I bond composite rate for May, 1.18%

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Fisherman
Posts: 130
Joined: Sun Jul 20, 2008 10:04 am

I bond composite rate for May, 1.18%

Post by Fisherman » Wed May 01, 2013 9:16 am

Thanks guys with your advice, I baught mine 2 weeks back

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hollowcave2
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Location: Sacramento, CA

Re: I bond composite rate for May, 1.18%

Post by hollowcave2 » Wed May 01, 2013 12:19 pm

Well, I have to say that this rate is less than inspiring. Still, I-bonds keep ahead of inflation. The EE's are looking good right now if held for 20 years, but I-bonds would win if inflation kicked up over that time.

The I-bond fixed rate has been at zero percent for 2 1/2 years now and I don't see any change in that anytime soon.

Excuse me for yawning.

Fisherman
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Joined: Sun Jul 20, 2008 10:04 am

Re: I bond composite rate for May, 1.18%

Post by Fisherman » Wed May 01, 2013 2:05 pm

Agree, a bit disappointing. I think inflation is higher than they are suggesting.
What are the after tax returns of EE bonds after 20 years(withdrew the money) at various tax brackets(say the current tax rates don't go up). I am wondering at what marginal tax bracket, the return doesn't justify EE bonds if one adds up some inflation factor as well. Thx

Grt2bOutdoors
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Location: New York

Re: I bond composite rate for May, 1.18%

Post by Grt2bOutdoors » Wed May 01, 2013 2:28 pm

Fisherman wrote:Agree, a bit disappointing. I think inflation is higher than they are suggesting.
What are the after tax returns of EE bonds after 20 years(withdrew the money) at various tax brackets(say the current tax rates don't go up). I am wondering at what marginal tax bracket, the return doesn't justify EE bonds if one adds up some inflation factor as well. Thx
Just to put this in perspective - the 30 year treasury is currently yielding 2.83% today. The EE at 20 years is yielding 3.53% - that makes the EE a "screaming buy", even if you are losing compared to inflation. The 30 year T-bond is the biggest loser to inflation, inflation + taxes and you also take on interest rate risk - not so much with a EE which you have the ability to put back to the Treasury after one year, albeit you are paid a measly 0.2% for each year held prior to 20 years. The best buy really lies with Intermediate Munis - but you take on added risks - no free lunch.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

burma7734
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Location: San Francisco

Re: I bond composite rate for May, 1.18%

Post by burma7734 » Wed May 01, 2013 2:41 pm

I already maxed both the I bond ($10K + $5K tax return) and the EE ($10k) in April. I think they are two of the "least worst" fixed income options now, as long as you have a 20 year time horizon.

Even if inflation starts to pick up in a few years, it is surprising how much return spread you would need from another investment to beat the deal on EE bonds. I posted some back of the envelope calculations a while back. You would need rate of 4.5% five years from now to break even with the EE. I don't think I will look back in 20 years and think the EE purchase was my worst decision.

Fisherman
Posts: 130
Joined: Sun Jul 20, 2008 10:04 am

Re: I bond composite rate for May, 1.18%

Post by Fisherman » Wed May 01, 2013 11:06 pm

Thank you all.

In TD account one can buy additional 10K I or EEbonds as gift, in the same account. Are there any disadvantages to buy the 10K as gift to wife, so that don't have to open two accounts.
There is a tab [deliver), what happens when you select deliver, does it deliver the gift? In which way?

leftcoaster
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Joined: Mon Jul 23, 2007 4:04 pm

Re: I bond composite rate for May, 1.18%

Post by leftcoaster » Wed May 01, 2013 11:12 pm

burma7734 wrote:I already maxed both the I bond ($10K + $5K tax return) and the EE ($10k) in April. I think they are two of the "least worst" fixed income options now, as long as you have a 20 year time horizon.

Even if inflation starts to pick up in a few years, it is surprising how much return spread you would need from another investment to beat the deal on EE bonds. I posted some back of the envelope calculations a while back. You would need rate of 4.5% five years from now to break even with the EE. I don't think I will look back in 20 years and think the EE purchase was my worst decision.
You can buy a second 10k in a trust account.

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