I Bond fixed rate mystery

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dh
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I Bond fixed rate mystery

Post by dh » Wed Oct 11, 2017 3:34 pm

We are approaching that magical time of the year (Nov. 1) when the fixed rate for new I Bonds will be set. I have learned a great deal about I Bonds from many contributing members of this board (Mel, Victoria, Grok, ...). Thank you all! My only regret is I didn't buy more when the maximum was 36K (I think it was 36K) and the fixed rates were much higher than they are today!

One question that I have always had (and I don't believe there is an answer) is what indicator best suggests what the new fixed rate will be? Is it based on the feds interest rate changes? Five year treasury rates? Ten year? Again, I have a feeling that the setting of the fixed rate is one of the world's great mysterious (tongue firmly planted in cheek). However, I wanted to throw the question out to see if anyone has divined the solution to this mystery.

Gill
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Re: I Bond fixed rate mystery

Post by Gill » Wed Oct 11, 2017 3:39 pm

Maximum was $30K and you could charge them on a credit card.
Gill

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Rob5TCP
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Re: I Bond fixed rate mystery

Post by Rob5TCP » Wed Oct 11, 2017 4:09 pm

On the fixed rate; there have only been guesses (mostly not that accurate).
The last few years have all been zero or close to zero .1%; .2% and so on.

And since April 2011; it's been primarily 0%,
3 times it was a blistering .1% and once it was .20%.

They will probably keep it at .0%, with a small chance of going to .1%.
If the variable is good for the prior 6 month period, I would buy on that.
You can always redeem a year later should the fixed ever rise significantly.

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friar1610
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Re: I Bond fixed rate mystery

Post by friar1610 » Wed Oct 11, 2017 4:12 pm

Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Friar1610

cal91
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Re: I Bond fixed rate mystery

Post by cal91 » Wed Oct 11, 2017 4:14 pm

I'm rather uneducated about I bonds. Any good links to educate myself a bit? Thanks!

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flamesabers
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Re: I Bond fixed rate mystery

Post by flamesabers » Wed Oct 11, 2017 4:18 pm

OP,

I don't think there is much point on dwelling on what the new fixed rate will be next month. Even if the fixed rate suddenly increased by a significant amount in November, you can always purchase up to $10k more of I-Bonds at the higher rate during the first few months of 2018.
cal91 wrote:
Wed Oct 11, 2017 4:14 pm
I'm rather uneducated about I bonds. Any good links to educate myself a bit? Thanks!

Treasury Direct is an excellent site to learn more about I-Bonds. :D

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

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Ice-9
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Re: I Bond fixed rate mystery

Post by Ice-9 » Wed Oct 11, 2017 4:20 pm

friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Did the end of month trick change? It was my impression this was still the case. The few I've bought recently I always scheduled for the 28th of the month because of this.

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Rob5TCP
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Re: I Bond fixed rate mystery

Post by Rob5TCP » Wed Oct 11, 2017 4:22 pm

This was a great site - but after a number of years he stop updating the charts.
Still it has useful information collected over the years.

http://savings-bond-advisor.com/

http://savings-bond-advisor.com/series- ... ase-rates/

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friar1610
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Re: I Bond fixed rate mystery

Post by friar1610 » Wed Oct 11, 2017 4:53 pm

Ice-9 wrote:
Wed Oct 11, 2017 4:20 pm
friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Did the end of month trick change? It was my impression this was still the case. The few I've bought recently I always scheduled for the 28th of the month because of this.
Now that you mention it, I may just have the impression it did when they made the other changes. I haven't bought any for a very long time so perhaps I am putting out misleading information.
Friar1610

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samsoes
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Re: I Bond fixed rate mystery

Post by samsoes » Wed Oct 11, 2017 5:11 pm

Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill

As someone on a TV show used to sing, "...those were the days!..." :mrgreen:

(Then came buying dollar coins with a credit card and they were shipped free, but that's a topic for another thread.)
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

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Mel Lindauer
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Re: I Bond fixed rate mystery

Post by Mel Lindauer » Wed Oct 11, 2017 5:55 pm

friar1610 wrote:
Wed Oct 11, 2017 4:53 pm
Ice-9 wrote:
Wed Oct 11, 2017 4:20 pm
friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Did the end of month trick change? It was my impression this was still the case. The few I've bought recently I always scheduled for the 28th of the month because of this.
Now that you mention it, I may just have the impression it did when they made the other changes. I haven't bought any for a very long time so perhaps I am putting out misleading information.
Paper I Bonds were issued by MONTH, regardless of the day of that month that you purchased them. Therefore, anyone owning them by the end of that month earned a full month's worth of interest. I'm not aware of any change to that.
Best Regards - Mel | | Semper Fi

Gill
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Re: I Bond fixed rate mystery

Post by Gill » Wed Oct 11, 2017 6:01 pm

friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Still do.
Gill

z3r0c00l
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Re: I Bond fixed rate mystery

Post by z3r0c00l » Wed Oct 11, 2017 6:38 pm

Would be interesting to find out specifically who sets this rate and interview them. Barring that, their rates seem arbitrary from the outside and generally on the downward trend. It wouldn't be shocking to see the fixed rate removed entirely some day or to see the entire program discontinued. I don't think any of these bonds are significant on the scale of government debt. Does anyone know the total amount of iBonds currently owned?

