I-bond fixed rate = 0.3%
I-bond fixed rate = 0.3%
Hi folks -
The just-announced I Bond fixed rate is the highest in a whole, 0.3%. The annualized composite rate is 2.52%.
https://www.treasurydirect.gov/indiv/re ... dterms.htm
John
The just-announced I Bond fixed rate is the highest in a whole, 0.3%. The annualized composite rate is 2.52%.
https://www.treasurydirect.gov/indiv/re ... dterms.htm
John
Re: I-bond fixed rate = 0.3%
For those interested, here are the composite rates that will take effect from May 2018 to October 2018 [ 1 ] and run for six months for all outstanding I Bonds, including newly issued ones with a 0.30% fixed rate (see TreasuryDirect News Release). [ 2 ] They incorporate the new semi-annual inflation rate of 1.11%:
These composite rates summarize the 518 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?.
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Fixed Rate Announced Fixed Composite
# Times First Last Rate Rate
------- ------ ------ ----- ---------
1 May 00 3.60% 5.86% [ 3 ]
3 Sep 98 Nov 00 3.40% 5.66%
2 Nov 98 May 99 3.30% 5.56%
1 May 01 3.00% 5.25%
2 Nov 01 May 02 2.00% 4.24%
1 Nov 02 1.60% 3.84%
2 May 06 Nov 06 1.40% 3.64%
1 May 07 1.30% 3.53%
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2 May 05 Nov 07 1.20% 3.43%
2 May 03 Nov 03 1.10% 3.33%
3 May 04 Nov 05 1.00% 3.23%
1 Nov 08 0.70% 2.93%
2 Nov 09 May 18 0.30% 2.52% <-- New purchases
2 May 10 Nov 13 0.20% 2.42%
5 May 09 Nov 17 0.10% 2.32%
11 May 08 May 17 0.00% 2.22%
- New composite rates take effect every six months based on the month an I Bond is purchased. For an I Bond purchased in May or November, the composite rates above will take effect May 2018 and run through October 2018 . But for an I Bond purchased in April or October, they won't take effect until October 2018 and will run through March 2019. See When does my bond change rates?
- Click here for my post from six months ago with the previous composite rates.
- Composite rates are computed as follows:
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composite rate = fixed rate + ( 2 * inflation rate ) + ( fixed rate * inflation rate ) 0.0586 = 0.0360 + ( 2 * 0.0111 ) + ( 0.0360 * 0.0111 )
Re: I-bond fixed rate = 0.3%
When I log in as of today and see my i Bonds from 2012 and 2013 it shows a 2.48% interest rate. That would suggest a .26% fixed rate. Seems odd to me - shouldn't it be .2%?
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Re: I-bond fixed rate = 0.3%
Asking an ignorant question - if a person is holding old I-Bonds paying much less and they are past the period for incurring penalties, why would they continue to hold? why not cash them out and buy later ones with better return rates?
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Re: I-bond fixed rate = 0.3%
You are only permitted to purchase $10K per year. For someone seeking to build a larger portfolio, selling the old ones to buy new ones kind of defeats the purpose. Second reason, selling old bonds gives you a 1099 which you have to declare on your income tax returns, I bonds are tax deferred only when you don't cash them in.LuigiLikesPizza wrote: ↑Tue May 01, 2018 10:58 am Asking an ignorant question - if a person is holding old I-Bonds paying much less and they are past the period for incurring penalties, why would they continue to hold? why not cash them out and buy later ones with better return rates?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: I-bond fixed rate = 0.3%
Yes, exactly this comment. If I were unable to purchase the full $10k this year, I would consider redeeming some of my 0.0% fixed IBonds to purchase the new 0.3% ones, but since I can allocate $10K towards new ones without redeeming any, I'm doing that instead.Grt2bOutdoors wrote: ↑Tue May 01, 2018 11:04 amYou are only permitted to purchase $10K per year. For someone seeking to build a larger portfolio, selling the old ones to buy new ones kind of defeats the purpose. Second reason, selling old bonds gives you a 1099 which you have to declare on your income tax returns, I bonds are tax deferred only when you don't cash them in.LuigiLikesPizza wrote: ↑Tue May 01, 2018 10:58 am Asking an ignorant question - if a person is holding old I-Bonds paying much less and they are past the period for incurring penalties, why would they continue to hold? why not cash them out and buy later ones with better return rates?
