New I Bond Composite Rate--6.06%

[Rager1]

With the CPI Index numbers released this morning, the new composite rate for I Bonds purchased between now and April 30 is 6.06%. The current composite rate is 4.28%.

Ed

[Tramper Al]

Yikes.

I just sent off my last I-Bond purchase order this morning for the last resident SSN I could scare up.

Still, I'd rather my future I-Bond returns in nominal terms be very very low, as that would be better for my portfolio overall.

[Rager1]

Here is a look at the new I Bond rates for all of the various fixed rate I Bonds:

Fixed Composite

3.60% 8.52%
3.40% 8.32%
3.30% 8.21%
3.00% 7.91%
2.00% 6.88%
1.60% 6.47%
1.40% 6.27%
1.30% 6.16%
1.20% 6.06%
1.10% 5.96%
1.00% 5.86%

Even those 1% fixed rate I Bonds look pretty sweet right now.

Ed

[Mel Lindauer]

With the CPI Index numbers released this morning, the new composite rate for I Bonds purchased between now and April 30 is 6.06%. The current composite rate is 4.28%.

Ed

Thanks for running the numbers, Ed. 6.06% is huge when compared to:

2.5% Prime MM
4.2% ST Bond
4.25% Total Bond Market

Considering they're risk-free, tax-deferred, free from state and local taxation, and can possibly be used tax-free for qualifying education expenses, I Bonds look like a no-brainer at the current 1.2% real. Of course, that 1.2% fixed is most likely not going to be available come May 1st, so I suggest folks load up on their allotment before the end of April.

Best regards,

Mel

[Grt2bOutdoors]

Here is a look at the new I Bond rates for all of the various fixed rate I Bonds:

Fixed Composite

3.60% 8.52%
3.40% 8.32%
3.30% 8.21%
3.00% 7.91%
2.00% 6.88%
1.60% 6.47%
1.40% 6.27%
1.30% 6.16%
1.20% 6.06%
1.10% 5.96%
1.00% 5.86%

Even those 1% fixed rate I Bonds look pretty sweet right now.

Ed

I'm loving those 8% returns, right now. For all those who looked at me like I had three heads when I was buying those bonds back in the 99-00 period, I bet they feel like kicking themselves.

[markcoop]

I'm not sure how one figures out the composite rate. I would be interested to know what is the composite rate for TIPS and, if different, the composite rate for Vanguard's TIPS fund.

Thanks

[runner26]

I have a slightly different result. TD rounds intermediate results to 4 decimal places, and final results to 2, which can throw results off by a tick if not included in your calculations.

My estimate for the new rates for existing bonds will be the following when their 6-month reset period arrives.
Base----Rate
1.0%----5.86%
1.1%----5.97%
1.2%----6.07%
1.3%----6.17%
1.4%----6.27%
1.6%----6.48%
2.0%----6.89%
3.0%----7.91%
3.3%----8.22%
3.4%----8.32%
3.6%----8.53%

[Grandpaboys]

That is all great,however you cannot buy enough now to make any difference.

[Mel Lindauer]

That is all great,however you cannot buy enough now to make any difference.

Do you have a spouse, kids, grandkids?

Regards,

Mel

[eradicator]

That is all great,however you cannot buy enough now to make any difference.

Do you have a spouse, kids, grandkids?

Regards,

Mel

Can I purchase them for my kids if they have sub accounts to my account via TD? Has anyone done this? I already bought my $30k TD allowance for 2008.

Thanks

[sscritic]

That is all great,however you cannot buy enough now to make any difference.

Do you have a spouse, kids, grandkids?

I have seen statements like this before. Are you suggesting that now is a good time to make a gift to your grandkids or are you suggesting this is a good time to commit fraud?

[market timer]

Is it still possible to buy $30K? I have a relative who would like to buy I bonds, and I'd be willing to give him my information if it would help increase his limit. He needs them for future living expenses, and I wouldn't want to pay taxes on them.

