I Bonds - now or later in the year?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
ZiziPB
Posts: 123
Joined: Sun Mar 30, 2014 4:26 pm

I Bonds - now or later in the year?

Post by ZiziPB » Fri Mar 20, 2015 10:11 am

I'm planning to purchase another $10K worth of IBonds this year. Any thoughts on whether the anticipated Fed rate increase will affect the IBonds and whether it would be advisable to wait a few months?

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: IBonds - now or later in the year?

Post by Grt2bOutdoors » Fri Mar 20, 2015 10:13 am

It would be a miracle if the Treasury raised the fixed rate to a positive number above zero. The variable rate is going to come down, likely to be zero come May.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
telemark
Posts: 2309
Joined: Sat Aug 11, 2012 6:35 am

Re: IBonds - now or later in the year?

Post by telemark » Fri Mar 20, 2015 10:28 am

I bought my 2015 allocation in January, not seeing any point in trying to outguess the Treasury. The sooner you buy, the sooner you get past the twelve-month waiting period before you can access the money again.

To put it another way, to me the main benefits of I bonds are safety and liquidity. A few basis points one way or another don't seem that important.

z3r0c00l
Posts: 1163
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: IBonds - now or later in the year?

Post by z3r0c00l » Fri Mar 20, 2015 10:33 am

I have my 10K for this year in a no penalty CD and figured that with the expected 0 variable rate coming in May, I might as well hold out until then in hopes of a .1 or even .2 percent fixed. I mean won't they struggle to sell iBonds offering nothing? Anyway, keeping the 10K liquid for a few more months while more money becomes liquid is something of a flip-side argument to that above (getting the new iBond liquid sooner). I doubt it will matter in the long run either way!

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: IBonds - now or later in the year?

Post by Grt2bOutdoors » Fri Mar 20, 2015 10:36 am

z3r0c00l wrote:I have my 10K for this year in a no penalty CD and figured that with the expected 0 variable rate coming in May, I might as well hold out until then in hopes of a .1 or even .2 percent fixed. I mean won't they struggle to sell iBonds offering nothing? Anyway, keeping the 10K liquid for a few more months while more money becomes liquid is something of a flip-side argument to that above (getting the new iBond liquid sooner). I doubt it will matter in the long run either way!
The Treasury isn't struggling to sell debt if that's what you mean. In fact, buyers are banging on the doors from Europe, begging them to "Please take my money" anything yielding a positive return is better than the negative rates being offered in Western Europe right now.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

J295
Posts: 1622
Joined: Sun Jan 01, 2012 11:40 pm

Re: IBonds - now or later in the year?

Post by J295 » Fri Mar 20, 2015 10:41 am

My suggestion is to purchase on a regular schedule and refrain from guessing on the "best time."

User avatar
Bustoff
Posts: 1979
Joined: Sat Mar 03, 2012 6:45 pm

Re: IBonds - now or later in the year?

Post by Bustoff » Fri Mar 20, 2015 11:24 am

telemark wrote:I bought my 2015 allocation in January, not seeing any point in trying to outguess the Treasury. The sooner you buy, the sooner you get past the twelve-month waiting period before you can access the money again.

To put it another way, to me the main benefits of I bonds are safety and liquidity. A few basis points one way or another don't seem that important.
+1
I buy the maximum every January.

beardsworth
Posts: 2135
Joined: Fri Jun 15, 2007 4:02 pm

Re: IBonds - now or later in the year?

Post by beardsworth » Fri Mar 20, 2015 12:01 pm

If new I Bonds were paying 3% + inflation, as they did a decade or more ago, I would agree with those who advocate just buying each year's quota early in the year without fussing over a possible change of a few tenths of a percent. But the fixed rate portion is zero now, so I see no harm in waiting to see if it goes up on May 1. I also agree with others here who believe it likely that the new fixed rate announced May 1 will not be higher than zero, in which case I will then see no harm in waiting to see if it goes up on November 1.

Since I Bonds pay interest for up to 30 years, I'm assuming that most buyers of I Bonds are interested in long-term inflation protection, rather than just using these bonds as substitutes for a short-term cash emergency fund. If so, I think that would argue for trying (to the extent possible) to get each year's highest fixed rate, and we already know that the fixed rate can't possibly go lower than it is now, so why rush?