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Re: I-bond fixed rate = 0.3%
I was not paying attention. Thank you for posting!AnonJohn wrote: ↑Tue May 01, 2018 10:20 am Hi folks -
The just-announced I Bond fixed rate is the highest in a whole, 0.3%. The annualized composite rate is 2.52%.
https://www.treasurydirect.gov/indiv/re ... dterms.htm
John
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New I bond fixed rate 0.3%
The I bond fixed rate is now 0.3%, making I bonds more attractive.
https://www.treasurydirect.gov/news/pre ... atespr.htm
https://www.treasurydirect.gov/news/pre ... atespr.htm
Re: I-bond fixed rate = 0.3%
^^^ I merged perl's post into here.
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Re: I-bond fixed rate = 0.3%
I'm waiting for the "do I buy now or wait until November?" threads to start rolling.
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Re: I-bond fixed rate = 0.3%
Do I buy now? It’s paying more than EE’s.
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Re: I-bond fixed rate = 0.3%
Those I Bonds with a current interest rate of 2.48% have a 0% fixed rate. That current interest rate is calculated using the semi-annual inflation adjustment set in Nov 2017, not the one set recently, in May 2018. Over the next few months, the future interest rate of those I Bonds will use the semi-annual inflation adjustment set in May 2018. At that time the interest rate of those I Bonds will be 2.22%.
Re: I-bond fixed rate = 0.3%
According to Bloomberg, 5 year TIPS have a yield of 0.72%. Why would I sign up for Ibonds at 0.3%. If I intend to hold longer, 30 year TIPS yield 0.94%. 5 year TIPS look pretty good to me, perhaps better than a 3% CD.
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Re: I-bond fixed rate = 0.3%
All those suckers who bought at 0.1% can hang their heads now.
Does the Treasury disclose how they determine fixed rate?
Does the Treasury disclose how they determine fixed rate?
Re: I-bond fixed rate = 0.3%
Would love to do a quick interview with the person or team who set this rate to determine what their goals are for the program and what they are seeking, such as a minimum annual quota of I-bonds sold. It seems totally arbitrary but then, why wouldn't they just keep it at zero? It also seems as if the program is just an afterthought and possibly ripe for retiring some day.whodidntante wrote: ↑Tue May 01, 2018 5:39 pm All those suckers who bought at 0.1% can hang their heads now.
Does the Treasury disclose how they determine fixed rate?
70% Global Stocks / 30% Bonds
Re: I-bond fixed rate = 0.3%
Re: I-bond fixed rate = 0.3%
Given interest rates are going up more than inflation at the moment seems to make sense to me fixed rate would go up.
I started to wonder if I should roll some over to the higher rates, but at $30 fixed additional interest per year per $10000 it hardly seems worth it, especially given realized taxable interest.
I started to wonder if I should roll some over to the higher rates, but at $30 fixed additional interest per year per $10000 it hardly seems worth it, especially given realized taxable interest.
Re: I-bond fixed rate = 0.3%
and also you can cash out at par at any time (after 1st year) and just lose 3 months of interest. with 5 year tips if you cash out early you might get less depending on the market value at that time (might be less if rates rise).Jebediah wrote: ↑Tue May 01, 2018 6:28 pmiBonds are tax-deferred.
https://www.bogleheads.org/wiki/I_Bonds_vs_TIPS
RIP Mr. Bogle.
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Re: I-bond fixed rate = 0.3%
z3r0c00l wrote: ↑Tue May 01, 2018 6:13 pmWhy?whodidntante wrote: ↑Tue May 01, 2018 5:39 pm All those suckers who bought at 0.1% can hang their heads now.
The ones I purchased at 0% or 0.1% will still keep up with inflation, which is the most important factor in protecting your retirement assets. An estra 0.2% on 10K ($20/year) is not going to make or break me. Had I not purchased then, I would have that much less inflation-protected assets. Remember the purchase limits.
