Series I Savings Bonds Buying Opportunity

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Thesaints
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Series I Savings Bonds Buying Opportunity

Post by Thesaints » Thu Mar 21, 2019 6:01 pm

With 5-year TIPS below 0.50% and 10-year barely above, the current issue of Series I Savings Bonds at 0.50% looks like a good buy for those with an interest in indexed bonds.

On April 10 the inflation rate for the next six months will be known. Does not look too exciting and might very well end up being barely above zero, but buying the bonds before May 1st, when the fixed rate resets (surely at a lower value) comes with the first six months at 2.83%.
If we assume zero inflation rate calculated on April 10th (it is 0.26% as we speak), the first year of ownership would still net 1.66% state tax free, with one month of interest free. Following that, one is left with this 0.50% fixed rate, which makes Savings Bonds look a superior buy to TIPS, with zero volatility, tax deferral, and all.

We will be maxing out our 20k yearly allowance come April 30th. Wish I had filed Form 8888 for another 5k, alas it is too late.

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Cosmo
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Re: Series I Savings Bonds Buying Opportunity

Post by Cosmo » Thu Mar 21, 2019 6:09 pm

Thesaints wrote:
Thu Mar 21, 2019 6:01 pm
With 5-year TIPS below 0.50% and 10-year barely above, the current issue of Series I Savings Bonds at 0.50% looks like a good buy for those with an interest in indexed bonds.

On April 10 the inflation rate for the next six months will be known. Does not look too exciting and might very well end up being barely above zero, but buying the bonds before May 1st, when the fixed rate resets (surely at a lower value) comes with the first six months at 2.83%.
If we assume zero inflation rate calculated on April 10th (it is 0.26% as we speak), the first year of ownership would still net 1.66% state tax free, with one month of interest free. Following that, one is left with this 0.50% fixed rate, which makes Savings Bonds look a superior buy to TIPS, with zero volatility, tax deferral, and all.

We will be maxing out our 20k yearly allowance come April 30th. Wish I had filed Form 8888 for another 5k, alas it is too late.

The fixed rate may go higher.
The fixed rate may go lower.
The fixed rate may stay the same.

We just don't know. For me I Bonds are a buying opportunity every year come January 1.

Cosmo

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Thesaints
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Re: Series I Savings Bonds Buying Opportunity

Post by Thesaints » Thu Mar 21, 2019 6:14 pm

Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
The fixed rate may go higher.
The fixed rate may go lower.
The fixed rate may stay the same.

We just don't know. For me I Bonds are a buying opportunity every year come January 1.
Cosmo
I'd be very willing to give you a 2:1 on a bet.
Also, buying on Jan 1 is wrong on at least two accounts.

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Cosmo
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Re: Series I Savings Bonds Buying Opportunity

Post by Cosmo » Thu Mar 21, 2019 6:17 pm

Thesaints wrote:
Thu Mar 21, 2019 6:14 pm
Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
The fixed rate may go higher.
The fixed rate may go lower.
The fixed rate may stay the same.

We just don't know.
Cosmo
I'd be very willing to give you a 2:1 on a bet.
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo

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Re: Series I Savings Bonds Buying Opportunity

Post by Ice-9 » Thu Mar 21, 2019 6:18 pm

I was actually thinking similar to the OP that I might buy a little bit before May.

I buy regularly at the end of every May and November, adjusting the purchase amount according to the new fixed rate. I also assess how the 5-month old I-Bond rate compares with current 1-yr CDs every April and October during the 2-wk period such comparisons can be made, with the guidance of some who post when the data comes out like Tipswatch and MyMoneyBlog, and I often decide to throw a little bit in at that time as well. I'm thinking I may make this April's purchase slightly bigger than usual.

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Thesaints
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Re: Series I Savings Bonds Buying Opportunity

Post by Thesaints » Thu Mar 21, 2019 6:20 pm

Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.

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Re: Series I Savings Bonds Buying Opportunity

Post by z3r0c00l » Thu Mar 21, 2019 6:37 pm

Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
I was going to wait until May to buy for this year, but this has given me pause. Has anyone charted the spread between I bond fixed and 10 year TIPS? Is there is varying relationship or is it basically constant? Too bad they are never transparent about this fixed rate.

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Re: Series I Savings Bonds Buying Opportunity

Post by Thesaints » Thu Mar 21, 2019 6:54 pm

z3r0c00l wrote:
Thu Mar 21, 2019 6:37 pm
Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
I was going to wait until May to buy for this year, but this has given me pause. Has anyone charted the spread between I bond fixed and 10 year TIPS? Is there is varying relationship or is it basically constant? Too bad they are never transparent about this fixed rate.
It has been charted in the past, but not since 2013.
http://savings-bond-advisor.com/series- ... ase-rates/
It is not a constant spread: fixed rates on TIPS have been negative for a while and fixed rates on Savings Bonds cannot go below zero. Yet, whenever TIPS rates have been above zero, savings bonds rates have been lower. That has been always true for the 10-year rate and almost always true for the 5-year rate, with exceptions again only coming with rates near zero.

Absolutely don't wait until May. Not only you will almost certainly miss the 0.50% fixed rate, but you will also miss the first six months at 2.83% and another sure thing is that the next six months will be below 1%.

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Re: Series I Savings Bonds Buying Opportunity

Post by indexfundfan » Thu Mar 21, 2019 8:17 pm

Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
In this case, it certainly looks like the fixed rate will go lower in May. I would probably buy in April.

Of course it could go higher in Nov...
My signature has been deleted.

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Re: Series I Savings Bonds Buying Opportunity

Post by Angst » Fri Mar 22, 2019 4:24 am

Thesaints wrote:
Thu Mar 21, 2019 6:54 pm
Absolutely don't wait until May. Not only you will almost certainly miss the 0.50% fixed rate, but you will also miss the first six months at 2.83% and another sure thing is that the next six months will be below 1%.
I agree, and I'll be very surprised (stunned actually) if the fixed rate goes up. I'll be mildly surprised if it doesn't go down to .4 or .3% but I don't expect much lower. I imagine that Treasury would prefer these I Bond fixed rate changes be viewed as reflecting more about recent interest rates history (yield curve over the last 6 to 12 months) than expectations for the future.

