Clarification on iBond Interest Rates

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
LookinAround
Posts: 395
Joined: Tue Mar 27, 2018 5:41 am
Location: Chicagoland

Clarification on iBond Interest Rates

Post by LookinAround »

iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
User avatar
samsoes
Posts: 2244
Joined: Tue Mar 05, 2013 9:12 am
Location: Northeast Rat Race

Re: Clarification on iBond Interest Rates

Post by samsoes »

LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
Correct on all counts.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
evelynmanley
Posts: 475
Joined: Tue Sep 21, 2010 9:13 am

Re: Clarification on iBond Interest Rates

Post by evelynmanley »

Harry Sit's articles about I-Bonds are great:

https://thefinancebuff.com/how-to-buy-i-bonds.html

Archives: https://thefinancebuff.com/tag/i-bonds

Boglehead thread: viewtopic.php?t=346091
Silk McCue
Posts: 7220
Joined: Thu Feb 25, 2016 7:11 pm

Re: Clarification on iBond Interest Rates

Post by Silk McCue »

Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
User avatar
AnnetteLouisan
Posts: 4367
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Clarification on iBond Interest Rates

Post by AnnetteLouisan »

Keep in mind that “iBonds” and Series I treasury bonds (often referred to as I bonds or Series I bonds) are two different things. Three actually, as iBond is a US bond fund and also a HK fund. You want the Series I bond offered on Treasury Direct.
Topic Author
LookinAround
Posts: 395
Joined: Tue Mar 27, 2018 5:41 am
Location: Chicagoland

Re: Clarification on iBond Interest Rates

Post by LookinAround »

Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
Thx for the feedback. I'm actually already max'ed out in my TD accounts for the calendar year. I created a hypothetical to double check my facts before relaying them to a friend.
dbr
Posts: 41845
Joined: Sun Mar 04, 2007 9:50 am

Re: Clarification on iBond Interest Rates

Post by dbr »

AnnetteLouisan wrote: Sat Jul 02, 2022 6:41 pm Keep in mind that “iBonds” and Series I treasury bonds (often referred to as I bonds or Series I bonds) are two different things. Three actually, as iBond is a US bond fund and also a HK fund. You want the Series I bond offered on Treasury Direct.
Isn't iBOND something from Apple? https://www.apple.com/newsroom/2022/03/ ... echnology/
User avatar
AnnetteLouisan
Posts: 4367
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Clarification on iBond Interest Rates

Post by AnnetteLouisan »

dbr wrote: Sun Jul 03, 2022 8:57 am
AnnetteLouisan wrote: Sat Jul 02, 2022 6:41 pm Keep in mind that “iBonds” and Series I treasury bonds (often referred to as I bonds or Series I bonds) are two different things. Three actually, as iBond is a US bond fund and also a HK fund. You want the Series I bond offered on Treasury Direct.
Isn't iBOND something from Apple? https://www.apple.com/newsroom/2022/03/ ... echnology/
BlackRock also has a bond fund called iBond in the iShares family. And there is a Hong Kong iBond.
MikeG62
Posts: 4351
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Clarification on iBond Interest Rates

Post by MikeG62 »

Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
There is no downside to waiting either - especially waiting till mid-Oct at which point you will know what the second six months of interest will be. In either case, you will get the same amount of interest if you hold the bond for the same length of time. Reason to wait might be if the rate declines materially from the upper single digits for the Nov reset. In that case, you might choose to deploy your funds elsewhere instead. Waiting gives you optionality that buying now closes the door on.
Real Knowledge Comes Only From Experience
Silk McCue
Posts: 7220
Joined: Thu Feb 25, 2016 7:11 pm

Re: Clarification on iBond Interest Rates

Post by Silk McCue »

MikeG62 wrote: Mon Jul 04, 2022 8:46 am
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
There is no downside to waiting either - especially waiting till mid-Oct at which point you will know what the second six months of interest will be. In either case, you will get the same amount of interest if you hold the bond for the same length of time. Reason to wait might be if the rate declines materially from the upper single digits for the Nov reset. In that case, you might choose to deploy your funds elsewhere instead. Waiting gives you optionality that buying now closes the door on.
That’s just market timing. You then have must decide where to invest the funds until that time which incurs risk, either upside or downside.