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Re: I-bond fixed rate = 0.3%
The only place it makes sense to hold TIPS, because of the OID is in tax deferred accounts. Once you do that you lose the state tax benefit that the iBonds still retain.Jebediah wrote: ↑Tue May 01, 2018 6:28 pmiBonds are tax-deferred. https://www.bogleheads.org/wiki/I_Bonds_vs_TIPS
Re: I-bond fixed rate = 0.3%
I just want to say I am unreasonably excited about this HUGE jump to 0.3% fixed, and already scheduled my order (to purchase near the end of the month, of course).
Yes, I agonized over whether to buy in April or roll the dice. And now I own my highest fixed-rate iBonds. I know, small victories. OK, very small, like $20/year small, but psychologically it feels better than a free dinner.
(Yes, I know some smart and/or fortunate souls own 3%+ fixed-rate iBonds, I just tip my hat to them.)
I still like iBonds for the tax deferral, guaranteed principal, and low/no early redemption penalties after 1 year/5 years.
Yes, I agonized over whether to buy in April or roll the dice. And now I own my highest fixed-rate iBonds. I know, small victories. OK, very small, like $20/year small, but psychologically it feels better than a free dinner.
(Yes, I know some smart and/or fortunate souls own 3%+ fixed-rate iBonds, I just tip my hat to them.)
I still like iBonds for the tax deferral, guaranteed principal, and low/no early redemption penalties after 1 year/5 years.
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Re: I-bond fixed rate = 0.3%
Those were the days when we could buy 30k per SS# using a credit card.
And you can add tax shifting and tax-free use for qualifying educational expenses to your list.
I still like iBonds for the tax deferral, guaranteed principal, and low/no early redemption penalties after 1 year/5 years.
Best Regards - Mel |
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Re: I-bond fixed rate = 0.3%
Yes, but do remember how painful those days were. First, with a $500 limit/transaction and then later a $1000 limit/transaction. With the original "Savings Connection" being the slowest and most unstable shopping cart system/website that ever existed on the net.Mel Lindauer wrote: ↑Tue May 01, 2018 9:22 pmThose were the days when we could buy 30k per SS# using a credit card.
I remember trying day after day to get my multiple $400 transactions done before the end of the month. I had a thing about buying Chief Joseph $200 iBonds. It would crash on you and you wouldn't know if the transaction actually went through.
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Re: I-bond fixed rate = 0.3%
I’m gonna be RICH!
Re: I-bond fixed rate = 0.3%
Not sure about that. Those that bought at the beginning of the year earned 6 months of (additional) interest at slightly higher (composite) rates. Right now, they are ahead . Would need to do some math to show the break-even point.whodidntante wrote: ↑Tue May 01, 2018 5:39 pm All those suckers who bought at 0.1% can hang their heads now.
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Re: I-bond fixed rate = 0.3%
Flexibility on choosing when to sell (though no flexibility in the first year) without having to worry about losing principal. Also, potential for gains to be tax-free in a few cases (used for educational purposes if under income limits, for example). Full tax deferment in taxable, instead of having to pay taxes on inflation gains as you go, despite not realizing those gains until maturity with TIPS.
Re: I-bond fixed rate = 0.3%
To expand on sperry8's answer, the following table shows when the composite rate will change from 2.48% to 2.22% depending on the month the 0% fixed rate I Bonds were purchased:FactualFran wrote: ↑Tue May 01, 2018 5:14 pmThose I Bonds with a current interest rate of 2.48% have a 0% fixed rate. That current interest rate is calculated using the semi-annual inflation adjustment set in Nov 2017 [1.24%], not the one set recently, in May 2018 [1.11%]. Over the next few months, the future interest rate of those I Bonds will use the semi-annual inflation adjustment set in May 2018. At that time the interest rate of those I Bonds will be 2.22%.