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Re: Series I Savings Bonds Buying Opportunity

Post by ivk5 » Fri Mar 22, 2019 5:42 am

indexfundfan wrote:
Thu Mar 21, 2019 8:17 pm
Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
In this case, it certainly looks like the fixed rate will go lower in May. I would probably buy in April.

Of course it could go higher in Nov...
I agree here with OP and I will buy my annual max in late April barring dramatic changes in the interim.

If fixed rate goes higher in Nov, I still have the option of buying at that rate too, next April. But with the additional info (hunch) about the likely direction of the May 2020 fixed rate based on TIPS yield trend, to make a more informed decision.

I’m relatively new to I Bonds but atm I can’t imagine why I would buy more than once per year or at any time other than late Apr or Oct (expecting fixed rate drop), or late December (after waiting out two cycles of expecting fixed rate flat/rising).

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Re: Series I Savings Bonds Buying Opportunity

Post by z3r0c00l » Fri Mar 22, 2019 8:18 am

Thesaints wrote:
Thu Mar 21, 2019 6:54 pm
z3r0c00l wrote:
Thu Mar 21, 2019 6:37 pm
Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
I was going to wait until May to buy for this year, but this has given me pause. Has anyone charted the spread between I bond fixed and 10 year TIPS? Is there is varying relationship or is it basically constant? Too bad they are never transparent about this fixed rate.
It has been charted in the past, but not since 2013.
http://savings-bond-advisor.com/series- ... ase-rates/
It is not a constant spread: fixed rates on TIPS have been negative for a while and fixed rates on Savings Bonds cannot go below zero. Yet, whenever TIPS rates have been above zero, savings bonds rates have been lower. That has been always true for the 10-year rate and almost always true for the 5-year rate, with exceptions again only coming with rates near zero.

Absolutely don't wait until May. Not only you will almost certainly miss the 0.50% fixed rate, but you will also miss the first six months at 2.83% and another sure thing is that the next six months will be below 1%.
I may not have enough free cash! :shock: Rebalanced taxable recently.

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Re: Series I Savings Bonds Buying Opportunity

Post by majiaknight » Fri Mar 22, 2019 6:04 pm

Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
For me I Bonds are a buying opportunity every year come January 1.
+1 January 1 31 is always better. :happy

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Re: Series I Savings Bonds Buying Opportunity

Post by Mel Lindauer » Fri Mar 22, 2019 7:05 pm

majiaknight wrote:
Fri Mar 22, 2019 6:04 pm
Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
For me I Bonds are a buying opportunity every year come January 1.
+1 January 1 31 is always better. :happy
As long as you buy the I Bonds by the last business day of the month, you'll earn the full month's interest, so plan your purchase accordingly.
Best Regards - Mel | | Semper Fi

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Re: Series I Savings Bonds Buying Opportunity

Post by Darth Xanadu » Fri Mar 22, 2019 9:47 pm

ivk5 wrote:
Fri Mar 22, 2019 5:42 am
I agree here with OP and I will buy my annual max in late April barring dramatic changes in the interim.

If fixed rate goes higher in Nov, I still have the option of buying at that rate too, next April. But with the additional info (hunch) about the likely direction of the May 2020 fixed rate based on TIPS yield trend, to make a more informed decision.

I’m relatively new to I Bonds but atm I can’t imagine why I would buy more than once per year or at any time other than late Apr or Oct (expecting fixed rate drop), or late December (after waiting out two cycles of expecting fixed rate flat/rising).
You've written almost exactly what I was going to post. This describes my thinking and my plan precisely, on all points.
"A courageous teacher, failure is."

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Re: Series I Savings Bonds Buying Opportunity

Post by aida2003 » Sun Mar 24, 2019 2:25 pm

Just for my curiosity:
Why to buy iBonds at 2.83% when you can get 5, 6, or 7 year CD's at higher than 3.10%?
Who generally buys iBonds? For what purpose and for how long?
Would it be people who have maxed 401k, HSA, Roth IRA, and have more than enough in their taxable accounts?
Aren't there better alternatives than this very low interest rate despite it being tax-free until withdrawn?

I'm trying to understand what I might be missing and perhaps even buy a little bit myself before May 1.

We have a small chunk of $ in iBonds ourselves. Initially we thought it would be for the college education if our AGI is low enough to use them tax free, but I am not sure it's going to work (due to the AGI). Recently I read somewhere that supposedly there is a turnaround method to use iBonds tax-free regardless of the AGI, but would need to research if our NC 529 plan allows it and how that works. Supposedly you can move some of iBonds to 529 plan and then use that $ towards college education.

Thank you.

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Re: Series I Savings Bonds Buying Opportunity

Post by ej0160 » Sun Mar 24, 2019 6:05 pm

aida2003 wrote:
Sun Mar 24, 2019 2:25 pm
Just for my curiosity:
Why to buy iBonds at 2.83% when you can get 5, 6, or 7 year CD's at higher than 3.10%?
Who generally buys iBonds? For what purpose and for how long?
Would it be people who have maxed 401k, HSA, Roth IRA, and have more than enough in their taxable accounts?
Aren't there better alternatives than this very low interest rate despite it being tax-free until withdrawn?

I'm trying to understand what I might be missing and perhaps even buy a little bit myself before May 1.

We have a small chunk of $ in iBonds ourselves. Initially we thought it would be for the college education if our AGI is low enough to use them tax free, but I am not sure it's going to work (due to the AGI). Recently I read somewhere that supposedly there is a turnaround method to use iBonds tax-free regardless of the AGI, but would need to research if our NC 529 plan allows it and how that works. Supposedly you can move some of iBonds to 529 plan and then use that $ towards college education.