Cheers
GuyInFL
Posts: 618
Joined: Thu Aug 04, 2016 7:17 pm

Re: Clarification on iBond Interest Rates

Post by GuyInFL »

LookinAround wrote: Sun Jul 03, 2022 7:12 am
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
Thx for the feedback. I'm actually already max'ed out in my TD accounts for the calendar year. I created a hypothetical to double check my facts before relaying them to a friend.
You can always ‘gift’ some to your SO. The one year clock and interest start immediately. They take possession next year or later.
mary1492
Posts: 664
Joined: Thu Oct 17, 2019 3:02 am

Re: Clarification on iBond Interest Rates

Post by mary1492 »

MikeG62 wrote: Mon Jul 04, 2022 8:46 am
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
There is no downside to waiting either - especially waiting till mid-Oct at which point you will know what the second six months of interest will be. In either case, you will get the same amount of interest if you hold the bond for the same length of time. Reason to wait might be if the rate declines materially from the upper single digits for the Nov reset. In that case, you might choose to deploy your funds elsewhere instead. Waiting gives you optionality that buying now closes the door on.
Yes, there is a downside to waiting. Waiting pushes your minimum 1 year hold out further. So, if you would like to take the money and invest it elsewhere, for whatever reason, if you purchase the iBond sooner, the sooner you will be allowed to cash out.

If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023. If you purchase now, you will be able to take the money out July 2023.
MikeG62
Posts: 4351
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Clarification on iBond Interest Rates

Post by MikeG62 »

mary1492 wrote: Mon Jul 04, 2022 9:29 am
MikeG62 wrote: Mon Jul 04, 2022 8:46 am
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
There is no downside to waiting either - especially waiting till mid-Oct at which point you will know what the second six months of interest will be. In either case, you will get the same amount of interest if you hold the bond for the same length of time. Reason to wait might be if the rate declines materially from the upper single digits for the Nov reset. In that case, you might choose to deploy your funds elsewhere instead. Waiting gives you optionality that buying now closes the door on.
Yes, there is a downside to waiting. Waiting pushes your minimum 1 year hold out further. So, if you would like to take the money and invest it elsewhere, for whatever reason, if you purchase the iBond sooner, the sooner you will be allowed to cash out.

If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023. If you purchase now, you will be able to take the money out July 2023.
That is true, but if you wait till mid-Oct you will be able to leave those funds invested between now and then. In many ways, it is a six of one and half dozen of the other situation. I take your point about being able to exit the position earlier, it is just not 100% clear that where you will redeploy the funds then will be materially different in yield from where I am leaving the funds now waiting to mid-Oct to see what the full 12-months yield will be.

For full disclosure, my DW and I bought $10,000 each in mid-April and then front loaded gift box purchases for each other for 2023 and 2024. When I see what the Nov rate reset will be, I will make a decision whether we will front load 2025 purchases at that time.
Real Knowledge Comes Only From Experience
MikeG62
Posts: 4351
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Clarification on iBond Interest Rates

Post by MikeG62 »

Silk McCue wrote: Mon Jul 04, 2022 8:54 am
MikeG62 wrote: Mon Jul 04, 2022 8:46 am
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
There is no downside to waiting either - especially waiting till mid-Oct at which point you will know what the second six months of interest will be. In either case, you will get the same amount of interest if you hold the bond for the same length of time. Reason to wait might be if the rate declines materially from the upper single digits for the Nov reset. In that case, you might choose to deploy your funds elsewhere instead. Waiting gives you optionality that buying now closes the door on.
That’s just market timing. You then have must decide where to invest the funds until that time which incurs risk, either upside or downside.