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----------------- 2 0 1 8 ------------------ -- 2 0 1 9 ---
Purchased May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Jan / Jul 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22
Feb / Aug 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22
Mar / Sep 2.48 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22
Apr / Oct 2.48 2.48 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22
May / Nov 2.22 2.22 2.22 2.22 2.22 2.22
Jun / Dec 2.48 2.22 2.22 2.22 2.22 2.22 2.22
The tax deferral of I Bond interest is an advantage over TIPS held in a taxable account. But if the TIPS yield exceeds the I Bond fixed rate by enough and if the tax rate is the same, they will still have a higher return after taxes. The following table compares the after tax real return of 5, 7, 10, 20, and 30 year TIPS (with yields as shown here for 5/1/2018) against the after tax real return of I Bonds with a 0.3% fixed rate. It assumes a 24% tax rate on both the TIPS and the I Bond and inflation rates of 0%, 1%, 2%, 3%, and 4%. For example, with 2% inflation a 5-year TIPS will return 0.31% points more annually after taxes than the I Bond.
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TIPS ------ Annual CPI Increase ------
Years Yield 0% 1% 2% 3% 4%
----- ----- ----- ----- ----- ----- -----
5 0.73% 0.33% 0.32% 0.31% 0.29% 0.27%
7 0.80% 0.38% 0.37% 0.35% 0.32% 0.29%
10 0.81% 0.39% 0.37% 0.35% 0.31% 0.25%
20 0.89% 0.45% 0.42% 0.37% 0.29% 0.19%
30 0.94% 0.48% 0.45% 0.37% 0.26% 0.12%
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TIPS
3.7830% = (1 - 24%) * (1.0094 * 1.04 - 1) after tax growth rate
3,046.40 = 1000 * 1.037830 ^ 30 1,000 grows to in 30 years
939.26 = 3046.40 / 1.04 ^ 30 real value
(0.21%) = (939.26 / 1000) ^ (1 / 30) - 1 annual real return
I Bond
4.3120% = 1.003 * 1.04 - 1 pretax growth rate
3,548.36 = 1000 * 1.043120 ^ 30 1,000 grows to in 30 years
(611.61) = -24% * (3548.36 - 1000) tax at redemption
2,936.75 = 3548.36 - 611.61 after tax value
905.45 = 2936.75 / 1.04 ^ 30 real value
(0.33%) = (905.45 / 1000) ^ (1 / 30) - 1 annual real return
Re: I-bond fixed rate = 0.3%
Mel Lindauer wrote: ↑Tue May 01, 2018 9:22 pmThose were the days when we could buy 30k per SS# using a credit card.
Was just luck for me, buying $30k early 2001.
Get this: I paid via a credit card! (No transaction fee to me.) Got $300 in Geoffrey Dollars (parents might recall: the Toys R Us Visa card gave you 1% back on all purchases in Toys R Us credit via paper 'dollars.')
They put a stop to credit card purchases soon thereafter! I can't believe they ever allowed that.
Re: I-bond fixed rate = 0.3%
Was just luck for me, buying $30k early 2001. (Well I had been looking for tax deferred investment, and hearing about how high the fixed rate was, and that it wasn't likely to last - that it was a bit higher than expected to get them to catch on/get more to invest in them.)Mel Lindauer wrote: ↑Tue May 01, 2018 9:22 pmThose were the days when we could buy 30k per SS# using a credit card.
And you can add tax shifting and tax-free use for qualifying educational expenses to your list.
I still like iBonds for the tax deferral, guaranteed principal, and low/no early redemption penalties after 1 year/5 years.
I did pay via credit card! (No transaction fee - to me.) Got $300 in rewards applied to my credit card statement (1% back on all purchases.)
They put a stop to credit card purchases soon thereafter. I couldn't believe they ever allowed it.
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Re: I-bond fixed rate = 0.3%
Yes, but with 4 % annual inflation you would also presumably have higher interest rates. Think of the drop in principal if you wanted to cash in the TIPS prematurely. That defeats the purpose of inflation protection. 30 years is a very long time to keep your money sequestered away.The TIPS advantage diminishes with longer time periods and higher inflation. But even with 4% annual inflation over 30 years, a 0.94% TIPS would return 0.12% points more after tax than the 0.3% fixed rate I Bond.
