixed rate in the past. If the fixed rate needs to be over 5.5%, it just may be. The buying limits are now so low, I dont see this as unimaginable.
xerty
Senior Member - 2K
posted: Apr. 16, 2009 @ 7:59a
SUCKISSTAPLES said: But let's face it, they probably won't move the fixed component above even 1.5%.Why not? Theyve offered 3-3.5% fixed rate in the past. If the fixed rate needs to be over 5.5%, it just may be. The buying limits are now so low, I dont see this as unimaginable. You've got a better imagination than me. If you give me an over/under at 2% I'll take the under for a couple hundred bucks at least. You know where to find me if you're interested between now and Apr 30th .
xerty
Senior Member - 2K
posted: Apr. 16, 2009 @ 8:01a
dj said: Who would buy them at 0%? It does depend on the fixed rate, but unless that's particularly impressive (3%+) I'd just wait until Nov 1 and see what happens then. At least by waiting until Nov you'll avoid the 0% period associated with all the deflation we just saw in the past 6 months.
I will go out on a limb and predict a 5.65% fixed rate component (if the adjustment is -5.55%), for a net of 0.10%.
For some reason I just dont think they are going to offer a 0% bond.
Im not willing to bet on this....but I wouldnt be surprised if we see something like this.
schieller
Member
posted: Apr. 17, 2009 @ 11:09a
SUCKISSTAPLES said: I will go out on a limb and predict a 5.65% fixed rate component (if the adjustment is -5.55%), for a net of 0.10%.
For some reason I just dont think they are going to offer a 0% bond.
Im not willing to bet on this....but I wouldnt be surprised if we see something like this.
WOW! -- SIS that would be enormously short-sighted, if they did. I definitely would get the limit for wife and I and cash in some old ones as necessary. Too bad the limits are sooo low. I can't even imagine what inflation will be when these multi-trillion dollar deficits start to pile up and all the business/personal taxes are raised to pay for them. But then again who knows how high interest rates will go with all the fed borrowing. My crystal ball remains cloudy...
When I bought a big batch of iSBs(2001-20003) to supplement my early retirement, I never dreamed they would so dramatically outperform the S&P in the ~long term... Of course, if my crystal ball worked worth a damn, I could have bought S&P stock at the lows in ~2002 and sold at the highs in 2007 and really supplemented my net worth... OH well, iSBs were the safe way to go w/o risking the S&P roller coaster ride...
tobands
Member
posted: Apr. 17, 2009 @ 12:00p
You can dream all you want about that 5% fixed. But, if they raise the fixed rate to over 1.5% they would have a deluge of redemptions from the previous ibond purchases in the past 7 years or so, at least since 2002. The treasury would have to pay the interest and principal back now. The other downside is that due to lowered contribution limits now, not much money will be able to get back into the system, and additionally they still have to borrow that money through other channels. The upside is the tax payments on the redemptions for 2009 tax year.
It seems like the CPI will remain tempered for quite sometime, it may make sense to some to redeem now, if the fixed rate does indeed go up. My prediction is that the fixed rate would increase to 1.5% so the feds can watch you squirm in indecision.
btuttle
Senior Member
posted: Apr. 17, 2009 @ 1:41p
The current 10 year TIPS yields are in the 1.5% range. Since any reasonable fixed rate is going to be cancelled out by -5.55% inflation adjustment, I can't see the treasury even attempting to try.
I still think the rate will be in the 0% - 1% range. Hey everybody who is currently holding iBonds will be recieving 0% for six months.
They are praying than anybody with a fixed rate >= 2% sees the 0% rate for the next six months and stupidly cashes them in.
btuttle
Senior Member
posted: Apr. 17, 2009 @ 1:44p
Also, remember that the iBonds are such a tiny, tiny, tiny fraction of the total amount of debt that the US carries. It might be important to some of us, but they are just a nusiance to the Treasury.
tobands said: You can dream all you want about that 5% fixed. But, if they raise the fixed rate to over 1.5% they would have a deluge of redemptions from the previous ibond purchases in the past 7 years or so, at least since 2002. The treasury would have to pay the interest and principal back now. The other downside is that due to lowered contribution limits now, not much money will be able to get back into the system, and additionally they still have to borrow that money through other channels. The upside is the tax payments on the redemptions for 2009 tax year.
It seems like the CPI will remain tempered for quite sometime, it may make sense to some to redeem now, if the fixed rate does indeed go up. My prediction is that the fixed rate would increase to 1.5% so the feds can watch you squirm in indecision.
They already will get a huge amount of redemption no matter what the new fixed rate is. It makes sense for a lot of people to cash in their lower fixed rate bonds when 0% begins, put it in a high yield savings account, and then see what the new inflation and fixed rates are on Nov 1.
The max now is just $10k per SSN, so the Treasury will definitely see much more outflow than inflow.
While I think 5.5% fixed is less likely, I do believe that the new fixed rate will surprise a lot of people.
How about 2.0% fixed? The new administration may actually care about the little guys who are responsible.
schieller
Member
posted: Apr. 17, 2009 @ 6:03p
wrx2004 said: The new administration may actually care about the little guys who are responsible.LoL -- NO, they very much want people to borrow and SPEND as much as possible. (Just like their gov't)
The last thing they want is for people to act responsibly and SAVE. DO you want to cause a DEPRESSION??
Too bad my I Bonds are locked up forever. I haven't seen my stupid little TreasuryDirect login card since I moved last year. It's probably in the same missing box as my camcorder charger and my Cabela's Mini Multi-Tool with LED light.