Cheers
Right, it could be better or worse waiting.
Real Knowledge Comes Only From Experience
DarkHelmetII
Posts: 1145
Joined: Mon Jul 24, 2017 12:25 pm

Re: Clarification on iBond Interest Rates

Post by DarkHelmetII »

mary1492 wrote: Mon Jul 04, 2022 9:29 am So, if you would like to take the money and invest it elsewhere, for whatever reason, if you purchase the iBond sooner, the sooner you will be allowed to cash out.
Is there any provision to cash out < 12 months forfeiting all interest? Or is it absolutely / 100% requirement to hold for the first year?
makingmistakes
Posts: 355
Joined: Sun Jan 19, 2020 7:59 am

Re: Clarification on iBond Interest Rates

Post by makingmistakes »

Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
One reason could be, as it is for me, that one doesn’t currently have any available cash to buy more. 😄
But I am hoping to have enough saved to buy more at this 9+% rate.
Silk McCue
Posts: 7220
Joined: Thu Feb 25, 2016 7:11 pm

Re: Clarification on iBond Interest Rates

Post by Silk McCue »

makingmistakes wrote: Mon Jul 04, 2022 2:47 pm
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
One reason could be, as it is for me, that one doesn’t currently have any available cash to buy more. 😄
But I am hoping to have enough saved to buy more at this 9+% rate.
Nice to know but my comment was directed at the OP.

Cheers
evelynmanley
Posts: 475
Joined: Tue Sep 21, 2010 9:13 am

Re: Clarification on iBond Interest Rates

Post by evelynmanley »

DarkHelmetII wrote: Mon Jul 04, 2022 2:24 pm
mary1492 wrote: Mon Jul 04, 2022 9:29 am So, if you would like to take the money and invest it elsewhere, for whatever reason, if you purchase the iBond sooner, the sooner you will be allowed to cash out.
Is there any provision to cash out < 12 months forfeiting all interest? Or is it absolutely / 100% requirement to hold for the first year?


https://www.treasurydirect.gov/indiv/re ... redeem.htm

<<When can I cash my I bonds?

After they are 12 months old.
If you cash an I bond before it is five years old, you will lose the last three months of interest.
I bonds earn interest for 30 years if you don't cash the bonds before they mature.
If you've been affected by a disaster, special provisions may apply.
<<


https://www.treasurydirect.gov/indiv/re ... saster.htm

>>HELP! I LIVE IN A DISASTER-DECLARED AREA. I NEED TO CASH SAVINGS BONDS!

No Problem. You Have Options
(even if your bonds haven’t met the minimum 1-year holding period)
1
My Electronic Bonds Are Held in TreasuryDirect.

Log in to your account.
Request a redemption of one or all of your savings bonds.

What if My Bonds Are Less Than 1 Year Old?

Send us an e-mail from inside your account using the Contact Us link found in the upper right hand corner of the page. Explain why you're asking to redeem the bond and tell us which bonds you want redeemed. If you have more than one bank listed in your account, you need to tell us where to send the payment.

2
My Paper Bonds Are Undamaged but, I Need the Money Now.

Visit your local bank. This is the quickest way to get your cash.
Read our instructions on cashing savings bonds.

What if My Bonds Are Less Than 1 Year Old?

Most banks in federally declared disaster areas are prepared to waive the 1-year minimum holding period.

>>
makingmistakes
Posts: 355
Joined: Sun Jan 19, 2020 7:59 am

Re: Clarification on iBond Interest Rates

Post by makingmistakes »

Silk McCue wrote: Mon Jul 04, 2022 2:53 pm
makingmistakes wrote: Mon Jul 04, 2022 2:47 pm
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
One reason could be, as it is for me, that one doesn’t currently have any available cash to buy more. 😄
But I am hoping to have enough saved to buy more at this 9+% rate.
Nice to know but my comment was directed at the OP.

Cheers
Nice to know but my comment was directed at others who might be curious, like I was, how things worked if they had to wait.
Silk McCue
Posts: 7220
Joined: Thu Feb 25, 2016 7:11 pm

Re: Clarification on iBond Interest Rates

Post by Silk McCue »

makingmistakes wrote: Mon Jul 04, 2022 3:19 pm
Silk McCue wrote: Mon Jul 04, 2022 2:53 pm
makingmistakes wrote: Mon Jul 04, 2022 2:47 pm
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
One reason could be, as it is for me, that one doesn’t currently have any available cash to buy more. 😄
But I am hoping to have enough saved to buy more at this 9+% rate.
Nice to know but my comment was directed at the OP.