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: IBonds - now or later in the year?

Post by sawhorse » Fri Mar 20, 2015 12:04 pm

The past few months have seen deflation rather than inflation, mainly due to the fall in oil prices. The inflation portion of the rate could be 0 as well. Thankfully they can never be negative.

User avatar
gasman
Posts: 716
Joined: Mon Jul 30, 2007 6:13 pm

Re: IBonds - now or later in the year?

Post by gasman » Fri Mar 20, 2015 12:22 pm

beardsworth wrote:If new I Bonds were paying 3% + inflation, as they did a decade or more ago, I would agree with those who advocate just buying each year's quota early in the year without fussing over a possible change of a few tenths of a percent. But the fixed rate portion is zero now, so I see no harm in waiting to see if it goes up on May 1. I also agree with others here who believe it likely that the new fixed rate announced May 1 will not be higher than zero, in which case I will then see no harm in waiting to see if it goes up on November 1.

Since I Bonds pay interest for up to 30 years, I'm assuming that most buyers of I Bonds are interested in long-term inflation protection, rather than just using these bonds as substitutes for a short-term cash emergency fund. If so, I think that would argue for trying (to the extent possible) to get each year's highest fixed rate, and we already know that the fixed rate can't possibly go lower than it is now, so why rush?
Agree. Barring a surprise reset in May, I plan to by my allocation in November.

ZiziPB
Posts: 123
Joined: Sun Mar 30, 2014 4:26 pm

Re: IBonds - now or later in the year?

Post by ZiziPB » Fri Mar 20, 2015 12:40 pm

Thanks all, I buy IBonds for my portfolio as part of the fixed portion of the AA and I plan to keep them for at least 5 years. I don't use them for my emergency fund. If I wait till November, I would put the $10K into a savings account at 1% in the meantime.

ETA: an alternative to iBonds would be an Ally 2 year "raise your rate" CD currently at 1.29%. I don't have any CDs currently in the fixed income bucket.

User avatar
#Cruncher
Posts: 2671
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: IBonds - now or later in the year?

Post by #Cruncher » Fri Mar 20, 2015 4:12 pm

sawhorse in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2425697#p2425697]this post[/url] wrote:The inflation portion of the rate could be 0 as well. Thankfully they can never be negative.
The inflation rate can be negative. However, the composite rate which combines the fixed and inflation rate is limited to a minimum of 0%. The formula for computing the composite rate is:

Code: Select all

composite rate = fixed rate + (2 X inflation rate) + (fixed rate X inflation rate)
To illustrate, assume the CPI declines 1% from September 2014 to March 2015 (the period used for determining the I Bond inflation rate). Here are the corresponding composite rates for I Bonds with fixed rates of 0%, 1%, 2%, and 3%:

Code: Select all

Annual Fixed Rate            0.00%    1.00%    2.00%    3.00%
Semi-annual Inflation Rate  (1.00%)  (1.00%)  (1.00%)  (1.00%)
Result of formula           (2.00%)  (1.01%)  (0.02%)   0.97%
Annual Composite Rate        0.00%    0.00%    0.00%    0.97%
In this hypothetical case any I Bond with a fixed rate of 2% or less would have a 0% composite rate. I Bonds with a fixed rate higher than 2% would have a positive composite rate.

wassabi
Posts: 414
Joined: Sun Feb 02, 2014 8:06 am

Wait for I-bond?

Post by wassabi » Thu Mar 26, 2015 7:50 pm

[Thread merged into here, see below. --admin LadyGeek]

I bought my first I-bond this time last year. Would like to buy another $10k this year. Is there a strategy I should be aware of before I buy? E.g., should I wait until May or November for new rates?

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: Wait for I-bond?

Post by sawhorse » Thu Mar 26, 2015 7:53 pm

I'm waiting for the new rates because it can't be any less than 0. At the same time, even if it is higher, it won't be meaningfully higher. The last few months have seen seen big drops in oil, so I wouldn't be surprised if the inflation component is actually negative even though the bond itself can never be negative.

N52570
Posts: 223
Joined: Wed Apr 16, 2014 8:04 pm

Re: Wait for I-bond?