[LiveSoftMike]

Looks like something changed....a few years ago I bought 30k each for my wife and I but now Treasury Direct says 5k is the max.....did a law change I wonder or is it something the Treasury has control of and changed????

[runner26]

The limits were changed the beginning of 2008. 5,000 electronic through TD and 5,000 paper bonds.

You used to be able to buy paper bonds at www.publicdebt.treas.gov. This site now directs you to go to Treasury Direct.

I haven't been able to find a link for purchasing paper at TD. Anyone have the link, or do we now need to go to the bank?

[SteveD]

I read the Boglehead's Guide and remember that the usefulness of I-bonds is correlated in some way to the federal tax bracket you are in. Do the I-bonds make sense for those in the 35% marginal bracket? I seem to recall that you must hold onto the bonds for a longer period of time to have them work for you.

I am trying to decide whether to buy the maximum # of I-bonds before May 1, or put funds into the NJ Long-term Muni bond fund given our high federal and state taxes.

Steve

[Mel Lindauer]

I read the Boglehead's Guide and remember that the usefulness of I-bonds is correlated in some way to the federal tax bracket you are in. Do the I-bonds make sense for those in the 35% marginal bracket? I seem to recall that you must hold onto the bonds for a longer period of time to have them work for you.

I am trying to decide whether to buy the maximum # of I-bonds before May 1, or put funds into the NJ Long-term Muni bond fund given our high federal and state taxes.

Steve

Hi Steve:

Apparently you're referring to Table 5.3, which assumes a 1.0% fixed rate and a 4% inflation rate for all periods. Even then, in the worst-case scenario, the I Bonds came within a few dollars of providing after-tax spending power protection for those in the highest tax brackets.

You need to remember, though, that the current I Bonds are yielding 1.2% (not 1.0%), and you may or may not feel that we'll experience 4% inflation for the next 30 years.

However, one of the big benefits of the I Bond's tax-deferral can be tax-rate shifting. For example, if you'll redeem the I Bonds in 20 or 30 years when you may well be in a lower tax bracket, your current high tax bracket is really irrelevant.

Regards,

Mel

PS - I just ran the after-tax return figures for a 1.2% I Bond, and they do provide a postive after-tax return for a 35% tax-bracket investor, even for periods as short as five years.

[Mel Lindauer]

That is all great,however you cannot buy enough now to make any difference.

Do you have a spouse, kids, grandkids?

I have seen statements like this before. Are you suggesting that now is a good time to make a gift to your grandkids or are you suggesting this is a good time to commit fraud?

Hi sscritic:

While I don't feel your question even deserves a reply, I do feel that I must respond and say that I'm deeply offended by your question. Since I use my real name and post on a public forum, the answer should be obvious.

Regards,

Mel

[HueyLD]

Mel,

You have convinced me to buy I bonds. It is hard to believe that I have never bought any I bonds in my life even though I have bought almost everything else.

I went to the TreasuryDirect site and read the FAQs, etc. I still have a couple of questions. Any help would be very much appreciated.

(1) It is April 16 now. The TD site says that it takes two weeks to mail out the access card, etc. Is it too late now to make it by 4/30?

(2) The TD site also says that you can only withdraw up to $1,000 at a time. Is it $1k per request, or $1k per month or per year?

Thank you in advance.

[Tramper Al]

(1) It is April 16 now. The TD site says that it takes two weeks to mail out the access card, etc. Is it too late now to make it by 4/30?

In Dec-Jan, it took us about a week to get cards, so I would hurry.

[tat2ng]

Huey,
I'm not Mel, but I'll give my thoughts on question (1).... you can always go to your local bank, and buy the $5000 limit (per SSN) paper I-bonds for April. But, as Tramper Al just said, start the process right away, and maybe you'll get the access cards in time to max the electronic and paper options before April 30th.

Thad

[Mel Lindauer]

Mel,

You have convinced me to buy I bonds. It is hard to believe that I have never bought any I bonds in my life even though I have bought almost everything else.