Cheers
Nice to know but my comment was directed at others who might be curious, like I was, how things worked if they had to wait.
No idea what you mean by that. Your reply to me was your first post on this thread. How exactly was that directed at “others” and “how things worked if they had to wait”?

Cheers
makingmistakes
Posts: 355
Joined: Sun Jan 19, 2020 7:59 am

Re: Clarification on iBond Interest Rates

Post by makingmistakes »

Silk McCue wrote: Mon Jul 04, 2022 4:25 pm
makingmistakes wrote: Mon Jul 04, 2022 3:19 pm
Silk McCue wrote: Mon Jul 04, 2022 2:53 pm
makingmistakes wrote: Mon Jul 04, 2022 2:47 pm
Silk McCue wrote: Sat Jul 02, 2022 5:30 pm Why wouldn’t you buy the iBond now rather than September? There is no upside in waiting.

Cheers
One reason could be, as it is for me, that one doesn’t currently have any available cash to buy more. 😄
But I am hoping to have enough saved to buy more at this 9+% rate.
Nice to know but my comment was directed at the OP.

Cheers
Nice to know but my comment was directed at others who might be curious, like I was, how things worked if they had to wait.
No idea what you mean by that. Your reply to me was your first post on this thread. How exactly was that directed at “others” and “how things worked if they had to wait”?

Cheers
There was no indication from the OP why he might wait. You assumed he could buy now. My reply was to indicate that the OP, or others, could be like me and have to wait.

So I was trying to convey that the information provided by others as to what happens when wait was welcome, at least to me.
Silk McCue
Posts: 7220
Joined: Thu Feb 25, 2016 7:11 pm

Re: Clarification on iBond Interest Rates

Post by Silk McCue »

makingmistakes wrote: Mon Jul 04, 2022 5:17 pm
There was no indication from the OP why he might wait. You assumed he could buy now. My reply was to indicate that the OP, or others, could be like me and have to wait.

So I was trying to convey that the information provided by others as to what happens when wait was welcome, at least to me.
I didn’t assume. I asked “why”. However the OP covered that in their response to me Sunday morning.

viewtopic.php?p=6757472#p6757472

Cheers
makingmistakes
Posts: 355
Joined: Sun Jan 19, 2020 7:59 am

Re: Clarification on iBond Interest Rates

Post by makingmistakes »

Silk McCue wrote: Mon Jul 04, 2022 5:30 pm
makingmistakes wrote: Mon Jul 04, 2022 5:17 pm
There was no indication from the OP why he might wait. You assumed he could buy now. My reply was to indicate that the OP, or others, could be like me and have to wait.

So I was trying to convey that the information provided by others as to what happens when wait was welcome, at least to me.
I understand. However the OP covered that in their response to me Sunday morning.

viewtopic.php?p=6757472#p6757472

Cheers
Ok, sorry for butting in then!!
an_asker
Posts: 4159
Joined: Thu Jun 27, 2013 2:15 pm

Re: Clarification on iBond Interest Rates

Post by an_asker »

samsoes wrote: Sat Jul 02, 2022 5:12 pm
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
Correct on all counts.
To be precise, the interest collected would be 4.81% (9.62% annualized), no? When they say annualized in this situation, do they mean compounded every six months - in other words, would the six-months interest be less than 4.81%?
User avatar
samsoes
Posts: 2244
Joined: Tue Mar 05, 2013 9:12 am
Location: Northeast Rat Race

Re: Clarification on iBond Interest Rates

Post by samsoes »

an_asker wrote: Fri Aug 05, 2022 3:22 pm
samsoes wrote: Sat Jul 02, 2022 5:12 pm
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
Correct on all counts.
To be precise, the interest collected would be 4.81% (9.62% annualized), no? When they say annualized in this situation, do they mean compounded every six months - in other words, would the six-months interest be less than 4.81%?
Interest accrues at 9.62% for the first six months. Please check out https://eyebonds.info/ibonds/10000/ib_2022_08.html for precise amounts. (Please note that this site does not take into account the three month interest lag during the first five years of the life of the bond.)
(https://eyebonds.info/ibonds/home10000.html for historical rates and values.)
Last edited by samsoes on Fri Aug 05, 2022 3:29 pm, edited 2 times in total.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
Topic Author
LookinAround
Posts: 395
Joined: Tue Mar 27, 2018 5:41 am
Location: Chicagoland