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Re: I-bond fixed rate = 0.3%
You could by savings bonds with credit cards from Nov. 1999 until Dec. 2003. To expound on what I said; from November 1999 - April 2000, it was extremely painful
Re: I-bond fixed rate = 0.3%
Always helpful, thanks for your posts!#Cruncher wrote: ↑Wed May 02, 2018 10:28 amTo expand on sperry8's answer, the following table shows when the composite rate will change from 2.48% to 2.22% depending on the month the 0% fixed rate I Bonds were purchased:FactualFran wrote: ↑Tue May 01, 2018 5:14 pmThose I Bonds with a current interest rate of 2.48% have a 0% fixed rate. That current interest rate is calculated using the semi-annual inflation adjustment set in Nov 2017 [1.24%], not the one set recently, in May 2018 [1.11%]. Over the next few months, the future interest rate of those I Bonds will use the semi-annual inflation adjustment set in May 2018. At that time the interest rate of those I Bonds will be 2.22%.Code: Select all
----------------- 2 0 1 8 ------------------ -- 2 0 1 9 --- Purchased May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Jan / Jul 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22 Feb / Aug 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22 Mar / Sep 2.48 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22 Apr / Oct 2.48 2.48 2.48 2.48 2.48 2.22 2.22 2.22 2.22 2.22 2.22 May / Nov 2.22 2.22 2.22 2.22 2.22 2.22 Jun / Dec 2.48 2.22 2.22 2.22 2.22 2.22 2.22
The tax deferral of I Bond interest is an advantage over TIPS held in a taxable account. But if the TIPS yield exceeds the I Bond fixed rate by enough and if the tax rate is the same, they will still have a higher return after taxes. The following table compares the after tax real return of 5, 7, 10, 20, and 30 year TIPS (with yields as shown here for 5/1/2018) against the after tax real return of I Bonds with a 0.3% fixed rate. It assumes a 24% tax rate on both the TIPS and the I Bond and inflation rates of 0%, 1%, 2%, 3%, and 4%. For example, with 2% inflation a 5-year TIPS will return 0.31% points more annually after taxes than the I Bond.
The TIPS advantage diminishes with longer time periods and higher inflation. But even with 4% annual inflation over 30 years, a 0.94% TIPS would return 0.12% points more after tax than the 0.3% fixed rate I Bond. The figures below show that the after tax TIPS return is -0.21%; but the I Bond's is even worse at -0.33%.Code: Select all
TIPS ------ Annual CPI Increase ------ Years Yield 0% 1% 2% 3% 4% ----- ----- ----- ----- ----- ----- ----- 5 0.73% 0.33% 0.32% 0.31% 0.29% 0.27% 7 0.80% 0.38% 0.37% 0.35% 0.32% 0.29% 10 0.81% 0.39% 0.37% 0.35% 0.31% 0.25% 20 0.89% 0.45% 0.42% 0.37% 0.29% 0.19% 30 0.94% 0.48% 0.45% 0.37% 0.26% 0.12%
The comparison would be different if the tax rate when I Bonds are redeemed is less than the tax rate every year on the TIPS. See my post, Re: Anyone invest in I Bonds and why?, for an illustration when the TIPS are taxed at 24% but the I Bond is only taxed at 12%.Code: Select all
TIPS 3.7830% = (1 - 24%) * (1.0094 * 1.04 - 1) after tax growth rate 3,046.40 = 1000 * 1.037830 ^ 30 1,000 grows to in 30 years 939.26 = 3046.40 / 1.04 ^ 30 real value (0.21%) = (939.26 / 1000) ^ (1 / 30) - 1 annual real return I Bond 4.3120% = 1.003 * 1.04 - 1 pretax growth rate 3,548.36 = 1000 * 1.043120 ^ 30 1,000 grows to in 30 years (611.61) = -24% * (3548.36 - 1000) tax at redemption 2,936.75 = 3548.36 - 611.61 after tax value 905.45 = 2936.75 / 1.04 ^ 30 real value (0.33%) = (905.45 / 1000) ^ (1 / 30) - 1 annual real return
Re: I-bond fixed rate = 0.3%
Exactly. Also, if you have the flexibility, you could swap other bonds or even stocks for TIPS in an IRA, then offset that by buying the highest taxable-equivalent yield safe bonds or stocks in taxable.
I don't understand enough about TIPS to explain it, but maybe #Cruncher or another TIPS expert can, but I see TIPS yields ranging from 0.080% for one maturing 07/15/2019 to 0.591% for one maturing 04/15/2019 (I'm looking at shorter maturities for better comparison to I Bonds with minimal term risk (3-month penalty in first five years). I know the inflation factor is a component, and that shorter-maturity TIPS trade more like nominal bonds, but just eyeballing these things, the reason for the large difference in yields is not immediately apparent to me.