JokrsWld
Senior Member
posted: Apr. 18, 2009 @ 8:30p
Ok someone flame me for asking newbie questions on I-Bonds but then womeone else please direct me to I-Bond thread or answer my questions when opening account with treasurydirect it shows that it needs Bank Routing Number and Account Number does treasurydirect take the money direct from your account and then store the I_bond information on its site and if you have bought paper bonds do they show up on their site also? I thought that if you bought a I-Bond with say a fixed rate of 3% then that rate remained for the life of the bond with just the cpi part changing is this correct? and last when buying a paper bond does the bank charge a fee to do so and if so what is the fee?
There are also a number of archived threads about I Bonds.
As I recall, TreasuryDirect does take the money directly from your bank account and stores the I Bond information on its site. But you have to keep track of your own paper bonds, unless you get the Treasury to turn them into electronic bonds.
airblade
Handsome Member
posted: Apr. 19, 2009 @ 5:44a
Banks do not charge for selling or redeeming I Bonds
JokrsWld said: I thought that if you bought a I-Bond with say a fixed rate of 3% then that rate remained for the life of the bond with just the cpi part changing is this correct?
The fixed rate does stay the same, but if the CPI is negative, then it can lower the fixed rate as low as zero,(but not below) which is the case the last 6 months, with a negative 5.55% inflation factor.So 6 months of zero interest for I Bond holders.
MoneyOCD
Senior Member
posted: Apr. 19, 2009 @ 10:56a
I was thinking the same along OP and is in wait mode for May rate release. Is it possible that if they will set 5+% fixed component and at the same time to decrease limit per SSN to like 1k for example?
Other question: if high fixed rate is coming May 1 but composit will be close to 0%, does it make sence to do all buying at the end of October? You will get same high fixed rate but will earn more on the money in the meantime and hopefully will get very good % starting November 1 which should maximize your overall interest for the year. Am I missing something?
if they do come out with a high fixed rate i would buy asap
Before they see the runup in demand after it mskes the major media and they ddcide to add more restrictions or lower buying limits etc
xerty
Senior Member - 2K
posted: Apr. 19, 2009 @ 12:27p
MoneyOCD said: I was thinking the same along OP and is in wait mode for May rate release. Is it possible that if they will set 5+% fixed component and at the same time to decrease limit per SSN to like 1k for example? I'll put $50K down that they won't set it at 5+%... it's not going to happen. Even 2% would be generous. If they reduce the limits any further below the current $10K limit, they might as well scrap the program. That's the direct they're heading anyway since they're touting how you can buy individual TIPS via Treasury Direct now (TIPS are the institutional and less good version of I bonds).
MoneyOCD said: Other question: if high fixed rate is coming May 1 but composit will be close to 0%, does it make sence to do all buying at the end of October? You will get same high fixed rate but will earn more on the money in the meantime and hopefully will get very goog % starting November 1 which should maximize your overall interest for the year. I am missing something? Yes. You're going to hold the I bond for the same amount of time anyway (say 1 year). If you wait til October, you'll earn the interest rates right now for 5 months and hold the bond for 12 months thereafter. If you buy now and sell in a year, you'll get your money back and earn the interest rates from 12 months to 17 months from now. Since it's not really possible for rates to fall, that argues for buying sooner. Then again, you'll know more about the CPI by the near of October, so you'll have a better guess as to how good the I bonds will be as an investment. I always like to wait until end of April/Oct to buy my I bonds for this reason.
MoneyOCD
Senior Member
posted: Apr. 19, 2009 @ 12:29p
Thanks SIS, I definately see runup in demand if fixed would be set high. Do you think that there is possibility that treasury will not offer I-Bond at all for the next 6 month?
any other guesses? why are so many people expecting a fixed rate in the 1-2% range when there is documented history of them offering 3%+??
airblade
Handsome Member
posted: Apr. 20, 2009 @ 2:53a
Has anyone written to their elected reps to complain about the downgrading of the I Bond program. It turns out that the IBs i bought in the early days of the program 1999-2001($300,000) have out performed every other investment i made since than. I realise that this program was competiton for wall street brokers who prefer that you pay them commissions for anything you do. It would not suprise me to discover that their lobbyists worked hard to minimise and then kill the program, it was just too good a deal for ordinary investors. When they first cut the limits, i called my rep and my senator, Clinton, was told they would get back to me. Im still waiting, so please get in touch with your reps and ask them to apply pressure to bring back the old limits and make the rate setting process transparent, so that we all know whats happening.
+-
WalStMonky
Happy Member
posted: Apr. 20, 2009 @ 4:52a
SUCKISSTAPLES said: Im not willing to bet my cash but can i collect the 50k if im right?
Pfft. You should be getting odds, but infinite? I'd say you'd have to risk at least $500 against his 50k to make it a fair bet.
polaris
Senior Member
posted: Apr. 20, 2009 @ 7:45a
SUCKISSTAPLES said: any other guesses? why are so many people expecting a fixed rate in the 1-2% range when there is documented history of them offering 3%+??
I say the fixed component will be 1.0% starting on May 1st.
Skipping 104 Messages...
ThursdaysChild
Missed.
posted: Nov. 2, 2009 @ 1:35p
OK, folks, here it is, courtesy of BankDeals Also read his discussion:
The Treasury just released the new I Bond rates this morning. The new fixed rate is 0.30%. When combined with the new inflation rate of 3.06%, the total rate is 3.36%.
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
Members of our community may attach files to a post in accordance with the User Agreement. FatWallet is not responsible for the content, accuracy, completeness or validity of any information contained in any attached file. Files have *not* been scanned for viruses. Be especially wary of Excel files which may contain malicious content.