Post by N52570 » Thu Mar 26, 2015 8:49 pm

Given where it is now, I'd wait until late October and just before the November 1st change and make an educated guess whether it'll go up or down from what happens in May. IMO. :D
"Nobody knows nothing"! Raymond

Spirit Rider
Posts: 8686
Joined: Fri Mar 02, 2007 2:39 pm

Re: Wait for I-bond?

Post by Spirit Rider » Thu Mar 26, 2015 9:51 pm

We are in a relatively unique situation with I Bonds.

Only once previously since Sep 1998 has there been a deflationary I Bond Inflation Rate. The Inflation Rate was -2.78%, 05/01/2009 - 10/31/2009.

The May I-Bond Inflation Rate will be based on the Sep-Mar period. The current Sep-Feb rate is -1.39%, driven mostly by the large recent decline in oil prices. It is almost certain that we will have the second deflationary I Bond Inflation Rate announced in about a month.

JDDS
Moderator
Posts: 959
Joined: Sun Mar 16, 2014 2:24 pm

Re: Wait for I-bond?

Post by JDDS » Thu Mar 26, 2015 9:57 pm

Spirit Rider beat me to it. I haven't decided if I'll buy any this year, but because of that I'll likely wait until the end of the year to decide. My money can make money elsewhere in the mean time.

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Wait for I-bond?

Post by Grt2bOutdoors » Fri Mar 27, 2015 8:56 am

I would buy now, if only because I don't expect the fixed rate to be positive, if it is it will be maybe 0.10 with a variable rate of zero. If you buy now, the fixed rate is zero, the variable rate is 1.48% or 0.74% annually. You can then choose whether you want to cash out in a year or keep it as is, in any event, the I bonds are not quite the steal they were ten years ago when fixed rates were much higher.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

JDDS
Moderator
Posts: 959
Joined: Sun Mar 16, 2014 2:24 pm

Re: Wait for I-bond?

Post by JDDS » Fri Mar 27, 2015 9:27 am

It is pretty reasonable to think that the composite rate for bonds issued now through October will be 0 for six months. So if one buys now, over the next 12 months the return would be 0.74%? Depending on the holding period and tax bracket, I could see the I bonds as being more valuable sooner. It's that whole power of zero thing though. I'd rather make more than 0 and possibly buy later in the year after the 6 months of 0 I'm reasonably sure are coming. The overall interest whichever route one takes is still small and really makes no difference.

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: Wait for I-bond?

Post by sawhorse » Fri Mar 27, 2015 9:45 am

Grt2bOutdoors wrote:I would buy now, if only because I don't expect the fixed rate to be positive, if it is it will be maybe 0.10 with a variable rate of zero. If you buy now, the fixed rate is zero, the variable rate is 1.48% or 0.74% annually. You can then choose whether you want to cash out in a year or keep it as is, in any event, the I bonds are not quite the steal they were ten years ago when fixed rates were much higher.
I thought the variable rate changes every 6 months depending on inflation, and everyone gets the current variable rate regardless of when they bought it?

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Wait for I-bond?

Post by Grt2bOutdoors » Fri Mar 27, 2015 9:55 am

sawhorse wrote:
Grt2bOutdoors wrote:I would buy now, if only because I don't expect the fixed rate to be positive, if it is it will be maybe 0.10 with a variable rate of zero. If you buy now, the fixed rate is zero, the variable rate is 1.48% or 0.74% annually. You can then choose whether you want to cash out in a year or keep it as is, in any event, the I bonds are not quite the steal they were ten years ago when fixed rates were much higher.
I thought the variable rate changes every 6 months depending on inflation, and everyone gets the current variable rate regardless of when they bought it?
No - if you purchase the I bond during the November to April time period, you earn for the next 6 months the rate announced. Someone who purchases an I bond with a March or April 2015 issue date will earn an annualized rate of 1.48% or 0.74% over the next 6 months. If you buy in March, you earn that rate through September, then you earn the rate that was announced in May for the next 6 months (October through March), then the cycle begins anew. Someone who bought in November 2014 will earn the newly announced variable rate come May 1st - we project this rate to be "zero percent", therefore the I bond which currently has a zero fixed rate will earn zero percent for the next 6 months. You don't know with certainty if a fixed rate will be offered in the May announcement or November announcement, it could be zero. So, if you want certainty of earning some positive rate, I would purchase before the May announcement. I can't see the fixed rate being offered at a 0.5% or higher amount, though my crystal ball is cloudy right now.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: Wait for I-bond?