Thank you.
Several situations for I-Bonds vs CDs:
  1. Like other treasuries I-Bonds are state tax exempt. Depending upon state, this closes the gap between current I-Bond rates and CD interest rates.
  2. Already issued I-Bonds are periodically adjusted for inflation. This takes risk when hold for long duration. If inflation goes up to 3-4%, a 3.1% CD won’t be worth much. Conversely if inflation does down to 0-1%, the 3.1% CD will be better than current I-Bond rates.
  3. Due to safety, I-Bonds are a good place to park savings either for emergencies or for early retirement before you can utilize retirement accounts. Assumption is you need to leave it for at least 1 year. Between 1 and 5 years you can redeem with 3 month interest penalty, and no penalty after 5 years up to 30 years. By laddering CDs you can mimic this pattern, but obviously the initial shorter duration on the CD ladder will be below current I-Bond rates.
  4. As you have noted, by default interest is taxed when redeemed. Since they can be held up to 30 years, this may allow for paying taxes on interest when you are a lower tax bracket.

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Re: Series I Savings Bonds Buying Opportunity

Post by AndroAsc » Sun Mar 24, 2019 11:37 pm

To confirm, the get 0.5% fixed rate, we need to buy before end Apr?

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Re: Series I Savings Bonds Buying Opportunity

Post by ej0160 » Mon Mar 25, 2019 4:07 am

AndroAsc wrote:
Sun Mar 24, 2019 11:37 pm
To confirm, the get 0.5% fixed rate, we need to buy before end Apr?
Correct. Staring May 1, the 0.5% fixed rate may change. For future reference, use Treasury Direct's web site in case if they change their May / November schedule.

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Re: Series I Savings Bonds Buying Opportunity

Post by majiaknight » Mon Mar 25, 2019 3:17 pm

aida2003 wrote:
Sun Mar 24, 2019 2:25 pm
Just for my curiosity:
Why to buy iBonds at 2.83% when you can get 5, 6, or 7 year CD's at higher than 3.10%?
Who generally buys iBonds? For what purpose and for how long?
Would it be people who have maxed 401k, HSA, Roth IRA, and have more than enough in their taxable accounts?
Aren't there better alternatives than this very low interest rate despite it being tax-free until withdrawn?
1. iBond is exempt from state tax and offers tax-deferral for up to 30 years.
If I use the Fidelity Taxable-Equivalent Yields cal below w/ my tax situation, the 3.10% CD is equivalent to 2.79% treasury/iBond.
Fixed Income: Taxable-Equivalent Yields for Individual Bonds
https://gpi.fidelity.com/ftgw/interfaces/tey/
2. I use iBond as the 2nd tier of core emergency fund after high-yield online savings.
3. I prioritize funding 401K, HSA, Roth IRA over iBond.
4. I also bought EE Savings (3.5% APR if held for 20 years) as part of the retirement bond portfolio.
https://www.forbes.com/sites/theboglehe ... be4d444a91

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Re: Series I Savings Bonds Buying Opportunity

Post by Darth Xanadu » Tue Mar 26, 2019 10:43 am

Ice-9 wrote:
Thu Mar 21, 2019 6:18 pm
I was actually thinking similar to the OP that I might buy a little bit before May.

I buy regularly at the end of every May and November, adjusting the purchase amount according to the new fixed rate. I also assess how the 5-month old I-Bond rate compares with current 1-yr CDs every April and October during the 2-wk period such comparisons can be made, with the guidance of some who post when the data comes out like Tipswatch and MyMoneyBlog, and I often decide to throw a little bit in at that time as well. I'm thinking I may make this April's purchase slightly bigger than usual.
Tipswatch latest post strongly advocating I-Bond purchase before May 1, as expected:

https://seekingalpha.com/article/425091 ... -buy-bonds

Interestingly, he's buying in March.
"A courageous teacher, failure is."

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Re: Series I Savings Bonds Buying Opportunity

Post by Amphian » Tue Mar 26, 2019 10:58 am

Darth Xanadu wrote:
Tue Mar 26, 2019 10:43 am
Tipswatch latest post strongly advocating I-Bond purchase before May 1, as expected:

https://seekingalpha.com/article/425091 ... -buy-bonds

Interestingly, he's buying in March.
I'm considering doing the same. I was going to wait until April, but I agree that both fixed and composite rates are likely to fall and going a month early gets me a month closer to the end of the 1 year no redemption period. (I'm planing on using this as part of my emergency fund after that year.)

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Re: Series I Savings Bonds Buying Opportunity

Post by billthecat » Tue Mar 26, 2019 11:18 am

I really appreciate the tips and tricks in the forums. I'm new to I Bonds and had planned to just buy at the end of every May (5k) and end of every November (5k), to spread it out. But given the tip here, it looks like I'll just get 10k in April instead (this year). It's a little bit of "market timing" (shame! :shock:) but oh well.
We cannot direct the winds but we can adjust our sails.

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Re: Series I Savings Bonds Buying Opportunity

Post by AnonJohn » Tue Mar 26, 2019 11:48 am

Amphian wrote:
Tue Mar 26, 2019 10:58 am
Darth Xanadu wrote:
Tue Mar 26, 2019 10:43 am
Tipswatch latest post strongly advocating I-Bond purchase before May 1, as expected:

https://seekingalpha.com/article/425091 ... -buy-bonds

Interestingly, he's buying in March.
I'm considering doing the same. I was going to wait until April, but I agree that both fixed and composite rates are likely to fall and going a month early gets me a month closer to the end of the 1 year no redemption period. (I'm planing on using this as part of my emergency fund after that year.)
Me three. Placed the order this morning for our last $5K, even before seeing this thread. Part of my emergency fund too. Nice to be rolling off some of the older low fixed rate ones.