Code: Select all
912828JX9 UNITED STATES TREAS NTS TIPS 2.12500% 01/15/2019 2.125 01/15/2019 101.328 0.230 1.15989 117.529333
912828C99 UNITED STATES TREAS NTS 0.12500% 04/15/2019 TIPS 0.125 04/15/2019 99.559 0.591 1.06277 105.808318
912828LA6 UNITED STATES TREAS NTS 1.87500% 07/15/2019 TIPS 1.875 07/15/2019 102.156 0.080 1.16630 119.144542
912828MF4 UNITED STATES TREAS NTS TIPS 1.37500% 01/15/2020 1.375 01/15/2020 101.570 0.448 1.15159 116.966996
912828K33 UNITED STATES TREAS NTS 0.12500% 04/15/2020 TIPS 0.125 04/15/2020 99.093 0.593 1.06340 105.375496
912828NM8 UNITED STATES TREAS NTS 1.25000% 07/15/2020 TIPS 1.250 07/15/2020 102.000 0.337 1.14188 116.471760
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: I-bond fixed rate = 0.3%
Counterpoint. People often post about holding I Bonds long term, for example to defer tax until lower tax rates in retirement. I don't understand why one would do this if one has the flexibility to hold TIPS in an IRA instead, or perhaps even a 5-year TIPS in taxable.protagonist wrote: ↑Wed May 02, 2018 12:54 pmYes, but with 4 % annual inflation you would also presumably have higher interest rates. Think of the drop in principal if you wanted to cash in the TIPS prematurely. That defeats the purpose of inflation protection. 30 years is a very long time to keep your money sequestered away.The TIPS advantage diminishes with longer time periods and higher inflation. But even with 4% annual inflation over 30 years, a 0.94% TIPS would return 0.12% points more after tax than the 0.3% fixed rate I Bond.
A big benefit of I Bonds is little or no term risk, but this is only a benefit if you take advantage of higher real yields by selling the I Bonds to reinvest at the higher yield. Due to the annual purchase limit, you can't do this with I Bonds except for small quantities, and not at all if you want to do a new purchase of I Bonds with your annual allocation. Therefore, at some point you must consider swapping into TIPS if you want to take advantage of higher real yields.
How high does the 5-year TIPS yield have to be for you (or me) to do this? I'm asking myself that very seriously now, as last time 5-year TIPS yield was above 0.5%, I thought I should have done it. It's even higher now, but of course now the I Bond real yield also is higher, both by about 20 basis points assuming a 0.1% I bond and 0.5% TIPS.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: I-bond fixed rate = 0.3%
It is not either or. iBonds get you additional tax-deferred space.
Re: I-bond fixed rate = 0.3%
I started buying by credit card and maxing out annual purchases of I-Bonds in January 2000 through 2003, and have no memory of ever having problems purchasing them.Spirit Rider wrote: ↑Wed May 02, 2018 1:01 pm You could by savings bonds with credit cards from Nov. 1999 until Dec. 2003. To expound on what I said; from November 1999 - April 2000, it was extremely painful
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Re: I-bond fixed rate = 0.3%
DaftInvestor wrote: ↑Tue May 01, 2018 5:02 pm I'm waiting for the "do I buy now or wait until November?" threads to start rolling.
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Re: I-bond fixed rate = 0.3%
And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
Best Regards - Mel |
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Re: I-bond fixed rate = 0.3%
I should have also said "and folks reminiscing about back when the fixed rate was 3% and you could buy them with a credit card"Darth Xanadu wrote: ↑Wed May 02, 2018 2:59 pmDaftInvestor wrote: ↑Tue May 01, 2018 5:02 pm I'm waiting for the "do I buy now or wait until November?" threads to start rolling.
Re: I-bond fixed rate = 0.3%
No they don't. You can't use the "space" for anything else, so it's not space--it's just tax-deferred I Bonds. It would be tax-deferred space if I could sell the I Bonds and use the "space" to buy TIPS in the tax-deferred space, but I can't.Spirit Rider wrote: ↑Wed May 02, 2018 1:36 pm It is not either or. iBonds get you additional tax-deferred space.
