Basic Question on I bonds

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cresive
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Basic Question on I bonds

Postby cresive » Mon Jul 17, 2017 9:59 am

Hello everyone,
Thank you for taking the time to read and hopefully explain the answer to my question. I have just started investing in I bonds. I have bout bonds for the last 5 months. In that time, the interest rate changed from 2.75% to 1.96%. The way I understood the rate change, ALL my bonds would change to 1.96% after the change. However, my initial purchases have remained at 2.75%. Does the rate you purchase remain for the life of the bond? If so, Could I cash in all my 1.96% bonds and buy new bonds at a higher rate when they go up?

I am trying to fine tune my retirement strategies and any information/tips would be appreciated.

Thanks,
Ben

Chuck
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Re: Basic Question on I bonds

Postby Chuck » Mon Jul 17, 2017 10:03 am

The rate changes every 6 months from the purchase date of the bond. So you will get 6 months at the initial rate, then it will change.

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Ice-9
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Re: Basic Question on I bonds

Postby Ice-9 » Mon Jul 17, 2017 10:08 am

The purchase date of your bond is the first of the month in which you bought it, and it will change every six months after that. Savings Bond Advisor provides a good explanation: http://savings-bond-advisor.com/series- ... ase-rates/

and.. http://savings-bond-advisor.com/series- ... ate-rules/
Last edited by Ice-9 on Mon Jul 17, 2017 10:12 am, edited 1 time in total.

cresive
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Re: Basic Question on I bonds

Postby cresive » Mon Jul 17, 2017 10:11 am

Chuck wrote:The rate changes every 6 months from the purchase date of the bond. So you will get 6 months at the initial rate, then it will change.



Thanks.

sport
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Re: Basic Question on I bonds

Postby sport » Mon Jul 17, 2017 10:16 am

There are two components to the I bond rate. There is a fixed component and an inflation adjustment component. The fixed component does not change. The inflation component changes every six months on the half-year anniversary of your purchase.

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BL
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Re: Basic Question on I bonds

Postby BL » Mon Jul 17, 2017 10:30 am

You can cash in I-Bonds after 1 year, but you must give up 3 months interest unless you have held them for 5 years. As mentioned, the rate changes every 6 months from the month you purchased them.

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Rager1
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Re: Basic Question on I bonds

Postby Rager1 » Mon Jul 17, 2017 10:39 am

BL wrote:You can cash in I-Bonds after 1 year, but you must give up 3 months interest unless you have held them for 5 years. As mentioned, the rate changes every 6 months from the month you purchased them.


And, you can effectively get back 2 of those 3 months by purchasing I Bonds at the end of the month, and cashing them at the beginning of the month.

Ed

Spirit Rider
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Re: Basic Question on I bonds

Postby Spirit Rider » Mon Jul 17, 2017 11:14 am

Rager1 wrote:
BL wrote:You can cash in I-Bonds after 1 year, but you must give up 3 months interest unless you have held them for 5 years. As mentioned, the rate changes every 6 months from the month you purchased them.

And, you can effectively get back 2 of those 3 months by purchasing I Bonds at the end of the month, and cashing them at the beginning of the month.

For this to be entirely true, you must be getting the I Bond combined interest rate for the period before the purchase and after the redemption. In this interest rate environment that is not easily accomplished.

Still your sentiment is correct, you will at least get whatever return you receive elsewhere.

Alto Astral
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Re: Basic Question on I bonds

Postby Alto Astral » Mon Jul 17, 2017 6:35 pm

The fixed rate will remain for the life of the ibond. However, in your case its 0%, I believe. The variable rate will keep chaning every 6 months like other have pointed out.

you can only cash out and re-invest only upto $10k per socil security number. So if you already got $10K for this year, you can sell it but not repurchase since you've met your $10k quota. If you have not invested any this year, you can sell any ibonds from prior years and purchase upto $10k this year.

i started maxing out his/her ibond starting this year. Hope to keep increasing it over the years as a bond portion of my investment. The thinking is that 30 years down the road it provides some inflation protection plus offers federal tax protection

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#Cruncher
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Re: Basic Question on I bonds