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Re: Series I Savings Bonds Buying Opportunity

Post by totesmagotes » Tue Mar 26, 2019 12:17 pm

majiaknight wrote:
Mon Mar 25, 2019 3:17 pm
aida2003 wrote:
Sun Mar 24, 2019 2:25 pm
Just for my curiosity:
Why to buy iBonds at 2.83% when you can get 5, 6, or 7 year CD's at higher than 3.10%?
Who generally buys iBonds? For what purpose and for how long?
2. I use iBond as the 2nd tier of core emergency fund after high-yield online savings.
I started to buy I-Bonds (less than the max annual amount allowed, but still something) back in 2017. I'm planning on using them as a second-tier emergency fund, and I'm specifically targeting it for homeowner's insurance deductibles (our insurance policy has 3 different deductibles depending upon the peril -- one for wind/hail, one for earthquake, and one for "all other perils"). In addition, we'll be able to use the I-Bonds for higher expense items like air conditioner replacement (our house has two separate systems, one for each floor, and both are ~15 years old) or other expensive costs that exceed what we usually keep in checking and high-yield savings (the latter being our "level 1" EF). The goal is to build up the I-Bond portfolio so that we have at least our most expensive insurance deductible covered by I-Bonds that are more than 5 years old. Once we start exceeding that (that is, we have way more >5-yr old I-Bonds than we'd need to cover the highest deductibles), I'll probably roll the oldest I-Bonds into the 529 plans for our children.

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Re: Series I Savings Bonds Buying Opportunity

Post by Cosmo » Sat Mar 30, 2019 8:13 pm

Mel Lindauer wrote:
Fri Mar 22, 2019 7:05 pm
majiaknight wrote:
Fri Mar 22, 2019 6:04 pm
Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
For me I Bonds are a buying opportunity every year come January 1.
+1 January 1 31 is always better. :happy
As long as you buy the I Bonds ;y the last business day of the month, you'll earn the full month's interest, so plan your purchase accordingly.

For those of you that advocate buying i-bonds on the last business day of the month, I am curious where everyone parks their money while they are waiting? In my case, it is coming from my paychecks, which are automatically deposited in my WF free checking account, which presently earns pennies of interest per month. So for me, unless I do some intra-month maneuvering, my money will be just sitting in my WF account anyway, essentially earning nothing. Thanks in advance.

Cosmo

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Re: Series I Savings Bonds Buying Opportunity

Post by Mel Lindauer » Sat Mar 30, 2019 8:28 pm

Cosmo wrote:
Sat Mar 30, 2019 8:13 pm
Mel Lindauer wrote:
Fri Mar 22, 2019 7:05 pm
majiaknight wrote:
Fri Mar 22, 2019 6:04 pm
Cosmo wrote:
Thu Mar 21, 2019 6:09 pm
For me I Bonds are a buying opportunity every year come January 1.
+1 January 1 31 is always better. :happy
As long as you buy the I Bonds ;y the last business day of the month, you'll earn the full month's interest, so plan your purchase accordingly.

For those of you that advocate buying i-bonds on the last business day of the month, I am curious where everyone parks their money while they are waiting? In my case, it is coming from my paychecks, which are automatically deposited in my WF free checking account, which presently earns pennies of interest per month. So for me, unless I do some intra-month maneuvering, my money will be just sitting in my WF account anyway, essentially earning nothing. Thanks in advance.

Cosmo
Hi Cosmo:

Back in the day of high interest rates, it made a difference when you "double dipped" by earning interest on your money in the bank for most of the month and then earning an entire month's worth of interest on that same money by purchasing your I Bonds at the end of the month.

However, with today's low interest rates, it really doesn't make that big of a deal. But at some future point, it may, so it's good to know the rules.
Best Regards - Mel | | Semper Fi

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telemark
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Re: Series I Savings Bonds Buying Opportunity

Post by telemark » Sat Mar 30, 2019 9:09 pm

Cosmo wrote:
Sat Mar 30, 2019 8:13 pm
For those of you that advocate buying i-bonds on the last business day of the month, I am curious where everyone parks their money while they are waiting? In my case, it is coming from my paychecks, which are automatically deposited in my WF free checking account, which presently earns pennies of interest per month. So for me, unless I do some intra-month maneuvering, my money will be just sitting in my WF account anyway, essentially earning nothing. Thanks in advance.

Cosmo
My Treasury Direct account is linked to my savings account at American Express, currently paying 2.10%. Still doesn't come to much for one month, but it's better than nothing.

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Re: Series I Savings Bonds Buying Opportunity

Post by majiaknight » Sun Mar 31, 2019 2:42 am

Cosmo wrote:
Sat Mar 30, 2019 8:13 pm
For those of you that advocate buying i-bonds on the last business day of the month, I am curious where everyone parks their money while they are waiting?
Cosmo
Popular online savings like Ally pays 2.2% or you could find better deal at 2.45% below:
https://www.mymoneyblog.com/best-intere ... -2019.html

For a couple this means $10K*2 *2.2% / 12 = ~$37 savings by delaying purchase ibond on the last business day of the month.

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Re: Series I Savings Bonds Buying Opportunity

Post by whatinthehey » Sun Mar 31, 2019 8:17 am

Does anyone know how composite rate changes have historically compared to high yield savings account rates? I agree that the 0.5% fixed rate looks good, but if the new sixth month composite rate is likely to only be around 1.5% is it really worth it relative to other options? Can you use the same indicators to infer savings account rates are also likely to fall over a similar time period?

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Re: Series I Savings Bonds Buying Opportunity

Post by LadyGeek » Sun Mar 31, 2019 8:24 am

This thread is now in the Investing - Theory, News & General forum (general discussion)

whatinthehey, Welcome!
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Re: Series I Savings Bonds Buying Opportunity

Post by Chuck » Sun Mar 31, 2019 9:19 am

I need to do the math to see if it's worth it to "refinance" some of my 0% I-bonds.

aida2003
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Re: Series I Savings Bonds Buying Opportunity

Post by aida2003 » Sun Mar 31, 2019 12:29 pm

ej0160 wrote:
Sun Mar 24, 2019 6:05 pm
aida2003 wrote:
Sun Mar 24, 2019 2:25 pm
Just for my curiosity:
Why to buy iBonds at 2.83% when you can get 5, 6, or 7 year CD's at higher than 3.10%?
Who generally buys iBonds? For what purpose and for how long?
Would it be people who have maxed 401k, HSA, Roth IRA, and have more than enough in their taxable accounts?
Aren't there better alternatives than this very low interest rate despite it being tax-free until withdrawn?

I'm trying to understand what I might be missing and perhaps even buy a little bit myself before May 1.