I went to the TreasuryDirect site and read the FAQs, etc. I still have a couple of questions. Any help would be very much appreciated.

(1) It is April 16 now. The TD site says that it takes two weeks to mail out the access card, etc. Is it too late now to make it by 4/30?

(2) The TD site also says that you can only withdraw up to $1,000 at a time. Is it $1k per request, or $1k per month or per year?

Thank you in advance.

Hi HueyLD:

I don't use TD, so I can't respond to your questions. I would say to start the process ASAP. Then, once your account is ready to go, see if you still have the required number of days left that TD says you need in order to get this month's 1.2% I Bonds.

The rate will change May 1st, and they may no longer be a good buy. We'll just have to wait and see how low they set the fixed rate.

Regards,

Mel

[Sammy_M]

I'm playing catch-up on IBonds. For someone that is ineligible to get the tax free interest for education expenses due to income level, it seems to me this is the equivalent of putting money into a non-deductible IRA and then buying TIPS. Is that correct? It sounds attractive since this is just one more vehicle to save tax deferred.

[Mel Lindauer]

I'm playing catch-up on IBonds. For someone that is ineligible to get the tax free interest for education expenses due to income level, it seems to me this is the equivalent of putting money into a non-deductible IRA and then buying TIPS. Is that correct? It sounds attractive since this is just one more vehicle to save tax deferred.

Hi Sammy:

You could look at it that way, except the current 1.2% I Bonds are a much better buy than TIPS at the moment (that will probably change come May 1st).

I Bonds are a great way to get more tax-deferred space, especially for those who want/need bonds and/or inflation protection in their taxable account.

Regards,

Mel

[user]

The rate will change May 1st, and they may no longer be a good buy. We'll just have to wait and see how low they set the fixed rate.

Regards,

Mel

What would the rate need to be in order to be considered a good buy?

A good buy compared to what? TIPS?

[tommoran2]

With the CPI Index numbers released this morning, the new composite rate for I Bonds purchased between now and April 30 is 6.06%. The current composite rate is 4.28%.

I thought the I-Bond Rates did not ADJUST until May 1 ??

How can this new rate be effective on purchases in April ???

What am I missing ????

Thanks

[tat2ng]

Tom,
I think the original poster is just informing people that if they buy any of the 1.2% fixed rate I-bonds in April, they will have a rate of 6.06% for May thru November. You are correct that the 6.06% rate will not take effect until May 1st.

Thad

[Rager1]

Tom and Thad,

The composite rate changes for I Bonds every 6 months, based on the month in which it was purchased.

For I Bonds purchased in April 2008, you will receive 4.28% for the first 6 months (through September, 2008). Starting October 1, 2008, the rate on those I Bonds will change to 6.06% and will be the same through the end of March, 2009. Starting in April, 2009, another new composite rate will start, and so on.

Ed

[mmg]

If I fill out an order for I bond at my bank today. Am I guaranteed to get Apr 08 I bond?

Does purchase order date month is the month of I bond OR when treasury receives that order form the bank determine the month of I bond.

[Mel Lindauer]

Tom,
I think the original poster is just informing people that if they buy any of the 1.2% fixed rate I-bonds in April, they will have a rate of 6.06% for May thru November. You are correct that the 6.06% rate will not take effect until May 1st.

Thad

Hi Thad & Tom:

Actually the new fixed rate and the official announcement of the inflation adjustment will be made on May 1st. The final numbers that they will use in their calculation for the inflation announcement became available today, but they won't be officially announced by the I Bond folks until May 1st.

As for when the new inflation adjustment takes place; for I Bonds purchased this month (April), the current inflation adjustment will be used for the first six months. Then, the new, higher number which will be officially announced on May 1st will kick in for the second six months of ownership. That pattern continues, with changes taking place on the six- and twelve-month anniversaries of your I Bond's issue date.

