I Bonds before end of the month?

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feh
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I Bonds before end of the month?

Post by feh » Wed Apr 13, 2016 3:54 pm

Anybody know what the next variable rate will be on I Bonds? The new rate goes into effect May 1st, correct?

Coles
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Re: I Bonds before end of the month?

Post by Coles » Wed Apr 13, 2016 4:19 pm

If you buy before the end of the month, you will receive the current variable rate for 6 months. You will receive the new variable rate starting October. If you buy May 1st or after, you will receive the new variable rate immediately.

March 2016 CPI data are scheduled to be released on April 14, 2016, at 8:30 A.M. Eastern Time. At that time, we will be able to calculate the new variable rate.

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#Cruncher
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Re: I Bonds before end of the month?

Post by #Cruncher » Thu Apr 14, 2016 9:01 am

The new semi-annual inflation rate will be 0.08%. [1] This rate will be combined with its 0.10% fixed rate to give an I Bond purchased this month an annual composite rate of 0.26% [2] for the six months October 2016 through March 2017. Until then, from April 2016 through September 2016, it will earn at an annual composite rate of 1.64% based on the current semi-annual inflation rate of 0.77% [2].

If you buy in May the 0.08% inflation rate will be combined with whatever fixed rate the Treasury announces Monday May 2nd. The bond will earn at that rate for the six months May 2016 through October 2016.
  1. This reflects the increase in the Consumer Price Index (CPI) from 237.945 for September 2015 to 238.132 for March 2016 -- just announced this morning. (You can find links to each month's CPI press release on this web page. When you've opened the press release, scroll down to the section titled "Not seasonally adjusted CPI measures" and look for the "CPI-U".)
  2. Using the formula shown here:

    Code: Select all

    composite rate = fixed rate + 2 * inflation rate + fixed rate * inflation rate
             0.26% = 0.0010     + 2 * 0.0008         + 0.0010     * 0.0008
             1.64% = 0.0010     + 2 * 0.0077         + 0.0010     * 0.0077

EHEngineer
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Re: I Bonds before end of the month?

Post by EHEngineer » Thu Apr 14, 2016 7:23 pm

#Cruncher wrote:The new semi-annual inflation rate will be 0.08%. [1] This rate will be combined with its 0.10% fixed rate to give an I Bond purchased this month an annual composite rate of 0.26% [2] for the six months October 2016 through March 2017. Until then, from April 2016 through September 2016, it will earn at an annual composite rate of 1.64% based on the current semi-annual inflation rate of 0.77% [2].

If you buy in May the 0.08% inflation rate will be combined with whatever fixed rate the Treasury announces Monday May 2nd.
Thank you #Cruncher.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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weltschmerz
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Re: I Bonds before end of the month?

Post by weltschmerz » Fri Apr 15, 2016 4:23 pm

Wow, semi-annual inflation = 0.08% This low rate, combined with the fact that some of my bonds are currently in a 0% 6-month period, definitely make me reconsider the value of these newer I-bonds. If not for the tax deferral benefits, and the 'insurance' against future high inflation, I'd punt on these things.

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stevewolfe
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Re: I Bonds before end of the month?

Post by stevewolfe » Fri Apr 15, 2016 5:13 pm

The Dan wrote:Wow, semi-annual inflation = 0.08% This low rate, combined with the fact that some of my bonds are currently in a 0% 6-month period, definitely make me reconsider the value of these newer I-bonds. If not for the tax deferral benefits, and the 'insurance' against future high inflation, I'd punt on these things.
They do the same as they have always done - provide inflation + a fixed rate. I bought my annual allotment this month. It's in my IPS to own a % of inflation protected bonds. I-Bond is a better deal than TIPS right now in my opinion, so I-bonds it is.

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John151
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Re: I Bonds before end of the month?

Post by John151 » Fri Apr 15, 2016 10:21 pm

I bought the legal limit on I Bonds when the fixed rate was between 3.6% and 1%. When the fixed rate dropped below 1%, I stopped buying them (but didn't sell them). With new money, I thought I’d do as well or better with a tax exempt bond fund. And I think I have.

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#Cruncher
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Re: I Bonds before end of the month?