I Bonds provide a good real return for little to no term risk, so if that fits your needs, that's great. But you're right, it's not either or. So hold I Bonds for shorter-term needs, or if you prefer guaranteed low real returns instead of taking the term risk to get higher guaranteed real returns with TIPS. Or perhaps if you value the guaranteed low real return (and if the tax deferral is valuable to you) more than a higher expected real return, but with more unexpected inflation risk.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: I-bond fixed rate = 0.3%
We've already been heard from!DaftInvestor wrote: ↑Wed May 02, 2018 4:31 pmI should have also said "and folks reminiscing about back when the fixed rate was 3% and you could buy them with a credit card"Darth Xanadu wrote: ↑Wed May 02, 2018 2:59 pmDaftInvestor wrote: ↑Tue May 01, 2018 5:02 pm I'm waiting for the "do I buy now or wait until November?" threads to start rolling.
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Re: I-bond fixed rate = 0.3%
But pretty much only if held 20 years and not too much longer than that, since they double in 20 years but earn 0.1% otherwise. So they would earn 0.1% per year for 19 years, 11 months, then go up by about 96% in value in one month, before going back to earning 0.1% per year.Mel Lindauer wrote: ↑Wed May 02, 2018 3:32 pm And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
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Re: I-bond fixed rate = 0.3%
That's the plan: start the annuity at 20 years and keep redeeming each year thereafter.jeffyscott wrote: ↑Wed May 02, 2018 5:03 pmBut pretty much only if held 20 years and not too much longer than that, since they double in 20 years but earn 0.1% otherwise. So they would earn 0.1% per year for 19 years, 11 months, then go up by about 96% in value in one month, before going back to earning 0.1% per year.Mel Lindauer wrote: ↑Wed May 02, 2018 3:32 pm And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
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Re: I-bond fixed rate = 0.3%
Sure, but if I did not misunderstand it, your article suggests doing it for 30 years. If held 30 years, I think it works out to about a 2.5% return.Mel Lindauer wrote: ↑Wed May 02, 2018 5:11 pmThat's the plan: start the annuity at 20 years and keep redeeming each year thereafter.jeffyscott wrote: ↑Wed May 02, 2018 5:03 pmBut pretty much only if held 20 years and not too much longer than that, since they double in 20 years but earn 0.1% otherwise. So they would earn 0.1% per year for 19 years, 11 months, then go up by about 96% in value in one month, before going back to earning 0.1% per year.Mel Lindauer wrote: ↑Wed May 02, 2018 3:32 pm And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
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Re: I-bond fixed rate = 0.3%
Thirty years is the max, but one can certainly choose 20 if that works best.jeffyscott wrote: ↑Wed May 02, 2018 5:19 pmSure, but if I did not misunderstand it, your article suggests doing it for 30 years. If held 30 years, I think it works out to about a 2.5% return.Mel Lindauer wrote: ↑Wed May 02, 2018 5:11 pmThat's the plan: start the annuity at 20 years and keep redeeming each year thereafter.jeffyscott wrote: ↑Wed May 02, 2018 5:03 pmBut pretty much only if held 20 years and not too much longer than that, since they double in 20 years but earn 0.1% otherwise. So they would earn 0.1% per year for 19 years, 11 months, then go up by about 96% in value in one month, before going back to earning 0.1% per year.Mel Lindauer wrote: ↑Wed May 02, 2018 3:32 pm And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
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Re: I-bond fixed rate = 0.3%
That all makes sense, Kevin.Kevin M wrote: ↑Wed May 02, 2018 1:23 pmCounterpoint. People often post about holding I Bonds long term, for example to defer tax until lower tax rates in retirement. I don't understand why one would do this if one has the flexibility to hold TIPS in an IRA instead, or perhaps even a 5-year TIPS in taxable.protagonist wrote: ↑Wed May 02, 2018 12:54 pmYes, but with 4 % annual inflation you would also presumably have higher interest rates. Think of the drop in principal if you wanted to cash in the TIPS prematurely. That defeats the purpose of inflation protection. 30 years is a very long time to keep your money sequestered away.The TIPS advantage diminishes with longer time periods and higher inflation. But even with 4% annual inflation over 30 years, a 0.94% TIPS would return 0.12% points more after tax than the 0.3% fixed rate I Bond.