Post by sawhorse » Fri Mar 27, 2015 10:03 am

Thanks for the explanation. So the rate is for six months regardless of whether the announced variable rate changes during those 6 months? If you buy in April, are you always 5 months behind in the rate changes, or is it only the first six months?

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Wait for I-bond?

Post by Grt2bOutdoors » Fri Mar 27, 2015 10:21 am

sawhorse wrote:Thanks for the explanation. So the rate is for six months regardless of whether the announced variable rate changes during those 6 months? If you buy in April, are you always 5 months behind in the rate changes, or is it only the first six months?
If you buy in April you will be 6 months behind the rate changes, it's always 6 months. April, May, June, July, August, September. Then you earn the new variable rate in October that was previously announced in May.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
LadyGeek
Site Admin
Posts: 48040
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: I Bonds - now or later in the year?

Post by LadyGeek » Fri Mar 27, 2015 4:22 pm

FYI - I merged wassabi's thread into here. I also fixed the spelling in the title "IBonds" to "I Bonds".

The wiki has some background info: I savings bonds

We seem to have these questions arise every 6 months as each May 1 and November approach.

If anyone finds any more "should I buy I Bonds now or wait" threads, please report them so I can move them into here.

This thread is now in the Investing - Theory, News & General forum (general question).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Clever_Username
Posts: 1046
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Wait for I-bond?

Post by Clever_Username » Fri Mar 27, 2015 5:04 pm

sawhorse wrote:I'm waiting for the new rates because it can't be any less than 0. At the same time, even if it is higher, it won't be meaningfully higher. The last few months have seen seen big drops in oil, so I wouldn't be surprised if the inflation component is actually negative even though the bond itself can never be negative.
Maybe I'm having reading comprehension issues today. Can the fixed rate ever be below 0%? That is, do I have to worry about May's I-Bonds being worse than today's (other than the inflation rate adjustment)?
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: Wait for I-bond?

Post by sawhorse » Fri Mar 27, 2015 6:03 pm

Clever_Username wrote: Maybe I'm having reading comprehension issues today. Can the fixed rate ever be below 0%? That is, do I have to worry about May's I-Bonds being worse than today's (other than the inflation rate adjustment)?
The fixed rate can never be below 0. (No one would buy them!) The inflation rate can be negative, but if the total fixed+inflation rate is negative, the Treasury bumps the total rate up to 0, so it will never be worse than stuffing it under your mattress.

pascalwager
Posts: 1216
Joined: Mon Oct 31, 2011 8:36 pm

Re: I Bonds - now or later in the year?

Post by pascalwager » Sat Mar 28, 2015 1:40 am

I buy on January 1st to minimize the 5-year maturity date.

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: I Bonds - now or later in the year?

Post by sawhorse » Sun Mar 29, 2015 2:32 pm

I've changed my mind and have decided to get them now. The penalty for withdrawing before 5 years is 3 months of interest. If the composite rate is 0 as some are predicting, then you don't lose anything because 3 months of interest equals 0.

So I'll get them now, get 1.48% for 6 months, and redeem them as soon as they are a year old with no actual penalty. By then hopefully the rate for new bonds will be higher.

People who bought when they first came out in 1998 got an incredible deal. Those bonds have actually outperformed the S&P 500 by roughly 10%.

User avatar
VictoriaF
Posts: 18559
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: I Bonds - now or later in the year?

Post by VictoriaF » Sun Mar 29, 2015 2:47 pm

A couple years ago, I purchases I Bonds in January to be done and over with it. Then, unexpectedly, the rate shoot up to the whooping 0.2%. I still can't forgive myself for the lack of patience. Since then, I resolved to wait until 1 November, if the fixed rate earlier in the year is 0.0%.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

User avatar
zaboomafoozarg
Posts: 1955
Joined: Sun Jun 12, 2011 12:34 pm

Re: I Bonds - now or later in the year?