Post by #Cruncher » Sat Apr 16, 2016 4:23 am

Keep a couple of things in mind, Dan:
  • I Bonds (and TIPS too) are indexed to the non-seasonally adjusted Consumer Price Index (CPI). Because it isn't adjusted for seasonality, the change over 6 months (or any time period other than annual) should not be used as a predictor of future trends. The 0.9% increase over the past 12 months in the March 2016 report avoids this problem.
  • I Bonds (and TIPS too) use the "All items" CPI index. While over long periods of time I believe this is best, over shorter periods its annual change jumps up and down because of the volatile food and energy components. For this reason the Federal Reserve gives more consideration to the "All items less food and energy" index. Over the past 12 months, it rose 2.2%. (In the far-right column about half-way down in the report's first table.) In my opinion, this is a better predictor of how the "All items" index is likely to change in the future.
The Dan continued and wrote:...combined with the fact that some of my bonds are currently in a 0% 6-month period
No I Bonds are currently earning at a 0% rate. Depending on their fixed rates, during April they are all earning at annual rates of 1.54% to 5.17% based on the 0.77% semi-annual inflation rate announced last November. (See "1115" column on left side of this I Bond rate triangle.) As shown in the chart below, the -0.80% semi-annual inflation rate announced in May 2015 (which caused many I Bonds to have a 0% composite rate) was applied during six month periods ranging from from May 2015 - Oct 2015 to Oct 2015 - March 2016. The latest of these periods has now passed.
Image

trailmk
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Thanks #Cruncher

Post by trailmk » Sat Apr 16, 2016 11:19 am

Thank you for all your time and effort that you so graciously give to explain the inner workings of I Bonds and TIPs. Your explanations are always welcomed even when I fail to grasp all the subtleties. I really appreciate your postings.

MKT

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stevewolfe
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Re: Thanks #Cruncher

Post by stevewolfe » Sat Apr 16, 2016 2:11 pm

trailmk wrote:Thank you for all your time and effort that you so graciously give to explain the inner workings of I Bonds and TIPs. Your explanations are always welcomed even when I fail to grasp all the subtleties. I really appreciate your postings.

MKT

Agreed - a real treasure of information for this forum, much appreciated!

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powermega
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Re: I Bonds before end of the month?

Post by powermega » Sat Apr 16, 2016 6:12 pm

So if you want so buy some I bonds, better to do it before 5/1?
Even a stopped clock is right twice a day.

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hollowcave2
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Re: I Bonds before end of the month?

Post by hollowcave2 » Sat Apr 16, 2016 6:23 pm

I am betting on the best buy for I-bonds right now is before May 1.

The wild card is the fixed rate. It depends on whether it is raised significantly or not. I'm predicting a fixed rate at either 0.1 or 0.2% Recently, the savings bonds gods have been pretty stingy with that rate.

The main advantage of buying before May 1 is that you can take advantage of a relatively high variable rate for 6 months. It's unknown where rates are going to be later, so buying before May gives you a way to predict your total rate over the next year while locking in a high rate for the first 6 months.

Steve

supernova
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Re: I Bonds before end of the month?

Post by supernova » Sat Apr 16, 2016 7:48 pm

I would imagine the fixed rate will be 0%. Treasury rates have gone down the past 6 months, despite rates going up in December.

Personally, I would not risk it and buy now. Although 0.1% isn't a huge amount either way.

I doubt I will buy EE or I bonds this year. I will buy I Bonds if the fixed rate goes above 0.5%, but I don't see that happening (although it might in November, who knows?). If rates stay low, I might buy EE bonds later this year, but not sure.

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hollowcave2
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Re: I Bonds before end of the month?

Post by hollowcave2 » Sat Apr 16, 2016 8:12 pm

You got to be real patient with EE bonds. EE's right now might as well be zero coupon bonds. But at 20 years, you do get around 3.5% annualized total return.

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Mel Lindauer
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Re: I Bonds before end of the month?

Post by Mel Lindauer » Sat Apr 16, 2016 8:26 pm

supernova wrote:I would imagine the fixed rate will be 0%. Treasury rates have gone down the past 6 months, despite rates going up in December.

Personally, I would not risk it and buy now. Although 0.1% isn't a huge amount either way.