A big benefit of I Bonds is little or no term risk, but this is only a benefit if you take advantage of higher real yields by selling the I Bonds to reinvest at the higher yield. Due to the annual purchase limit, you can't do this with I Bonds except for small quantities, and not at all if you want to do a new purchase of I Bonds with your annual allocation. Therefore, at some point you must consider swapping into TIPS if you want to take advantage of higher real yields.
How high does the 5-year TIPS yield have to be for you (or me) to do this? I'm asking myself that very seriously now, as last time 5-year TIPS yield was above 0.5%, I thought I should have done it. It's even higher now, but of course now the I Bond real yield also is higher, both by about 20 basis points assuming a 0.1% I bond and 0.5% TIPS.
Kevin
But the way I see it, the reason retirees invest in either I-bonds or TIPS is to avoid the spectre of inflation, especially in retirement. In theory, if you are sitting on a nest egg large enough to allow you to enjoy a healthy retirement, you no longer have to take risk, nor do you have to make more money. So you invest in inflation-protected vehicles, knowing that they will not make you richer- you are rich enough already for your needs- so you are willing to accept a low yield in return for peace of mind. In such a scenario the extra yield of the TIPS is unnecessary and the extra risk is also unnecessary- it could be detrimental. The result is essentially the same- a comfortable retirement. He who dies with the most toys does not necessarily win. For money you want to put at risk , there is always the stock market. If you want to minimize your risk you can adjust your AA accordingly.
And anywow, as you pointed out earlier in this thread, I-bonds are for taxable income and TIPS are predominantly for tax-advantaged income, so it is rare that one would have to choose between them.
Re: I-bond fixed rate = 0.3%
With the stock market (DOW, SP500), even bonds mutual funds keeps going down- I-bond looks really good !!!
Re: I-bond fixed rate = 0.3%
I have both I-bonds and EE-bonds, after 10 years, the I-bonds value seems to go up a lot faster than EE. Why people still buy EE ?jeffyscott wrote: ↑Wed May 02, 2018 5:03 pmBut pretty much only if held 20 years and not too much longer than that, since they double in 20 years but earn 0.1% otherwise. So they would earn 0.1% per year for 19 years, 11 months, then go up by about 96% in value in one month, before going back to earning 0.1% per year.Mel Lindauer wrote: ↑Wed May 02, 2018 3:32 pm And don't forget about EE Bonds. They can come in handy for building a retirement annuity.
Here's a Forbes column I did on that topic some time ago.
https://www.forbes.com/sites/theboglehe ... eb6cb97ba3
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Re: I-bond fixed rate = 0.3%
Agree that you should plan on holding EE Bonds for 20 years in order to get the guaranteed doubling. For shorter time frames, look elsewhere.The only time I bought some EE bonds was during a couple high income years, when we had maxed out all tax deferred accounts and bought 10K each I-bonds. It just happened to also be that during those years for us the .1-.2% yield was not much less than savings accounts or other short term options and the 3.5% for 20 years was far better than any other safe option.
Today the 20 year 3.5% seems to still be a pretty good deal, but the short term 0.1% is terrible.
Re: I-bond fixed rate = 0.3%
The biggest Advantage of Ibonds over TIPS is that they will never give you a negative nominal return. With TIPS you can lose money nominally. While everyone expects inflation to tick up, a recession can easily bring a deflationary scenario where you'll be glad to be holding Ibonds over TIPS.
As a side question, while I know the SEC yield for TIPS is reported as real yield. Can anyone tell me if the average annual returns reported by Vanguard below are nominal or real returns? Seemed obvious until it wasn't.
https://personal.vanguard.com/us/funds/ ... true#tab=1
As a side question, while I know the SEC yield for TIPS is reported as real yield. Can anyone tell me if the average annual returns reported by Vanguard below are nominal or real returns? Seemed obvious until it wasn't.
https://personal.vanguard.com/us/funds/ ... true#tab=1