Post by zaboomafoozarg » Sun Mar 29, 2015 5:51 pm

VictoriaF wrote:Then, unexpectedly, the rate shoot up to the whooping 0.2%. I still can't forgive myself for the lack of patience.
That's a steep price to pay for losing out on about $20 of interest per year :D

User avatar
VictoriaF
Posts: 18559
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: I Bonds - now or later in the year?

Post by VictoriaF » Sun Mar 29, 2015 8:17 pm

zaboomafoozarg wrote:
VictoriaF wrote:Then, unexpectedly, the rate shoot up to the whooping 0.2%. I still can't forgive myself for the lack of patience.
That's a steep price to pay for losing out on about $20 of interest per year :D
When I lose tens of thousands of dollars in a market decline, that's OK. That's what risk and uncertainty are all about. But with the I Bonds in 2013 there was no uncertainty: When the rate was 0% early in the year it could either remain the same or go up. There was no objective reason locking in 0%.

And then there is loss aversion. Losing $20 can only be compensated by finding $40 on the road. I have been walking roads since 2013 and still no $40 in sight.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

JDDS
Moderator
Posts: 959
Joined: Sun Mar 16, 2014 2:24 pm

Re: I Bonds - now or later in the year?

Post by JDDS » Sun Mar 29, 2015 8:36 pm

sawhorse wrote:I've changed my mind and have decided to get them now. The penalty for withdrawing before 5 years is 3 months of interest. If the composite rate is 0 as some are predicting, then you don't lose anything because 3 months of interest equals 0.

So I'll get them now, get 1.48% for 6 months, and redeem them as soon as they are a year old with no actual penalty. By then hopefully the rate for new bonds will be higher.

People who bought when they first came out in 1998 got an incredible deal. Those bonds have actually outperformed the S&P 500 by roughly 10%.
So why would you get them if you plan on redeaming after 12 months? It seems like the only advantage over taxable is no state tax. Since online savings accounts are at ~1%, it seems like they're both going to give a higher return and are more flexible.

feh
Posts: 1249
Joined: Sat Dec 15, 2012 11:39 am

Re: IBonds - now or later in the year?

Post by feh » Mon Mar 30, 2015 11:54 am

ZiziPB wrote:Thanks all, I buy IBonds for my portfolio as part of the fixed portion of the AA and I plan to keep them for at least 5 years. I don't use them for my emergency fund. If I wait till November, I would put the $10K into a savings account at 1% in the meantime.

ETA: an alternative to iBonds would be an Ally 2 year "raise your rate" CD currently at 1.29%. I don't have any CDs currently in the fixed income bucket.
I have a short term bucket comprised of I Bonds, CDs and short term bond funds. I haven't bought any CDs in over a year due to the low rates, but am considering the Ally 2 year CD.

I'm also holding off on I Bond purchases. It's looking like November this year...

RunningRad
Posts: 324
Joined: Wed May 21, 2014 2:06 pm

Re: IBonds - now or later in the year?

Post by RunningRad » Mon Mar 30, 2015 2:08 pm

J295 wrote:My suggestion is to purchase on a regular schedule and refrain from guessing on the "best time."
That's my approach.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

poker27
Posts: 728
Joined: Mon Apr 01, 2013 2:48 pm

Re: I Bonds - now or later in the year?

Post by poker27 » Mon Mar 30, 2015 2:34 pm

This is kind of off topic, however...

Over the past couple years I have moved the bulk of my EF to Ibonds (75%). I have never had to withdrawal anything. If I did need to withdrawal a portion that has been vested past the 12 month mark, are there any hoops to jump through? Or is it a pretty standard put in the request and I have the $ within a week?

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I Bonds - now or later in the year?

Post by Grt2bOutdoors » Mon Mar 30, 2015 2:36 pm

poker27 wrote:This is kind of off topic, however...

Over the past couple years I have moved the bulk of my EF to Ibonds (75%). I have never had to withdrawal anything. If I did need to withdrawal a portion that has been vested past the 12 month mark, are there any hoops to jump through? Or is it a pretty standard put in the request and I have the $ within a week?
You'll have the money in a day or two, no need to wait a week unless you are redeeming a paper bond at the local bank branch.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
#Cruncher
Posts: 2671
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: IBonds - now or later in the year?