Postby #Cruncher » Tue Jul 18, 2017 10:20 am

Chuck in this post wrote:The rate changes every 6 months from the purchase date of the bond. So you will get 6 months at the initial rate, then it will change.
Here's how it looks in a table:

Code: Select all

     ---------------------------  C o m p o s i t e  R a t e  -----------------------------
Buy  Jan  Feb  Mar    Apr  May  Jun    Jul  Aug  Sep    Oct  Nov  Dec    Jan  Feb  Mar  Apr
Jan  2.76 2.76 2.76   2.76 2.76 2.76   1.96 1.96 1.96   1.96 1.96 1.96     ?
Feb       2.76 2.76   2.76 2.76 2.76   2.76 1.96 1.96   1.96 1.96 1.96   1.96   ?
Mar            2.76   2.76 2.76 2.76   2.76 2.76 1.96   1.96 1.96 1.96   1.96 1.96   ?
Apr                   2.76 2.76 2.76   2.76 2.76 2.76   1.96 1.96 1.96   1.96 1.96 1.96   ?

May                        1.96 1.96   1.96 1.96 1.96   1.96   ?
Jun                             1.96   1.96 1.96 1.96   1.96 1.96   ?
Jul                                    1.96 1.96 1.96   1.96 1.96 1.96     ?
Aug                                         1.96 1.96   1.96 1.96 1.96   1.96   ?
Sep                                              1.96   1.96 1.96 1.96   1.96 1.96   ?
Oct                                                     1.96 1.96 1.96   1.96 1.96 1.96   ?
Composite rates based on 0% fixed rates and 1.38% and 0.98% semi-annual inflation rates shown on TreasuryDirect What have rates been in the past?. "?" denotes composite rate to be based on semi-annual inflation rate to be announced November 1st 2017.

Rager1 in this post wrote:And, you can effectively get back 2 of those 3 months [of interest penalty] by purchasing I Bonds at the end of the month, and cashing them at the beginning of the month.
What you're referring to, Rager1, is independent of whether or not the I Bond redemption is subject to a 3 month interest penalty. Furthermore, buying at the end of the month and redeeming at the beginning of the month gets you only one month's "free" use of your money, not two. E.g., if I buy 7/31/2017 and redeem 7/1/2018 I have held the I Bond for 11 months and a day and have earned interest for 9 months. If I redeem 7/1/2022, I have held it for 59 months and a day and have earned interest for 60 months.

Alto Astral in previous post wrote:you can only cash out and re-invest only upto $10k per [social] security number. So if you already got $10K for this year, you can sell it but not repurchase since you've met your $10k quota.
This is poorly worded, Alto Astral. There is no annual dollar limit on redemptions. You can redeem (cash out) as many as you wish at any time, but only if they've been held a year. Therefore, you can't redeem any I Bonds in the same calendar year you bought them.

Thesaints
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Re: Basic Question on I bonds

Postby Thesaints » Tue Jul 18, 2017 10:22 am

Rager1 wrote:
BL wrote:You can cash in I-Bonds after 1 year, but you must give up 3 months interest unless you have held them for 5 years. As mentioned, the rate changes every 6 months from the month you purchased them.


And, you can effectively get back 2 of those 3 months by purchasing I Bonds at the end of the month, and cashing them at the beginning of the month.

Ed


Only one month, actually.

cresive
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Re: Basic Question on I bonds

Postby cresive » Tue Jul 18, 2017 8:25 pm

cresive wrote:Hello everyone,
Thank you for taking the time to read and hopefully explain the answer to my question. I have just started investing in I bonds. I have bout bonds for the last 5 months. In that time, the interest rate changed from 2.75% to 1.96%. The way I understood the rate change, ALL my bonds would change to 1.96% after the change. However, my initial purchases have remained at 2.75%. Does the rate you purchase remain for the life of the bond? If so, Could I cash in all my 1.96% bonds and buy new bonds at a higher rate when they go up?

I am trying to fine tune my retirement strategies and any information/tips would be appreciated.

Thanks,
Ben




Thanks everyone for the great information. You have answered my question, and the next one I had as well.

Ben


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