Regards,

Mel

[tommoran2]

Tom,
I think the original poster is just informing people that if they buy any of the 1.2% fixed rate I-bonds in April, they will have a rate of 6.06% for May thru November. You are correct that the 6.06% rate will not take effect until May 1st.

Thad

Thanks Thad.

I thought that your individual rate only adjusted every 6 months from the issue date ???

Example:

I purchased I-Bond in March (Fixed rate 1.2, Inf rate 1.53 = Composite 4.28 )
I thought the fixed rate and infl rate remained the same until 6 months from the issue date (Sept in this case) and then readjusts to the new Inflation rate in effect as of that time.

[Mel Lindauer]

If I fill out an order for I bond at my bank today. Am I guaranteed to get Apr 08 I bond?

Does purchase order date month is the month of I bond OR when treasury receives that order form the bank determine the month of I bond.

Hi mmg:

If your bank is an agent for the Federal Reserve (most are), then you'll get the issue date of the month in which you purchased them at your bank. So anytime on or before the last business day (Sat. and Sun. don't count, even if your bank is open on those days) of this month will get you an April 2008 issue date. In addition, since you owned the I Bonds on the last day of the month, you'll earn an entire month's worth of interest.

Regards,

Mel

[Mel Lindauer]

Tom,
I think the original poster is just informing people that if they buy any of the 1.2% fixed rate I-bonds in April, they will have a rate of 6.06% for May thru November. You are correct that the 6.06% rate will not take effect until May 1st.

Thad

Thanks Thad.

I thought that your individual rate only adjusted every 6 months from the issue date ???

Example:

I purchased I-Bond in March (Fixed rate 1.2, Inf rate 1.53 = Composite 4.28 )
I thought the fixed rate and infl rate remained the same until 6 months from the issue date (Sept in this case) and then readjusts to the new Inflation rate in effect as of that time.

Hi Thad:

Your understanding of how I Bond interest works is correct.

Regards,

Mel

[TheEternalVortex]

Mel,

You have convinced me to buy I bonds. It is hard to believe that I have never bought any I bonds in my life even though I have bought almost everything else.

I went to the TreasuryDirect site and read the FAQs, etc. I still have a couple of questions. Any help would be very much appreciated.

(1) It is April 16 now. The TD site says that it takes two weeks to mail out the access card, etc. Is it too late now to make it by 4/30?

(2) The TD site also says that you can only withdraw up to $1,000 at a time. Is it $1k per request, or $1k per month or per year?

Thank you in advance.

Eh, no you can withdraw as much as you want. I'm not sure where you saw that you can only withdraw $1000 at a time?

[mmg]

If I fill out an order for I bond at my bank today. Am I guaranteed to get Apr 08 I bond?

Does purchase order date month is the month of I bond OR when treasury receives that order form the bank determine the month of I bond.

Hi mmg:

If your bank is an agent for the Federal Reserve (most are), then you'll get the issue date of the month in which you purchased them at your bank. So anytime on or before the last business day (Sat. and Sun. don't count, even if your bank is open on those days) of this month will get you an April 2008 issue date. In addition, since you owned the I Bonds on the last day of the month, you'll earn an entire month's worth of interest.

Regards,

Mel

Mel,

Thanks for explaining.

It is best for me to wait till Apr 28th or so rather than buying I bond now from the bank. Do I understand right?

Thanks.

[tommoran2]

I dont believe you can redeem a PORTION of a bond.

So if you bought a $5000 bond. When it comes time to redeem it you must redeem the entire bond. If you anticipate needing smaller redemptions, buy smaller denominations.

[Sammy_M]

Hi Sammy:

You could look at it that way, except the current 1.2% I Bonds are a much better buy than TIPS at the moment (that will probably change come May 1st).

I Bonds are a great way to get more tax-deferred space, especially for those who want/need bonds and/or inflation protection in their taxable account.