Post by #Cruncher » Mon Mar 30, 2015 3:45 pm

z3r0c00l in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2425583#p2425583]this post[/url] wrote:I ... figured that with the expected 0 variable rate coming in May, I might as well hold out until then in hopes of a .1 or even .2 percent fixed. I mean won't they struggle to sell iBonds offering nothing?
Good point! It's likely the inflation rate to be announced May 1st will be negative. (See this post by Spirit Rider.) If the Treasury were to leave the fixed rate at 0%, there would be no good reason for anyone to buy an I Bond from May through October. A buyer would earn nothing for six months and after that still have an I Bond with only a 0% fixed rate. It would be better to let money sit in an FDIC insured savings account until November when the fixed rate will be at least 0% and the inflation rate will likely be positive. But if on May 1st the Treasury set the fixed rate at some small positive value, there would be a reason to buy even if the composite rate is still 0%. (The reason is that in November the fixed rate could come back down.)
Grt2bOutdoors in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2434705#p2434705]this post[/url] wrote:
sawhorse wrote:...If you buy in April, are you always 5 months behind in the rate changes ... ?
If you buy in April you will be 6 months behind the rate changes ...
Sawhorse is right. For an April I Bond the inflation rate announced May 1st will be applied October 1st and the inflation rate announced November 1st will be applied the following April 1st. This is a lag of five months. (See When does my bond change rates?.)
sawhorse in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2435341#p2435341]this post[/url] wrote:
Clever_Username wrote:... Can the fixed rate ever be below 0%? ...
The fixed rate can never be below 0. (No one would buy them!)
The Treasury has never set a negative fixed rate -- even when TIPS rates were deeply negative. (See What have the rates been in the past?.) I assume this is the Treasury's policy; but I can't find a reference stating so. (I'd appreciate someone providing a reference.) I can only find a statement that the composite rate won't be less than 0%. (See Combining the two rates.) And just as investors bought TIPS with a negative yield, some people would buy I Bonds with a negative fixed rate.

sawhorse
Posts: 3003
Joined: Sun Mar 01, 2015 7:05 pm

Re: I Bonds - now or later in the year?

Post by sawhorse » Mon Mar 30, 2015 3:52 pm

JDDS wrote:[
So why would you get them if you plan on redeaming after 12 months? It seems like the only advantage over taxable is no state tax. Since online savings accounts are at ~1%, it seems like they're both going to give a higher return and are more flexible.
You're right. I forgot that the I bond interest rate was APR, not the semi-annual rate :oops:

JDDS
Moderator
Posts: 959
Joined: Sun Mar 16, 2014 2:24 pm

Re: IBonds - now or later in the year?

Post by JDDS » Mon Mar 30, 2015 6:46 pm

#Cruncher wrote:
z3r0c00l in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2425583#p2425583]this post[/url] wrote:I ... figured that with the expected 0 variable rate coming in May, I might as well hold out until then in hopes of a .1 or even .2 percent fixed. I mean won't they struggle to sell iBonds offering nothing?
Good point! It's likely the inflation rate to be announced May 1st will be negative. (See this post by Spirit Rider.) If the Treasury were to leave the fixed rate at 0%, there would be no good reason for anyone to buy an I Bond from May through October. A buyer would earn nothing for six months and after that still have an I Bond with only a 0% fixed rate. It would be better to let money sit in an FDIC insured savings account until November when the fixed rate will be at least 0% and the inflation rate will likely be positive. But if on May 1st the Treasury set the fixed rate at some small positive value, there would be a reason to buy even if the composite rate is still 0%. (The reason is that in November the fixed rate could come back down.)
Yes, I figure they'll throw something out there to make us chew on. That's more reason to wait until October for me.

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: IBonds - now or later in the year?

Post by Grt2bOutdoors » Tue Mar 31, 2015 11:40 am

#Cruncher wrote:
Grt2bOutdoors in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2434705#p2434705]this post[/url] wrote:
sawhorse wrote:...If you buy in April, are you always 5 months behind in the rate changes ... ?
If you buy in April you will be 6 months behind the rate changes ...
Sawhorse is right. For an April I Bond the inflation rate announced May 1st will be applied October 1st and the inflation rate announced November 1st will be applied the following April 1st. This is a lag of five months. (See When does my bond change rates?.)