We have a small chunk of $ in iBonds ourselves. Initially we thought it would be for the college education if our AGI is low enough to use them tax free, but I am not sure it's going to work (due to the AGI). Recently I read somewhere that supposedly there is a turnaround method to use iBonds tax-free regardless of the AGI, but would need to research if our NC 529 plan allows it and how that works. Supposedly you can move some of iBonds to 529 plan and then use that $ towards college education. Thank you.
Several situations for I-Bonds vs CDs:
  1. Like other treasuries I-Bonds are state tax exempt. Depending upon state, this closes the gap between current I-Bond rates and CD interest rates.
  2. Already issued I-Bonds are periodically adjusted for inflation. This takes risk when hold for long duration. If inflation goes up to 3-4%, a 3.1% CD won’t be worth much. Conversely if inflation does down to 0-1%, the 3.1% CD will be better than current I-Bond rates.
  3. Due to safety, I-Bonds are a good place to park savings either for emergencies or for early retirement before you can utilize retirement accounts. Assumption is you need to leave it for at least 1 year. Between 1 and 5 years you can redeem with 3 month interest penalty, and no penalty after 5 years up to 30 years. By laddering CDs you can mimic this pattern, but obviously the initial shorter duration on the CD ladder will be below current I-Bond rates.
  4. As you have noted, by default interest is taxed when redeemed. Since they can be held up to 30 years, this may allow for paying taxes on interest when you are a lower tax bracket.
Thank you for a great short educational lesson. Even though I thought I knew all this, but a great refresher course.
I will save the link to this thread for the future...it contains a lot of good tips. Glad I asked and I appreciate the answers.

I'll have to find a calculator that could help me decide whether to break a 5-year CD @ 2% to buy these iBonds in April. It looks like a clear answer, but I cannot figure out why I'm having such a mental block to break those 2% CD's...aversion to penalty? I'm 2 and 3 years in those 2% cd's.

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Re: Series I Savings Bonds Buying Opportunity

Post by #Cruncher » Mon Apr 01, 2019 2:08 pm

Chuck wrote:
Sun Mar 31, 2019 9:19 am
I need to do the math to see if it's worth it to "refinance" some of my 0% I-bonds.
I've developed a spreadsheet that calculates the approximate after tax benefit of exchanging an old I Bond for a new one. Here is an illustration showing the benefit of exchanging $1,000 face value of eight old I Bonds purchased each April from 2011 through 2018. Even though the new I Bond has a higher fixed rate, holding on to the old I Bonds produces a better result after one year. (This is because the new I Bonds incur a three month redemption penalty until year 5.) But after four years, the higher fixed rate overcomes the penalty so that it's better to have exchanged any of the eight old I Bonds. The after tax benefit ranges from $11 down to $3 per $1,000 of face value exchanged. Note how the benefit jumps up in year 5 when the new I Bonds are no longer subject to a redemption penalty.

Code: Select all

Row  Col A                     Col B  Col C  Col D  Col E  Col F  Col G  Col H  Col I  Col J
  1  New fixed rate            0.50%
  2  Future CPI chg / year     2.00%
  3  Future composite rate     2.51%
  4  Tax rate now                22%
  5  Tax rate future             22%
  6  Exchange date            Apr-19

Code: Select all

  7  Old bond issued                 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 
  8  Old bond fixed rate              0.00%  0.00%  0.00%  0.20%  0.00%  0.10%  0.00%  0.10%
  9  Value $25 bond Apr-19            28.90  28.15  27.41  27.26  26.61  26.49  26.21  25.61
 10  Value net of penalty             28.90  28.15  27.41  27.26  26.47  26.34  26.06  25.47
 11  Face value exchanged             1,000  1,000  1,000  1,000  1,000  1,000  1,000  1,000
 12  Future composite rate            2.00%  2.00%  2.00%  2.20%  2.00%  2.10%  2.00%  2.10%
 13  Bond age now                         8      7      6      5      4      3      2      1
 14  Old bond value Apr-19            1,156  1,126  1,096  1,090  1,064  1,060  1,048  1,024
 15  Value net of penalty             1,156  1,126  1,096  1,090  1,059  1,054  1,042  1,019
 16  Tax                                 34     28     21     20     13     12      9      4
 17  New bond purchase                1,122  1,098  1,075  1,071  1,046  1,042  1,033  1,015
                            New Bond
 18  Year                  $1 Growth  -------- New Bond vs Old Bond After Tax Value --------

Code: Select all

 19    1                    1.014638     (2)    (1)    (1)    (3)    (6)    (2)    (2)    (2)
 20    2                    1.034583      2      2      3     (1)    (2)    (4)     2      1 
 21    3                    1.055029      7      7      7      2      2     (1)     2      4 [*]
 22    4                    1.075989     11     11     11      4      7      3      6      3 
 23    5                    1.102929     22     22     22     12     17     12     17     13
 
 24    6                    1.125090     27     27     27     15     22     16     21     16 
 25    7                    1.147808     32     32     32     18     27     20     26     20 
 26    8                    1.171096     37     37     37     21     32     24     32     25 
 27    9                    1.194969     43     43     43     25     38     28     37     29 
 28   10                    1.219440     49     49     49     28     43     33     43     34
 
 29   11                    1.244526     55     55     55     32     49     38     49     39 
 30   12                    1.270242     61     61     61     35     56     43     55     44 
 31   13                    1.296603     68     68     68     39     62     48     62     49 
 32   14                    1.323626     75     75     75     44     69     53     68     54 
 33   15                    1.351327     82     82     82     48     76     59     75     60
 
 34   16                    1.379723     90     90     89     52     83     65     83     66 
 35   17                    1.408832     98     97     97     57     91     71     90     72 
 36   18                    1.438672    106    106    105     62     99     77     98     78 
 37   19                    1.469261    114    114    114     67    107     84    107     85 
 38   20                    1.500617    123    123    123     72    116     91    115     92
* Detailed calculation for 3 years:

Code: Select all

New I Bond
  Years            2.75      2.75      2.75      2.75      2.75      2.75      2.75      2.75 
  Start value  1,121.68  1,098.28  1,075.19  1,070.51  1,045.86  1,041.81  1,033.07  1,014.66 
  Grows to     1,200.82  1,175.76  1,151.05  1,146.04  1,119.65  1,115.31  1,105.96  1,086.25 
  Tax             17.41     17.05     16.69     16.62     16.23     16.17     16.03     15.75 
  After tax    1,183.41  1,158.72  1,134.36  1,129.42  1,103.42  1,099.14  1,089.92  1,070.50
Old I Bond
  Years            3.00      3.00      3.00      3.00      3.00      3.00      3.00      2.75 
  Start value  1,156.00  1,126.00  1,096.40  1,090.40  1,064.40  1,059.60  1,048.40  1,024.40 
  Grows to     1,226.76  1,194.92  1,163.51  1,163.96  1,129.55  1,127.77  1,112.57  1,084.65 
  Tax             49.89     42.88     35.97     36.07     28.50     28.11     24.77     18.62 
  After tax    1,176.87  1,152.04  1,127.54  1,127.89  1,101.05  1,099.66  1,087.80  1,066.03 
  New vs old       6.54      6.68      6.82      1.53      2.37     (0.52)     2.12      4.47
To use this spreadsheet, follow these steps:
  • Select All, Copy, and Paste [**] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    New fixed rate	0.005
    Future CPI chg / year	0.02
    Future composite rate	=ROUND(B1+B2+B1*B2/2,4)
    Tax rate now	0.22
    Tax rate future	0.22
    Exchange date	43556
    Old bond issued		40634	41000	41365	41730	42095	42461	42826	43191
    Old bond fixed rate		0	0	0	0.002	0	0.001	0	0.001
    ="Value $25 bond "&TEXT(B6,"mmm-yy")		28.9	28.15	27.41	27.26	26.61	26.49	26.21	25.61
    Value net of penalty		28.9	28.15	27.41	27.26	26.47	26.34	26.06	25.47
    Face value exchanged		1000	=C11
    Future composite rate		=ROUND(C8+$B2+C8*$B2/2,4)	=ROUND(D8+$B2+D8*$B2/2,4)
    Bond age now		=YEAR($B6)-YEAR(C7)+(MONTH($B6)-MONTH(C7))/12	=YEAR($B6)-YEAR(D7)+(MONTH($B6)-MONTH(D7))/12
    ="Old bond value "&TEXT(B6,"mmm-yy")		=C9*(C$11/25)	=D9*(D$11/25)
    Value net of penalty		=C10*(C$11/25)	=D10*(D$11/25)
    Tax		=$B4*(C15-C11)	=$B4*(D15-D11)
    New bond purchase	New Bond	=C15-C16	=D15-D16
    Year	Factor	-------------------- New Bond vs Old Bond After Tax Value --------------------
    1	=(1+B$3)^(A19-IF(A19<5,0.25,0))*(1-B$5)+B$5	=C$17*$B19-(C$14*(1+C$12)^($A19-IF($A19+C$13<5,0.25,0))*(1-$B$5)+$B$5*C$11)
    2	=(1+B$3)^(A20-IF(A20<5,0.25,0))*(1-B$5)+B$5	=C$17*$B20-(C$14*(1+C$12)^($A20-IF($A20+C$13<5,0.25,0))*(1-$B$5)+$B$5*C$11)
    =2*A20-A19	=(1+B$3)^(A21-IF(A21<5,0.25,0))*(1-B$5)+B$5	=C$17*$B21-(C$14*(1+C$12)^($A21-IF($A21+C$13<5,0.25,0))*(1-$B$5)+$B$5*C$11)
  • Format for readability. Note: cell B6 and row 7 are dates and are best formatted with custom format "mmm-yy". (The spreadsheet ignores the day of the month.)
  • Copy cells D11:D17 right to column J.
  • Copy cells C19:C21 right to column J.
  • Copy row 21 down to row 38 (or for as many years as desired).
  • Replace rows 7:10 with the data for the old I Bonds you're considering exchanging. You can use this web page to look up the values for $25 I Bonds. If the I Bond is less than five years old, use the value from three months earlier for row 10.
  • Modify the assumptions in cells B1:B2 and B4:B6 as needed.
** If you have trouble pasting, try "Paste Special" and "Text".

tindel
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Re: Series I Savings Bonds Buying Opportunity

Post by tindel » Mon Apr 01, 2019 10:53 pm

I buy I-bonds for their inflation and deflation protection on my emergency fund. It's what I consider my 4-th tier fund (Checking, High-Yield Savings, and laddered 13-week T-bills being my other e-funds).

I tried posting this thread about the probabilities that the adjustable rate would at or below 0%, but it wasn't well received. Probability was about 9.38%. I was personally interested in the probability of my 0.1% bonds would give me an opportunity to cash out before the end of 3 years. If I recall, it was around 3%.

I calculated that the CPI-U inflation rate for the last six months will be 0.31% +/- 0.27% (75% confidence interval)

My guess is the fixed rate drops to 0.3%. This would set the new composite rate to 0.92% +/- 0.54%. That's a pretty pathetic return in this environment. Ironically, I made the following suggestion based on my other thread, exact opposite of what is being talked about here:
At this point some people may want to consider holding off on buying their allotments until the next 6 month cycle rolls around in November due to probable rates being lower than savings account yields. Of course, you could lose out on the relatively nice 0.5% fixed rate available now.
Having said all of that - Rather than waiting for 5/1 to buy, I'm buying another portion of my allotment prior to 5/1 to lock in the 0.5% fixed-rate as well. I have two more purchases planned between now and 11/1. I'm DCA'ing my EF into this investment, as well as providing myself a ladder to get through the 1 - year hold while maintaining liquidity.

ivk5
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Re: Series I Savings Bonds Buying Opportunity

Post by ivk5 » Tue Apr 02, 2019 3:20 am

If you plan to max out your allotment and hold long term, it seems to me you should aim for best fixed rate regardless of near term composite and how it compares to other options. At least that’s what I’m doing.