Re: Clarification on iBond Interest Rates

Post by LookinAround »

an_asker wrote: Fri Aug 05, 2022 3:22 pm
samsoes wrote: Sat Jul 02, 2022 5:12 pm
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
Correct on all counts.
To be precise, the interest collected would be 4.81% (9.62% annualized), no? When they say annualized in this situation, do they mean compounded every six months - in other words, would the six-months interest be less than 4.81%?
> Yes, TD publishes the annualized rate
> Yes, ibonds are compounded every 6 months

"The interest is compounded semiannually. Every six months from the bond's issue date, interest the bond earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal."
an_asker
Posts: 4159
Joined: Thu Jun 27, 2013 2:15 pm

Re: Clarification on iBond Interest Rates

Post by an_asker »

samsoes wrote: Fri Aug 05, 2022 3:27 pm
an_asker wrote: Fri Aug 05, 2022 3:22 pm
samsoes wrote: Sat Jul 02, 2022 5:12 pm
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
Correct on all counts.
To be precise, the interest collected would be 4.81% (9.62% annualized), no? When they say annualized in this situation, do they mean compounded every six months - in other words, would the six-months interest be less than 4.81%?
Interest accrues at 9.62% for the first six months. Please check out https://eyebonds.info/ibonds/10000/ib_2022_08.html for precise amounts. (Please note that this site does not take into account the three month interest lag during the first five years of the life of the bond.)
(https://eyebonds.info/ibonds/home10000.html for historical rates and values.)
Thanks for the links. Those explains it perfectly!
an_asker
Posts: 4159
Joined: Thu Jun 27, 2013 2:15 pm

Re: Clarification on iBond Interest Rates

Post by an_asker »

LookinAround wrote: Fri Aug 05, 2022 3:28 pm [...]
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
[...]
> Yes, TD publishes the annualized rate
> Yes, ibonds are compounded every 6 months

"The interest is compounded semiannually. Every six months from the bond's issue date, interest the bond earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal."
Thanks!

I just wanted to make sure you understood how it worked, because I interpreted what you wrote to mean that (you thought) a $100 investment in an iBond would become $109.62 in six months!
collects 9.62% interest for the first six months
Topic Author
LookinAround
Posts: 395
Joined: Tue Mar 27, 2018 5:41 am
Location: Chicagoland

Re: Clarification on iBond Interest Rates

Post by LookinAround »

an_asker wrote: Fri Aug 05, 2022 3:34 pm I just wanted to make sure you understood how it worked, because I interpreted what you wrote to mean that (you thought) a $100 investment in an iBond would become $109.62 in six months!
collects 9.62% interest for the first six months
Thanks for taking the time double check :sharebeer
dbr
Posts: 41845
Joined: Sun Mar 04, 2007 9:50 am

Re: Clarification on iBond Interest Rates

Post by dbr »

an_asker wrote: Fri Aug 05, 2022 3:34 pm
LookinAround wrote: Fri Aug 05, 2022 3:28 pm [...]
LookinAround wrote: Sat Jul 02, 2022 5:10 pm iBonds are paying 9.62% through October 22. I do understand this correctly?

If I were to buy an iBond on Sept 15, 2022 am i correct
  1. That iBond collects interest as though it was purchased Sept 1, 2022
  2. The iBond bought in Sept collects 9.62% interest for the first six months (i.e. all of Sep 2022 to Feb 2023) even though there was a rate change in November 2022
  3. Come Mar 2023, the iBond interest rate changes to the rate set back in November 2022. And that rate continues for the next 6 months again? etc
[...]
> Yes, TD publishes the annualized rate
> Yes, ibonds are compounded every 6 months

"The interest is compounded semiannually. Every six months from the bond's issue date, interest the bond earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal."
Thanks!