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Phineas J. Whoopee
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Re: I Bond fixed rate mystery

Post by Phineas J. Whoopee » Wed Oct 11, 2017 9:11 pm

Unlike the yields on marketable bonds, the I Bond fixed rate for new purchases is set every six months by the US Treasury under the power delegated by Congress to the secretary, who I should think delegates it further. For a time there was a correlation (which does not imply causation) between it and the real rate on 10-year TIPS, but later there wasn't.

Fortunately for us, the Treasury tells us what the fixed rate is. We can choose to accept it or not. Nobody is forced to buy I Bonds.

PJW

DavidC
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Re: I Bond fixed rate mystery

Post by DavidC » Wed Oct 11, 2017 9:59 pm

z3r0c00l wrote:
Wed Oct 11, 2017 6:38 pm
I don't think any of these bonds are significant on the scale of government debt. Does anyone know the total amount of iBonds currently owned?
Assuming I am reading the full September 2017 Monthly Statement of the Public Debt correctly, I'm showing ~$45 billion in Series I savings bonds (which is what, ~0.31% of the ~$14 trillion debt held by the public?).

It may also be useful to compare to previous years to get a rough feel of whether more or less savings bonds are being held:

Code: Select all

                | Series EE          | Series I          | Percent of Public Debt Outstanding (Series EE + I)
September 2012  | $ 116.209 billion  | $ 44.459 billion  | ~1.43%
September 2013  | $ 112.165 billion  | $ 45.328 billion  | ~1.32%
September 2014  | $ 108.775 billion  | $ 45.761 billion  | ~1.21%
September 2015  | $ 104.266 billion  | $ 45.672 billion  | ~1.14%
September 2016  | $  96.734 billion  | $ 45.158 billion  | ~1.00%
September 2017  | $  89.021 billion  | $ 45.104 billion  | ~0.91%
So Series EE holdings are definitely going down, but that's probably due to older bonds maturing while newer bonds aren't attractive unless you want to hold them for exactly 20 years. Series I bonds seem to have the same amount of debt outstanding in nominal dollars, which means they're losing ground as a % of the total debt since the total debt is increasing.

Full disclosure: I continue to buy Series I savings bonds every year, but haven't bought any Series EE savings bonds since May 2011.
In true boglehead fashion my chief concern is saving enough to withstand 7 consecutive biblical plagues. - TheNightsToCome

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friar1610
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Re: I Bond fixed rate mystery

Post by friar1610 » Wed Oct 11, 2017 10:12 pm

Gill wrote:
Wed Oct 11, 2017 6:01 pm
friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
Still do.
Gill
I stand corrected. Thanks.
Friar1610

z3r0c00l
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Re: I Bond fixed rate mystery

Post by z3r0c00l » Wed Oct 11, 2017 10:13 pm

Most helpful, thanks! I also love I-Bonds and continue to purchase the max every year in November, got on that cycle after fixed rate first hit zero and figured I might as well wait a bit to see if it goes up. There must be a person or a few people in a room somewhere figuring out the fixed rate, but I would love to know on what basis they decide. I can't imagine what would motivate them to go above zero any time soon unless they have some kind of mandate to sell a certain amount each year and are forced to dial the number up to reach that quota.

anoop
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Re: I Bond fixed rate mystery

Post by anoop » Wed Oct 11, 2017 10:31 pm

If there was any science to it, tipswatch.com would have covered it.
https://tipswatch.com/tracking-inflation-and-i-bonds/
There does not appear to be.

Previously I used to buy in May and November. Now, if the interest rate is positive in May I buy everything then. If zero, then I wait till November and buy regardless of whether it is positive or zero.

