Quick I-Bond Question

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mvftw
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Quick I-Bond Question

Post by mvftw »

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?
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Ice-9
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Re: Quick I-Bond Question

Post by Ice-9 »

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
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Re: Quick I-Bond Question

Post by grok87 »

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.
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mvftw
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Re: Quick I-Bond Question

Post by mvftw »

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?
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Rob5TCP
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Re: Quick I-Bond Question

Post by Rob5TCP »

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.
MadDwag
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Re: Quick I-Bond Question

Post by MadDwag »

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
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Re: Quick I-Bond Question

Post by grok87 »

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
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Re: Quick I-Bond Question

Post by mvftw »

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
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Re: Quick I-Bond Question

Post by grok87 »

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
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Re: Quick I-Bond Question

Post by FactualFran »

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.
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