Regards,

Mel

Mel,

It would seem to me that Larry Swedroe would be a big fan of I Bonds since he is big on TIPS and has indicated he is out of room in tax advantaged accounts so is using Munis. Have you heard/seen him offer comments re I Bonds?

I read that if there is a period of DEflation, where CPI-U goes negative, the inflation rate factor will be SUBTRACTED from the fixed interest portion of the rate. Is this true? Is it the same for TIPS?

Thanks.

[vb]

Does anyone think it's possible for the new fixed rate to drop below 1%? A hypothetical fixed rate of 0% would still yield about 4.83%, competitive with today's rates.

I have yet to make my paper purchase and have some money in a CD (5.35% due in August); contemplating taking the penalty (6 mos) to purchase the paper bonds this month instead of August.

[Harold]

I dont believe you can redeem a PORTION of a bond.

So if you bought a $5000 bond. When it comes time to redeem it you must redeem the entire bond. If you anticipate needing smaller redemptions, buy smaller denominations.

I specifically looked at this when I opened my TreasuryDirect account several years ago. At least at that time, you could redeem any portion of the original purchase. I don't see why it would have changed since.

[G-Money]

I read that if there is a period of DEflation, where CPI-U goes negative, the inflation rate factor will be SUBTRACTED from the fixed interest portion of the rate. Is this true?

I have no idea if that *is* true, but even if it were, you could always cash in the I bonds before the negative interest rate takes effect. Of course, if deflation did cause the composite interest rate to be negative (and you cashed in your I bonds within 5 years of purchasing them), then technically, the 3 month "penalty" should result in the Treasury giving you extra money (i.e., deducting 3 months of negative interest). 8)

[tommoran2]

Maybe TD allows partial redemptions.

Just dont know how that would work with a paper bond (which I own) ???

Wonder about how the accounting would work ????

Has anyone done this that can shed some light on partial redemptions from TD ?

[HueyLD]

Eh, no you can withdraw as much as you want. I'm not sure where you saw that you can only withdraw $1000 at a time?

I found it on https://www.treasurydirect.gov/indiv/re ... redeem.htm

Redeem Bonds
To redeem electronic bonds purchased in TreasuryDirect, log in and follow the on-screen directions. Your checking or savings account will be credited with the redemption amount within one business day of the redemption date.

You can cash your I Bonds at most local financial institutions. Treasury doesn’t maintain a listing of local banks that redeem bonds, so check with the banks in your area. When you present the bonds, you’ll be asked to establish your identity. You can do this by:

Being a customer with an active account open for at least 6 months at the financial institution that will be paying the bonds, or
Presenting documentary identification, such as a driver's license.
If you're not listed as the owner or co-owner on the bonds you're redeeming, you'll have to establish that you're entitled to redeem the bonds. It's always a good idea to check with your financial institution before presenting the bonds for payment to find out what identification and other documents you need.

Amount You Can Redeem at One Time
You may redeem up to $1,000 worth of bonds at one time based on documentary identification alone. If you want to redeem more than $1,000 worth of bonds, your servicing Treasury Retail Securities Site that handles savings bond transactions can help. In this instance, you'll need to:

Sign the request for payment on the back of the bonds before a certifying officer at the bank.
Provide your Social Security Number.
Mail the bonds to the Treasury Retail Securities Site

I did call the number listed for the servicing Treasury Retail Securities Site for my zip code. But I was told to e-mail the TD instead because the retail servicer did not know the answer.

Maybe I will get an answer within 2 weeks.

[Spirit Rider]

I don't believe you can do a partial redemption of a paper bond.

Here are the specifics on electronic partial redemptions from treasury direct.

What is the minimum amount allowable for a redemption?
Only an account owner, or a grantee with Transact rights, can redeem an E, EE, and I Bond. If you are partially redeeming an E, EE, and I Bond, you must redeem at least $25.00, and may not leave less than $25.00 of redemption value as the remainder of the held security.