[quote="sawhorse in [url=viewtopic.php?p=2435341#p2435341]this post[/url.
If you buy in April, you earn the rate announced the previous November 1st for a period of 6 months (April through September). That is a full 6 months, unless one assumes you are purchasing on the very last day of April, then you are receiving the benefit of the whole month even though you are handing over the money at the very end of the month. As you state, the inflation rate announced May 1st will then be applied beginning October 1st for another 6 months until the end of March. Beginning in April, the rate announced in the previous November will then be applied.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
Clever_Username
Posts: 1046
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: I Bonds - now or later in the year?

Post by Clever_Username » Tue Apr 28, 2015 4:32 pm

Did we ultimately discover what the rates for I-Bonds purchased in May 2015 will be? Or is that information we won't know until May 1?
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

Spirit Rider
Posts: 8686
Joined: Fri Mar 02, 2007 2:39 pm

Re: I Bonds - now or later in the year?

Post by Spirit Rider » Tue Apr 28, 2015 6:02 pm

Clever_Username wrote:Did we ultimately discover what the rates for I-Bonds purchased in May 2015 will be? Or is that information we won't know until May 1?
There is no way to determine it ahead of time. The Treasury Department has to break out their Ouija board.

camaro327
Posts: 250
Joined: Fri Dec 21, 2012 11:04 am

Re: I Bonds - now or later in the year?

Post by camaro327 » Tue Apr 28, 2015 6:43 pm

0% composite. The Ouija board is still necessary to determine the fixed rate. So at midnight maybe someone can break out their board and see what it says.

ForeignInvestor
Posts: 16
Joined: Mon Mar 12, 2012 8:32 am
Location: India

Re: I Bonds - now or later in the year?

Post by ForeignInvestor » Fri May 01, 2015 9:38 am


User avatar
#Cruncher
Posts: 2671
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: I Bonds - now or later in the year?

Post by #Cruncher » Fri May 01, 2015 12:28 pm

For those interested, here are the composite rates that will take effect from May 2015 - October 2015 [ 1 ] and run for six months for all outstanding I Bonds, including newly issued ones with a 0.00% fixed rate. [ 2 ] They incorporate the new negative semi-annual inflation rate of -0.80%:

Code: Select all

  Fixed Rate Announced      Fixed   Composite
# Times   First    Last     Rate      Rate
-------  ------   ------    -----   ---------
   1     May 00             3.60%     1.97% [ 3 ]
   3     Sep 98   Nov 00    3.40%     1.77%
   2     Nov 98   May 99    3.30%     1.67%
   1     May 01             3.00%     1.38%
   2     Nov 01   May 02    2.00%     0.38%
   1     Nov 02             1.60%     0.00%
   2     May 06   Nov 06    1.40%     0.00%
   1     May 07             1.30%     0.00%

Code: Select all

   2     May 05   Nov 07    1.20%     0.00%
   2     May 03   Nov 03    1.10%     0.00%
   3     May 04   Nov 05    1.00%     0.00%
   1     Nov 08             0.70%     0.00%
   1     Nov 09             0.30%     0.00%
   2     May 10   Nov 13    0.20%     0.00%
   2     May 09   May 14    0.10%     0.00%
   9     May 08   May 15    0.00%     0.00%
As the table shows, all I Bonds with a fixed rate of 1.60% or less benefit from the 0% floor on the composite rate. Without this floor the composite rate would be negative and the nominal value of the I Bond would fall for six months. Because of the floor, the nominal value remains constant during the six months -- and the real value increases. These composite rates summarize the 515 column near the left side of the I Bond Composite Rates triangle. The source is TreasuryDirect's What have the rates been in the past?.
  1. New composite rates take effect every six months after the month an I Bond is purchased. For example, these composite rates will take effect May 2015 for an I Bond purchased in May or November; but won't take effect until October 2015 for an I Bond purchased in April or October. See When does my bond change rates?
  2. Click here for my post from six months ago with the previous composite rates.
  3. Composite rates are computed as follows:

    Code: Select all

    composite rate = fixed rate + ( 2 X inflation rate ) + ( fixed rate X inflation rate )
            0.0197 = 0.0360     + ( 2 X -0.0080        ) + ( 0.0360     X -0.0080        )
    But if the result of the computation is negative, the composite rate is set to 0.00%.

Post Reply