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gmtret
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Re: Series I Savings Bonds Buying Opportunity

Post by gmtret » Tue Apr 02, 2019 4:32 am

Welp about all I can say is a big :"thank you!" to Mel, who back in the day introduced the diehards to these instruments... I've still got some of those sweet ones and will pay the taxes when they come due,

Good luck,
Chris
"The most beautiful thing we can experience is the mysterious. It is the source of all true art and science." | - Albert Einstein

Chuck
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Re: Series I Savings Bonds Buying Opportunity

Post by Chuck » Tue Apr 02, 2019 9:33 am

#Cruncher wrote:
Mon Apr 01, 2019 2:08 pm
I've developed a spreadsheet that calculates the approximate after tax benefit of exchanging an old I Bond for a new one.
That is intense. :) :)

I was going to do something simple like I have a 0% bond from 4/2013 which up 9.04% (oops that data is from January, but I don't want to recalculate), so if I go into a 0.5% fixed I-Bond, I'll pay about 30% tax on the gain of 9.04%, so about 2.7%, which divided by 0.5% is more than 5 years to break even. That ignores the tax at redemption, because I don't know the holding period, or the tax rate, and I probably won't do it if it's a close call. Also, I can't buy $10,904, I can only buy $10,000, so I have to figure out what to do with $904 in the meantime. In this case, I'd probably don't just do something but stand there.

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Re: Series I Savings Bonds Buying Opportunity

Post by Mel Lindauer » Tue Apr 02, 2019 10:21 am

gmtret wrote:
Tue Apr 02, 2019 4:32 am
Welp about all I can say is a big :"thank you!" to Mel, who back in the day introduced the diehards to these instruments... I've still got some of those sweet ones and will pay the taxes when they come due,

Good luck,
Chris
As the saying goes: "Those were the days!". Fixed rates of 3.0, 3.3, 3.4 and 3.6% AND you could buy them with a credit card and get the perks that went along with that.

Glad you got in while the getting was good.
Best Regards - Mel | | Semper Fi

tindel
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Re: Series I Savings Bonds Buying Opportunity

Post by tindel » Tue Apr 02, 2019 1:33 pm

ivk5 wrote:
Tue Apr 02, 2019 3:20 am
If you plan to max out your allotment and hold long term, it seems to me you should aim for best fixed rate regardless of near term composite and how it compares to other options. At least that’s what I’m doing.
While I wouldn't disagree, the new composite rate will most likely be poor compared to nearly all other bond-like investments, and some may want to hold off on their 2019 contributions until November in hopes of a return to 0.5% rate (or better) at that time, while also collecting on better rates in just about any other fixed-rate investment in the meantime.

November could offer a better rate than 0.5%. :greedy It's hard to predict 6 months into the future.

All that said, I've personally bought 3 lots of the 0.5% fixed rate in order to maximize the best fixed rate we've seen in several years.

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Re: Series I Savings Bonds Buying Opportunity

Post by Clever_Username » Tue Apr 02, 2019 3:27 pm

tindel wrote:
Tue Apr 02, 2019 1:33 pm

November could offer a better rate than 0.5%. :greedy It's hard to predict 6 months into the future.
True, but even if we max out 2019 before then, we have the opportunity to buy those in 2020.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: Series I Savings Bonds Buying Opportunity

Post by #Cruncher » Tue Apr 02, 2019 9:32 pm

Chuck wrote:
Tue Apr 02, 2019 9:33 am
... I have a 0% bond from 4/2013 which [is] up 9.04% ... so if I go into a 0.5% fixed I-Bond, I'll pay about 30% tax on the gain of 9.04%, so about 2.7%, which divided by 0.5% is more than 5 years to break even. That ignores the tax at redemption, ...
Five years is about right to break even if the tax rate were 0% at that time. But, as the table below shows, after six years exchanging for the 0.5% fixed rate I Bond beats holding onto the old 0% fixed rate I Bond -- even with no income tax. By year 10 you're $31 better off for each $1,000 that's exchanged. And after 20 years you're $123 better off.

Code: Select all

Row  Col A                        Col B
  1  New fixed rate               0.50%
  2  Future CPI chg / year        2.00%
  3  Future composite rate        2.51%
  4  Tax rate now                30.00%
  5  Tax rate future              0.00%
  6  Exchange date             Apr-2019
  7  Old bond issued           Apr-2013
  8  Old bond fixed rate          0.00%
  9  Value $25 bond Apr-2019      27.41
 10  Net of penalty               27.41
 11  Face value exchanged      1,000.00

Code: Select all

Row  Col A                        Col B
 12  Future composite rate        2.00%
 13  Age now                      6.000
 14  Old bond value Apr-2019   1,096.40
 15  Net of penalty            1,096.40
 16  Tax                          28.92
 17  New bond purchase         1,067.48
            -------- New Bond ---------    -------- Old Bond ---------
     Years  Grows To     Tax  After Tax    Grows To     Tax  After Tax     Diff
Row  Col A     Col B   Col C      Col D       Col E   Col F      Col G    Col H

Code: Select all

 20     1   1,087.51           1,087.51    1,118.33           1,118.33   (30.82)
 21     2   1,114.81           1,114.81    1,140.69           1,140.69   (25.89)
 22     3   1,142.79           1,142.79    1,163.51           1,163.51   (20.72)
 23     4   1,171.48           1,171.48    1,186.78           1,186.78   (15.30)
 24     5   1,208.34           1,208.34    1,210.51           1,210.51    (2.17)
 
 25     6   1,238.67           1,238.67    1,234.72           1,234.72     3.95 
 26     7   1,269.77           1,269.77    1,259.42           1,259.42    10.35 
 27     8   1,301.64           1,301.64    1,284.61           1,284.61    17.03 
 28     9   1,334.31           1,334.31    1,310.30           1,310.30    24.01 
 29    10   1,367.80           1,367.80    1,336.51           1,336.51    31.29
 