I just wanted to make sure you understood how it worked, because I interpreted what you wrote to mean that (you thought) a $100 investment in an iBond would become $109.62 in six months!
collects 9.62% interest for the first six months
Sometimes it is helpful for investors to remember that interest is a rate (aka a fraction) relative to the principal on which it is earned and also a rate in time. 9.62% is 9.62% gained on the principal if gained over a year, so it should be expressed as dollars/dollar/year. In fact the deal is to pay at a rate of 9.62%/year for half a year resulting in $ 104.81and then compound that for another half a year at whatever the new rate is.

The one situation I can think of where returns are not rated over time is in year to date return which is simply the gain relative to the amount at year beginning. All other returns are often rated to time units of one year. The other issue is what compounding model to use. I bonds are compounded semi-annually. The usual quotes for returns are compounded annually as in Compound ANNUAL Growth Rate. Saving accounts might be compounded daily. It is possible to compound continuously: https://www.carboncollective.co/sustain ... tems...%20
vtMaps
Posts: 866
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

Re: Clarification on iBond Interest Rates

Post by vtMaps »

mary1492 wrote: Mon Jul 04, 2022 9:29 am If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023.
That's not exactly correct. If you buy anytime in October 2022, you may cash out on October 1, 2023. --vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
exodusNH
Posts: 4764
Joined: Wed Jan 06, 2021 8:21 pm

Re: Clarification on iBond Interest Rates

Post by exodusNH »

vtMaps wrote: Fri Aug 05, 2022 3:50 pm
mary1492 wrote: Mon Jul 04, 2022 9:29 am If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023.
That's not exactly correct. If you buy anytime in October 2022, you may cash out on October 1, 2023. --vtMaps
Correct. The Treasury back-dates all transactions to the first of the month.
mary1492
Posts: 664
Joined: Thu Oct 17, 2019 3:02 am

Re: Clarification on iBond Interest Rates

Post by mary1492 »

exodusNH wrote: Fri Aug 05, 2022 3:55 pm
vtMaps wrote: Fri Aug 05, 2022 3:50 pm
mary1492 wrote: Mon Jul 04, 2022 9:29 am If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023.
That's not exactly correct. If you buy anytime in October 2022, you may cash out on October 1, 2023. --vtMaps
Correct. The Treasury back-dates all transactions to the first of the month.
Point taken. However, I believe the bigger point was purchasing now (when post was made) versus waiting several months until just before the next rate reset.
exodusNH
Posts: 4764
Joined: Wed Jan 06, 2021 8:21 pm

Re: Clarification on iBond Interest Rates

Post by exodusNH »

mary1492 wrote: Fri Aug 05, 2022 5:40 pm
exodusNH wrote: Fri Aug 05, 2022 3:55 pm
vtMaps wrote: Fri Aug 05, 2022 3:50 pm
mary1492 wrote: Mon Jul 04, 2022 9:29 am If you wait until mid-October to buy, then you will not be allowed to get any funds back until mid-October 2023.
That's not exactly correct. If you buy anytime in October 2022, you may cash out on October 1, 2023. --vtMaps
Correct. The Treasury back-dates all transactions to the first of the month.
Point taken. However, I believe the bigger point was purchasing now (when post was made) versus waiting several months until just before the next rate reset.
Counterpoint taken! I don't see a real downside to buying now and enjoying the extra interest as long as the 12 month hold is not inconvenient.

From what I've read around here, the November rate will be lower than 9.62%, but still very high.
ModifiedDuration
Posts: 849
Joined: Sat Dec 05, 2015 4:33 pm

Re: Clarification on iBond Interest Rates

Post by ModifiedDuration »

Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
User avatar
anon_investor
Posts: 12311
Joined: Mon Jun 03, 2019 1:43 pm

Re: Clarification on iBond Interest Rates

Post by anon_investor »

ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The better question is whether Nov I Bonds will have a fixed rate above 0%!
User avatar
squirrel1963
Posts: 545
Joined: Wed Jun 21, 2017 10:12 am
Location: Portland OR area

Re: Clarification on iBond Interest Rates

Post by squirrel1963 »

anon_investor wrote: Fri Aug 05, 2022 6:51 pm
ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The better question is whether Nov I Bonds will have a fixed rate above 0%!
Who knows, but if they do I'll be very upset because I front loaded 50k for DW in the gift box and she did the same for me.
| LMP | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks |
User avatar
anon_investor
Posts: 12311
Joined: Mon Jun 03, 2019 1:43 pm