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Sheepdog
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Re: I Bond fixed rate mystery

Post by Sheepdog » Wed Oct 11, 2017 10:39 pm

friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
AND, to show the power of compounding. $10,000 worth of $500 I bonds (3.6% fixed component) purchased in June 2000 are worth $27,144 today. :moneybag
People should not say everything they think. They should think about everything they say.

smectym
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Re: I Bond fixed rate mystery

Post by smectym » Wed Oct 11, 2017 10:44 pm

I loaded up up on both I and EE in the 5 years before Treasury cut back the program. Because of low nominal (as opposed to actual) inflation, rates on the I bonds haven’t been all that great, though competitive; but on the other hand: no principal fluctuation, no negative interest rate risk, federal tax deferral and state tax immunity all make me glad I bought the things. For what used to be called the “safety corner of the portfolio,” tough to beat. However, not currently buying more

dh
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Re: I Bond fixed rate mystery

Post by dh » Wed Oct 11, 2017 10:50 pm

anoop wrote:
Wed Oct 11, 2017 10:31 pm
If there was any science to it, tipswatch.com would have covered it.
https://tipswatch.com/tracking-inflation-and-i-bonds/
There does not appear to be.

Previously I used to buy in May and November. Now, if the interest rate is positive in May I buy everything then. If zero, then I wait till November and buy regardless of whether it is positive or zero.
Thanks. I was thinking there was no science behind it, yet appreciate yours and everyone's response. The Tipswatch site is terrific.

I follow the same May/November strategy that you do.

Spirit Rider
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Re: I Bond fixed rate mystery

Post by Spirit Rider » Wed Oct 11, 2017 11:10 pm

z3r0c00l wrote:
Wed Oct 11, 2017 6:38 pm
Barring that, their rates seem arbitrary from the outside and generally on the downward trend.
The fixed rate has varied between 0.0% and 0.20% over the last five years. No downward trend there.
Does anyone know the total amount of iBonds currently owned?
As of the MONTHLY STATEMENT OF THE PUBLIC DEBT 9/30/17, $45.093 Billion

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Re: I Bond fixed rate mystery

Post by Grt2bOutdoors » Thu Oct 12, 2017 7:44 am

Sheepdog wrote:
Wed Oct 11, 2017 10:39 pm
friar1610 wrote:
Wed Oct 11, 2017 4:12 pm
Gill wrote:
Wed Oct 11, 2017 3:39 pm
Maximum was $30K and you could charge them on a credit card.
Gill
AND, if you bought them at the end of the month you got interest for the entire month.
AND, to show the power of compounding. $10,000 worth of $500 I bonds (3.6% fixed component) purchased in June 2000 are worth $27,144 today. :moneybag
And in 3 more years, $10K of EE bonds will be worth $20K. However, it's likely that I bonds purchased in the last five years will not double in value after 20 years, Fed is signaling 2% inflation, nominals (EE) will yield 3.53% after 20 years - will be interesting to see in 15 years which bond wins.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

z3r0c00l
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Re: I Bond fixed rate mystery

Post by z3r0c00l » Thu Oct 12, 2017 7:59 am

Spirit Rider wrote:
Wed Oct 11, 2017 11:10 pm
z3r0c00l wrote:
Wed Oct 11, 2017 6:38 pm
Barring that, their rates seem arbitrary from the outside and generally on the downward trend.
The fixed rate has varied between 0.0% and 0.20% over the last five years. No downward trend there.
What about 20 years?
And in 3 more years, $10K of EE bonds will be worth $20K. However, it's likely that I bonds purchased in the last five years will not double in value after 20 years, Fed is signaling 2% inflation, nominals (EE) will yield 3.53% after 20 years - will be interesting to see in 15 years which bond wins.
Doesn't much matter what the Fed is signaling, no one knows what inflation will do in 5, 10, 15, or 20 years. That is the benefit of I bonds, beyond the fact that they are also liquid with minimal or no penalty after 1 year. EE bonds gain you near nothing if you want the money in under 20 years. And let's not forget that doubling in 20 years, while attractive, is before inflation. If you average just over 3% inflation in that time, totally reasonable, EE bonds and I bonds are equal except the EE bonds have locked your money up for decades.

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Re: I Bond fixed rate mystery

Post by Grt2bOutdoors » Thu Oct 12, 2017 9:10 am

z3r0c00l wrote:
Thu Oct 12, 2017 7:59 am


Doesn't much matter what the Fed is signaling, no one knows what inflation will do in 5, 10, 15, or 20 years. That is the benefit of I bonds, beyond the fact that they are also liquid with minimal or no penalty after 1 year. EE bonds gain you near nothing if you want the money in under 20 years. And let's not forget that doubling in 20 years, while attractive, is before inflation. If you average just over 3% inflation in that time, totally reasonable, EE bonds and I bonds are equal except the EE bonds have locked your money up for decades.
If you're saving for retirement, the point of having your money locked up for decades is moot. One should not think of retirement savings as being readily accessible, it's for retirement far into the future, not immediate or intermediate (<20 years) consumption. Totally reasonable to assume just over 3% inflation? - ask the Japanese how well assumptions work out..... In life, diversifying is the only free lunch, don't base your life on assumptions, you may be in for an unpleasant surprise.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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