[Ted Valentine]

I'm definitely going to go buy $300 worth for all of my kids this month. That's their tax stimulus that I will get the week of May 16. I plan to use the bonds for their college education making the growth tax free.

[tfb]

6.06% sounds great. Just remember it doesn't kick in until October 2008 and it's only good for 6 months. By the time the rate kicks in, who knows what the competitive rates are in money market funds and at the banks. Consider this as a 14-month CD which pays 4.28% for 6 months, 6.06% for 6 months and 0% for 2 months. Average rate over 14 months is about 4.5%.

[Mel Lindauer]

Thanks for explaining.

It is best for me to wait till Apr 28th or so rather than buying I bond now from the bank. Do I understand right?

Thanks.

Hi Again mmg:

Yes, if you buy on the 28th, you'll get the issue date of April 2008 and you'll also earn a full month's worth of interest on the I Bonds, since you owened them on the last day of the month.

You'll most likely also earn nearly a full month's interest from your bank deposit. (Just make sure you have the money available at your bank, since they aren't going to accept a check.)

Regards,

Mel

[Mel Lindauer]

Does anyone think it's possible for the new fixed rate to drop below 1%? A hypothetical fixed rate of 0% would still yield about 4.83%, competitive with today's rates.

I have yet to make my paper purchase and have some money in a CD (5.35% due in August); contemplating taking the penalty (6 mos) to purchase the paper bonds this month instead of August.

I wouldn't be surprised at all to see the rate drop to 0.5% (or even lower), since that would retain the approx. 1% lower rate on I Bonds vs 10-year TIPS that Treasury seems to favor.

And it's possible that they could go to 0%, since that rate would still be competitive with nominal bonds, but I really don't expect that.

One never knows, though!

Regards,

Mel

[Mel Lindauer]

I dont believe you can redeem a PORTION of a bond.

So if you bought a $5000 bond. When it comes time to redeem it you must redeem the entire bond. If you anticipate needing smaller redemptions, buy smaller denominations.

I specifically looked at this when I opened my TreasuryDirect account several years ago. At least at that time, you could redeem any portion of the original purchase. I don't see why it would have changed since.

Only paper bonds have denominations. And, yes, you can do a partial redemption and have the balance reissued in new paper bonds. However, it would be much easier to simply purchase five $1000 bonds rather than one $5000 bond, if you're concerned that you might need to make a partial redemption. But you should know that you can make the partial redemption if needed.

Regards,

Mel

[Mel Lindauer]

I don't believe you can do a partial redemption of a paper bond.

Here are the specifics on electronic partial redemptions from treasury direct.

What is the minimum amount allowable for a redemption?
Only an account owner, or a grantee with Transact rights, can redeem an E, EE, and I Bond. If you are partially redeeming an E, EE, and I Bond, you must redeem at least $25.00, and may not leave less than $25.00 of redemption value as the remainder of the held security.

Hi Spirit Rider:

You can, indeed, do partial redemptions on paper I Bonds. (See my previous post above.)

Regards,

Mel

[Mel Lindauer]

I'm definitely going to go buy $300 worth for all of my kids this month. That's their tax stimulus that I will get the week of May 16. I plan to use the bonds for their college education making the growth tax free.

Hi Ted:

Since you plan to use the I Bonds for the kids' education, you need to make sure they're titled correctly, or else they won't qualify for the tax-free educational benefit.

The bonds must be titled in one or both parents' names. The child cannot be listed as an owner or co-owner. However, the child can be listed as the beneficiary and the bonds will still qualify.

Regards,

Mel

[BigBird]

18 months ago there was similar rediscovered excitement about I Bonds due to a sudden increase in the CPI, resulting in a screaming 4.8% annual rate for the following 6 months. The media even picked up the story.

In the subsequent 6 month period, the CPI flattened, and not only did the excitement fade, but there was a lot of griping on the M* diehards about low returns. Be sure you realize that these must be held for a year, and the CPI for the second half of that period is unknown.