I doubt I will buy EE or I bonds this year. I will buy I Bonds if the fixed rate goes above 0.5%, but I don't see that happening (although it might in November, who knows?). If rates stay low, I might buy EE bonds later this year, but not sure.
EE Bonds can be a great way to build your own annuity for your retirement years. Here's a Forbes column I did on that subject: http://www.forbes.com/sites/theboglehea ... 61e04c4a91
Best Regards - Mel | | Semper Fi

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sometimesinvestor
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Re: I Bonds before end of the month?

Post by sometimesinvestor » Sat Apr 16, 2016 8:50 pm

Another vote for buying now. In recent year there mostly has not been any fixed rate> There is now so take advantage of it. An alternative is to buy half now and half after May 1 . That way you won't be very wrong

csm
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Re: I Bonds before end of the month?

Post by csm » Mon Apr 25, 2016 8:18 am

Are i-Bonds a useful part of one's portfolio if only just starting to purchase these and when close to retirement?

I only discovered i-Bonds in 2014 when I purchased my maximum $10,000. I intended to purchase the max for both my husband and myself in 2015 but was late, waiting until the last couple of days of the year and then realized that my purchase wouldn't make it in time because I needed to add a bank account that couldn't be done instantly.

I just purchased my $10,000 last week and was ready to pull the trigger on $10,000 under my husband's SSN, but started pondering whether it was even useful to do so at this stage of our lives. (Wish I had started years ago!)

I'm 58 and will retire at the end of the year (hubby is 49), so my idea is that I'd put $20,000 a year away in i-Bonds for the inflation protection. I've already got a one-year emergency fund in an Ally online savings account (1%). Would the potential i-Bonds investment do just as well in a tax-exempt bond index fund?

I'm mixed because if I skip it another year, I might kick myself in 5 or 10 years when I could have had $100-200,000 in inflation-protected savings. On the other hand, is it that difficult to invest in a low to moderate risk bond index fund that should return at least the rate of inflation over time?

camaro327
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Re: I Bonds before end of the month?

Post by camaro327 » Mon Apr 25, 2016 4:59 pm

csm wrote: On the other hand, is it that difficult to invest in a low to moderate risk bond index fund that should return at least the rate of inflation over time?
The bond index fund doesn't have tax deferral or principal protection. I bonds have both.

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dodecahedron
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Re: I Bonds before end of the month?

Post by dodecahedron » Mon Apr 25, 2016 5:36 pm

csm wrote: On the other hand, is it that difficult to invest in a low to moderate risk bond index fund that should return at least the rate of inflation over time?
"Should return at least the rate of inflation" has an important caveat: your bond index fund will not do this if inflation unexpectedly surges in the future. Ibonds will return at least the rate of inflation no matter what. So it is a question of how much of your portfolio would you have to have insured against unexpected inflation.

As someone who recalls the 70s and early 80s all too vividly, my crystal ball is cloudy and I like having at least some of my fixed income protected against unexpected future inflation. In fact, ibonds protect against both inflation and deflation. This insurance is not free. I can get higher current real returns at the moment on my TIAA Traditional, for example. So I have a mix of financial strategies that hopefully will mitigate many future eventualities. TIPS,ibonds,domestic and international equities, CDs, real estate (both TIAA real estate and a paid off home), and deferring Social Security: hopefully all these things will take the edge off the worst eventualities, one way or another.

anoop
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Re: I Bonds before end of the month?

Post by anoop » Mon Apr 25, 2016 5:49 pm

This guy bought his full allocation:
https://tipswatch.com/2016/04/21/heres- ... nds-today/

csm
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Re: I Bonds before end of the month?

Post by csm » Tue Apr 26, 2016 3:18 am

Thank you all for the sound advice and article. I purchased the additional $10,000 in my husband's name just now.

Camaro327, I was actually thinking of a tax-exempt bond index fund, not taxable, but point taken on the principal protection.

Dodecahedron, I should have mentioned that I have a defined benefit pension with COLA that *should* cover fixed expenses if we're not too extravagant. However, I'm 9 years older than my husband and the survivor benefit is only 50%. So the i-Bonds could actually be his future protection from inflation in case he needs to supplement the pension for fixed expenses if I die first.

At this point, it isn't a stretch to put the $20,000 into i-Bonds so I've done it. I was considering starting a CD ladder but doing this was probably simpler since I already had the TreasuryDirect account set up with a $10,000 purchase from 2014. Kicking myself that I missed the 2015 purchase.

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