## Quick I-Bond Question

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Topic Author
mvftw
Posts: 8
Joined: Sun Nov 01, 2020 5:07 pm

### Quick I-Bond Question

The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond. If I bought \$10k of I-Bonds now, just say the rate stays around 3.5% for 5 years, would i be looking at close to \$12k after 5 years?
Ice-9
Posts: 1531
Joined: Wed Oct 15, 2008 12:40 pm
Location: Rockville, MD

### Re: Quick I-Bond Question

According to this calculator, that is correct:
https://www.investor.gov/financial-tool ... calculator

They do vary of course with the inflation rate, which can move around a bit. One nice feature of I-Bonds is that if the fixed rate on future I-Bonds improves significantly from the current 0.00% (after the initial one-year holding period), you can simply sell and repurchase the new one. If this were to happen within the five-year period with penalty of last three months' interest, you may get lucky and be able to time it so the three months interest lost will be a relatively low-paying three months.
grok87
Posts: 9620
Joined: Tue Feb 27, 2007 9:00 pm

### Re: Quick I-Bond Question

mvftw wrote: Sun May 09, 2021 9:44 am I read about I-Bonds on this forum and not sure about the rate of return...
The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond. If I bought \$10k of I-Bonds now, just say the rate stays around 3.5% for 5 years, would i be looking at close to \$12k after 5 years?
that's a backward looking way of thinking about it and is not likely to be correct. the real yield of ibonds is 0%. based on the tips market, 30 year break-even inflation is 2.32%. that's a reasonable estimate of future inflation over the next 30 years, IMHO. Adding the two together gives you an expected nominal return of 2.32% over 30 years.

cheers,
grok
RIP Mr. Bogle.
Topic Author
mvftw
Posts: 8
Joined: Sun Nov 01, 2020 5:07 pm

### Re: Quick I-Bond Question

Thanks Grok,
That's why I'm asking. So what does 'The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond' mean?
Rob5TCP
Posts: 3572
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

### Re: Quick I-Bond Question

mvftw wrote: Sun May 09, 2021 11:39 am Thanks Grok,
That's why I'm asking. So what does 'The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond' mean?
For the first 6 months you will earn at a rate of 3.54/2 or a 1.77% return. In 6 months the rate will be reset and you will earn whatever rate that is. Say that rate is 2.5; your return for that 6 month period would be 2.5/2 or 1.25% return for the 6 months.

Please bear in mind; if you sell within the 1st 5 years, you lose 3 months interest and you can not sell until after a year.
Posts: 33
Joined: Wed Apr 05, 2017 9:07 pm

### Re: Quick I-Bond Question

mvftw wrote: Sun May 09, 2021 11:39 am Thanks Grok,
That's why I'm asking. So what does 'The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond' mean?
It means you get 3.54% for the first six months you own the bond, and then the next 6 months will be based on whatever the new rate is in effect in November. It can be more or less than the 3.54—who knows
grok87
Posts: 9620
Joined: Tue Feb 27, 2007 9:00 pm

### Re: Quick I-Bond Question

Rob5TCP wrote: Sun May 09, 2021 12:01 pm
mvftw wrote: Sun May 09, 2021 11:39 am Thanks Grok,
That's why I'm asking. So what does 'The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond' mean?
For the first 6 months you will earn at a rate of 3.54/2 or a 1.77% return. In 6 months the rate will be reset and you will earn whatever rate that is. Say that rate is 2.5; your return for that 6 month period would be 2.5/2 or 1.25% return for the 6 months.

Please bear in mind; if you sell within the 1st 5 years, you lose 3 months interest and you can not sell until after a year.
agree
RIP Mr. Bogle.
Topic Author
mvftw
Posts: 8
Joined: Sun Nov 01, 2020 5:07 pm

### Re: Quick I-Bond Question

Ok, thanks. It still seems like a good deal, because inflation should rise before it falls in the near future...
Plus better then the CD's...
grok87
Posts: 9620
Joined: Tue Feb 27, 2007 9:00 pm

### Re: Quick I-Bond Question

mvftw wrote: Sun May 09, 2021 1:36 pm Ok, thanks. It still seems like a good deal, because inflation should rise before it falls in the near future...
Plus better then the CD's...
i think ibonds are the best deal out there right now. EE bonds have a higher yield to maturity (3.53%) but the rub is that you have to hold for 20 years to get it
RIP Mr. Bogle.
FactualFran
Posts: 1342
Joined: Sat Feb 21, 2015 2:29 pm

### Re: Quick I-Bond Question

mvftw wrote: Sun May 09, 2021 11:39 am That's why I'm asking. So what does 'The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond' mean?
It means what it states. The value of a \$100 I-Bond issued from May 2021 through October 2021 will be \$101.76 6 months after it was issued, ignoring the usual minimum holding period of 12 months and ignoring the 3 month interest penalty if redeemed prior to 5 years. \$101.76 is not exactly 3.54%/2 more than the initial value of \$100 due to how the value is rounded.