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.
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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.
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.
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.
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 .
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.
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...
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.
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