Re: Clarification on iBond Interest Rates

Post by anon_investor »

squirrel1963 wrote: Fri Aug 05, 2022 7:00 pm
anon_investor wrote: Fri Aug 05, 2022 6:51 pm
ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The better question is whether Nov I Bonds will have a fixed rate above 0%!
Who knows, but if they do I'll be very upset because I front loaded 50k for DW in the gift box and she did the same for me.
:shock: what will you do when if the variable rate drops to 0%?
User avatar
squirrel1963
Posts: 545
Joined: Wed Jun 21, 2017 10:12 am
Location: Portland OR area

Re: Clarification on iBond Interest Rates

Post by squirrel1963 »

anon_investor wrote: Fri Aug 05, 2022 7:04 pm
squirrel1963 wrote: Fri Aug 05, 2022 7:00 pm
anon_investor wrote: Fri Aug 05, 2022 6:51 pm
ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The better question is whether Nov I Bonds will have a fixed rate above 0%!
Who knows, but if they do I'll be very upset because I front loaded 50k for DW in the gift box and she did the same for me.
:shock: what will you do when if the variable rate drops to 0%?
I'll still be happy because we would have bought 50k each worth of I-bonds in the next 5 years. I think front loading only really works if that's the intent.
| LMP | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks |
exodusNH
Posts: 4764
Joined: Wed Jan 06, 2021 8:21 pm

Re: Clarification on iBond Interest Rates

Post by exodusNH »

anon_investor wrote: Fri Aug 05, 2022 6:51 pm
ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The better question is whether Nov I Bonds will have a fixed rate above 0%!
There is no chance of that. Demand is too high.
spencer99
Posts: 413
Joined: Thu Apr 01, 2010 5:17 pm

Re: Clarification on iBond Interest Rates

Post by spencer99 »

makingmistakes wrote: Mon Jul 04, 2022 5:34 pm
Silk McCue wrote: Mon Jul 04, 2022 5:30 pm
makingmistakes wrote: Mon Jul 04, 2022 5:17 pm
There was no indication from the OP why he might wait. You assumed he could buy now. My reply was to indicate that the OP, or others, could be like me and have to wait.

So I was trying to convey that the information provided by others as to what happens when wait was welcome, at least to me.
I understand. However the OP covered that in their response to me Sunday morning.

viewtopic.php?p=6757472#p6757472

Cheers
Ok, sorry for butting in then!!
Makingmistakes,

I understood perfectly that your comment was intended for the general discussion and not a specific response to a specific post. Thank you for making this point - it helped my understanding and isn't that why we are all here?

S
MikeG62
Posts: 4351
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Clarification on iBond Interest Rates

Post by MikeG62 »

ModifiedDuration wrote: Fri Aug 05, 2022 6:12 pm Depending on what inflation is in July, August, and September, the next reset rate could be higher than 9.62%. The first 3 months of the next period (April, May, and June) were running at a 12% rate.

Next Wednesday we will have a better picture, as then we will have July’s number and be 4 months into the 6 month period.
The next rate reset will not depend on what the inflation rate is in July or August. It will depend on the CPI-U for the "month of" September 2022 compared to the CPI-U for the "month of" March 2022. That is it. Just two data points.

If we look at the June 2022 CPI-U (296.311) compared to the March 2022 CPI-U (287.504) and IF we assume that prices remained flat from June through Sept, the next I Bond reset would be 6.13%. Some (probably most) would argue that is the floor rate for the Nov reset. However, because the rate will depend on the CPI-U in the month of Sept, there is really no way to know. Keep in mind many commodities have rolled over in the last 30 days. That rolling over has not made its way into the reported CPI-U figures yet (but it will). Odds are the reset will be higher than 6.13% (I am personally guessing mid-7% area), but we don't know. If there is some sort of anomaly in Sept, that could skew the results (one way or the other).

I don't like the way it's done. I'd rather they used the average CPI-U for the six months ended Sept 2022 vs. the six months ended Sept 2021 (to smooth out any one-off items), but they don't.
Real Knowledge Comes Only From Experience
Post Reply