Buy I-bonds this week or six months from now?

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wshang
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Buy I-bonds this week or six months from now?

Post by wshang »

Just curious. For those who are committed to buying I-bonds for 2013, is there anyone who has decided not to buy this week and delay another six months in the hopes of getting a better yield? I hear there may be a seasonal bump in the calculated interest rate.
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sscritic
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Re: Buy I-bonds this week or six months from now?

Post by sscritic »

The key dates are May and December. Neither May nor December is six months from now. May 24 is four months from now, and November 24 is ten months from now.
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Mel Lindauer
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Re: Buy I-bonds this week or six months from now?

Post by Mel Lindauer »

If I were buying, I'd buy now. I really don't expect the fixed rate to increase and the inflation component could actually decrease with the May announcement.
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JimInIllinois
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Re: Buy I-bonds this week or six months from now?

Post by JimInIllinois »

You can't sell for a year, so you'll get the next inflation bump either way. The fixed rate will be at zero until TIPS real rates are at least 1% (they are currently negative). Unless you have something better than the current I-bond yield to do with your money while you wait you're likely better off investing now.
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Re: Buy I-bonds this week or six months from now?

Post by FoolStreet »

Mel Lindauer wrote:If I were buying, I'd buy now. I really don't expect the fixed rate to increase and the inflation component could actually decrease with the May announcement.

If you buy now (say, Jan 31), then will you have locked in the 1.76 for 6 months? or just until May, at which you get whatever comes in May, for those next 6 mo?
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Mel Lindauer
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Re: Buy I-bonds this week or six months from now?

Post by Mel Lindauer »

FoolStreet wrote:
Mel Lindauer wrote:If I were buying, I'd buy now. I really don't expect the fixed rate to increase and the inflation component could actually decrease with the May announcement.

If you buy now (say, Jan 31), then will you have locked in the 1.76 for 6 months? or just until May, at which you get whatever comes in May, for those next 6 mo?
Yes, you'd lock in the 1.76% for the first six months and then for the second six months you'd get the inflation adjustment that's announced on May 1st.
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sscritic
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Re: Buy I-bonds this week or six months from now?

Post by sscritic »

Six months. Your bond has anniversaries, or rather semi-anniversaries.
Twice a year, on the 6th and 12th month anniversaries of the bond's issue date, all interest the bond has earned in previous months is in the bond's new principal value on which interest is earned for the next 6 months.
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Daffy
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Re: Buy I-bonds this week or six months from now?

Post by Daffy »

I bought now to get my 1-year clock running. The sooner I'm in, the sooner I can get out if the money is needed or something else comes around that's better and worth the 3-month penalty. Worst case scenario is the next inflation component adjustment is 0% and the yield for this bond will be 0.88% for 12-months. That's slightly worse than online savings accounts. The most likely scenario is there is some kind of inflation rate in May and the annualized rate will exceed cash sitting in online accounts. Either way I'd rather take that chance with I Bonds because the earnings are tax deferred. And I'm trying to shift a larger chunk of my retirement assets into I Bonds. They are what they are.
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Re: Buy I-bonds this week or six months from now?

Post by FoolStreet »

Daffy wrote:I bought now to get my 1-year clock running. The sooner I'm in, the sooner I can get out if the money is needed or something else comes around that's better and worth the 3-month penalty. Worst case scenario is the next inflation component adjustment is 0% and the yield for this bond will be 0.88% for 12-months. That's slightly worse than online savings accounts. The most likely scenario is there is some kind of inflation rate in May and the annualized rate will exceed cash sitting in online accounts. Either way I'd rather take that chance with I Bonds because the earnings are tax deferred. And I'm trying to shift a larger chunk of my retirement assets into I Bonds. They are what they are.
I'm under the presumption that i-bonds are going to do better than, say, ING. If the inflation in May drops, ING and other HY Savings Accounts will probably drop. So, I see i-bonds as "keeping up with inflation" with no risk of loss (whereas some bond funds could have a risk of loss.)

For me, if I want to increase my bond allocation (currently about 17%), then i-bonds as a cash-equivalent for my e-fund makes perfect sense. It's just that I don't want to lock up all my e-fund cash in the 1yr holding period all at once. I'll slowly drip into them as I raise my non-retirement fund savings over the next year plus.
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Re: Buy I-bonds this week or six months from now?

Post by camaro327 »

I'm buying at least half next week. I would buy the whole 10K if I had enough not to drain my emergency fund to far down.

I agree with Mel, if you've got the funds do it now and start earning the 1.76%.
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Re: Buy I-bonds this week or six months from now?

Post by crowd79 »

For me, I've got $8k sitting in Ally 5yr CD's earning 1.71% and 1.65%. With I Bonds currently at 1.76%, it probably doesnt make much sense to break them and pay the 2 month penalty in order to get I Bonds at this time, right?
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Re: Buy I-bonds this week or six months from now?

Post by camaro327 »

I would keep the CDs. The next 6-month CPI component may be lower than the 1.76% and you would be restarting a 90 day/3 month early withdrawal period.

I would only considering breaking them for an I-bond with a higher than 2% CPI component with an above 0% fixed component.

The CDs don't have the tax deferral, but the taxes on the 8K at those rates don't generate much taxable income anyway.
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surfer1
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Re: Buy I-bonds this week or six months from now?

Post by surfer1 »

Will be buying today. There is no point in waiting. As mentioned above, in the worst case scenario, the inflation rate becomes 0% and you end up with 0.88% yield for 12 months. The more likely scenario is the inflation rate remains positive, but probably a little lower than 1.76%, so you end up with maybe 1.65% or 1.55% yield for the year.

You'd be hard-pressed just to find a 5-year CD paying that kind of rate, let alone a 12-month I-bond. Don't wait too long into next week, you need a few days for the transfer to complete.
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Re: Buy I-bonds this week or six months from now?

Post by Gauntlet »

I don't see a reason to over analyze the purchase of I Bonds. They are not going to get you rich and no matter when you purchase them it likely won't make a huge difference in your portfolio. Especially, with the low yield we get these days. Personally, I purchase I Bonds in January of each year but on years that I don't have the money to purchase them until February or March, I don't lose any sleep about missing a month of interest.
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Re: Buy I-bonds this week or six months from now?

Post by FinancialDave »

crowd79 wrote:For me, I've got $8k sitting in Ally 5yr CD's earning 1.71% and 1.65%. With I Bonds currently at 1.76%, it probably doesnt make much sense to break them and pay the 2 month penalty in order to get I Bonds at this time, right?
Yes, it doesn't make much sense to sell the CD's

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hollowcave2
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Re: Buy I-bonds this week or six months from now?

Post by hollowcave2 »

My own opinion is to buy now. If the rates go up in 5 months, you will still get that rate, only 5 months later. So it's not like you'd miss it. And simply waiting in cash has a lower yield than buying I-bonds today.

There's always the chance that the fixed rate would go up, but that chance is slim and even if it did, it would be small. You can always roll I-bonds into newer bonds with a higher fixed rate if t hat happened after one year of holding the bonds.

I'm a fan of I-bonds, so I say buy 'em.

Steve
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