Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

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Elemental
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Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by Elemental » Mon Oct 24, 2016 4:24 pm

I have some I Bonds doing almost nothing in my TD account. They are not 5 years old yet, and earning very little interest. Would it make sense to sell these bonds now and incur the early-redemption penalty, in order to buy newer bonds with a higher interest rate? The current rate listed on my bonds is 0.36% and lower. Thanks for the help.

Call_Me_Op
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by Call_Me_Op » Mon Oct 24, 2016 4:34 pm

Elemental wrote:I have some I Bonds doing almost nothing in my TD account. They are not 5 years old yet, and earning very little interest. Would it make sense to sell these bonds now and incur the early-redemption penalty, in order to buy newer bonds with a higher interest rate? The current rate listed on my bonds is 0.36% and lower. Thanks for the help.
I think you are thinking about it wrong. Are you confusing the fixed rate (that applies for the life of the bond) with the variable rate (that updates every 6 months)?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Elemental
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by Elemental » Mon Oct 24, 2016 4:38 pm

I'm just looking at the rate that the TD website shows next to the bond listing. I'm just thinking why not pay the penalty to redeem these bonds and get going with new ones at the higher rate. I think the fixed rate is 0.

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oldcomputerguy
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by oldcomputerguy » Mon Oct 24, 2016 4:41 pm

Elemental wrote:I'm just looking at the rate that the TD website shows next to the bond listing. I'm just thinking why not pay the penalty to redeem these bonds and get going with new ones at the higher rate. I think the fixed rate is 0.
What happens a year from now if the variable rate goes way back down? Then you've paid the penalty and bought new bonds with a very low fixed rate, not sure you'd be any better off.

I'd leave them alone and put new money in if your IPS says "buy I-bonds".
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Elemental
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by Elemental » Mon Oct 24, 2016 5:06 pm

You're probably right. I'm just looking at the bonds and seeing a couple of dollars worth of appreciation and wondering how it keeps up with inflation when it could be earning 1.0% interest in an ordinary bank account.

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villars
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by villars » Mon Oct 24, 2016 5:45 pm

It makes sense only when the new *fixed* rate is much higher than the old fixed rate. The old ibonds will get the new variable rate in any case, so no point of selling them.

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dratkinson
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Re: Does it make sense to sell I Bonds with penalty, to re-buy at a higher rate?

Post by dratkinson » Tue Oct 25, 2016 4:42 pm

I bonds have an annual contribution limit. You can sell I bonds. You can buy I bonds, which consumes your annual contribution limit. But you can't convert I bonds.

Bottom line. If you want the most in I bonds, then keep your old ones and buy more new ones. You can also play the "paper I bonds back with your federal tax refund" game to get an additional $5K allocation/year.



Disclosure. A few years back, I reexamined the 0% fixed rate on all my I bonds and the additional administrative hassles of managing a savings bond allocation, and decided it wasn't worth it to continue buying any savings bonds. I decided, after due diligence, to redeploy those proceeds to municipal bonds.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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