 30    11   1,402.13           1,402.13    1,363.24           1,363.24    38.89 
 31    12   1,437.32           1,437.32    1,390.50           1,390.50    46.82 
 32    13   1,473.40           1,473.40    1,418.31           1,418.31    55.09 
 33    14   1,510.38           1,510.38    1,446.68           1,446.68    63.71 
 34    15   1,548.29           1,548.29    1,475.61           1,475.61    72.68
 
 35    16   1,587.16           1,587.16    1,505.12           1,505.12    82.03 
 36    17   1,626.99           1,626.99    1,535.22           1,535.22    91.77 
 37    18   1,667.83           1,667.83    1,565.93           1,565.93   101.90 
 38    19   1,709.69           1,709.69    1,597.25           1,597.25   112.45 
 39    20   1,752.61           1,752.61    1,629.19           1,629.19   123.41
If the tax rate at final redemption is 30% instead of 0%, exchanging for the new 0.5% fixed rate I Bond begins to pay off after just two years. The benefit per $1,000 of face value exchanged is $42 after 10 years and $107 after 20 years.

Code: Select all

Row  Col A     Col B   Col C      Col D       Col E   Col F      Col G    Col H
            -------- New Bond ---------    -------- Old Bond ---------
     Years  Grows To     Tax  After Tax    Grows To     Tax  After Tax     Diff

Code: Select all

 20     1   1,087.51    6.01   1,081.50    1,118.33   35.50   1,082.83    (1.33)
 21     2   1,114.81   14.20   1,100.61    1,140.69   42.21   1,098.49     2.12 
 22     3   1,142.79   22.59   1,120.20    1,163.51   49.05   1,114.46     5.74 
 23     4   1,171.48   31.20   1,140.28    1,186.78   56.03   1,130.75     9.53 
 24     5   1,208.34   42.26   1,166.09    1,210.51   63.15   1,147.36    18.73

 25     6   1,238.67   51.36   1,187.32    1,234.72   70.42   1,164.31    23.01 
 26     7   1,269.77   60.69   1,209.08    1,259.42   77.83   1,181.59    27.49 
 27     8   1,301.64   70.25   1,231.39    1,284.61   85.38   1,199.23    32.16 
 28     9   1,334.31   80.05   1,254.26    1,310.30   93.09   1,217.21    37.05 
 29    10   1,367.80   90.10   1,277.70    1,336.51  100.95   1,235.55    42.15

 30    11   1,402.13  100.40   1,301.74    1,363.24  108.97   1,254.26    47.47 
 31    12   1,437.32  110.95   1,326.37    1,390.50  117.15   1,273.35    53.02 
 32    13   1,473.40  121.78   1,351.62    1,418.31  125.49   1,292.82    58.81 
 33    14   1,510.38  132.87   1,377.51    1,446.68  134.00   1,312.67    64.84 
 34    15   1,548.29  144.24   1,404.05    1,475.61  142.68   1,332.93    71.12

 35    16   1,587.16  155.90   1,431.25    1,505.12  151.54   1,353.59    77.67 
 36    17   1,626.99  167.85   1,459.14    1,535.22  160.57   1,374.66    84.48 
 37    18   1,667.83  180.11   1,487.73    1,565.93  169.78   1,396.15    91.58 
 38    19   1,709.69  192.66   1,517.03    1,597.25  179.17   1,418.07    98.96 
 39    20   1,752.61  205.54   1,547.07    1,629.19  188.76   1,440.43   106.63
The above figures are from a variant of the spreadsheet in my previous post. To use this one follow these steps:
  • Select All, Copy, and Paste [ * ] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    New fixed rate	0.005
    Future CPI chg / year	0.02
    Future composite rate	=ROUND(B1+B2+B1*B2/2,4)
    Tax rate now	0.3
    Tax rate future	0
    Exchange date	43556
    Old bond issued	41365
    Old bond fixed rate	0
    ="Value $25 bond "&TEXT(B6,"mmm-yyyy")	27.41
    Net of penalty	27.41
    Face value exchanged	1000
    Future composite rate	=ROUND(B8+B2+B8*B2/2,4)
    Age now	=YEAR(B6)-YEAR(B7)+(MONTH(B6)-MONTH(B7))/12
    ="Old bond value "&TEXT(B6,"mmm-yyyy")	=B9*(B$11/25)
    Net of penalty	=B10*(B$11/25)
    Tax	=B4*(B15-B11)
    New bond purchase	=B14-B16
    	-------- New Bond --------			-------- Old Bond --------
    Years	Grows To	Tax	After Tax	Grows To	Tax	After Tax	Diff
    1	=B$17*(1+B$3)^(A20-IF(A20<5,0.25,0))	=B$5*(B20-B$17)	=B20-C20	=B$14*(1+B$12)^(A20-IF(B$13+A20<5,0.25,0))	=B$5*(E20-B$11)	=E20-F20	=D20-G20
    2	=B$17*(1+B$3)^(A21-IF(A21<5,0.25,0))	=B$5*(B21-B$17)	=B21-C21	=B$14*(1+B$12)^(A21-IF(B$13+A21<5,0.25,0))	=B$5*(E21-B$11)	=E21-F21	=D21-G21
    =2*A21-A20	=B$17*(1+B$3)^(A22-IF(A22<5,0.25,0))	=B$5*(B22-B$17)	=B22-C22	=B$14*(1+B$12)^(A22-IF(B$13+A22<5,0.25,0))	=B$5*(E22-B$11)	=E22-F22	=D22-G22
  • Format for readability. Note: cells B6:B7 are dates and are best formatted with custom format "mmm-yyyy". (The spreadsheet ignores the day of the month.)
  • Copy row 22 down to row 39 or for as many years as desired.
  • Modify the assumptions in cells B1:B2 and B4:B11 as needed.
* If you have trouble pasting, try "Paste Special" and "Test".

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wjo
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Re: Series I Savings Bonds Buying Opportunity

Post by wjo » Tue Apr 02, 2019 11:48 pm

Just put in my order. Not a bad deal for guaranteed real return, although taxes....

It is hard to get too excited about a real return of basically zero after taxes, but I do see I-bonds as part of an emergency fund (can't be the sole choice given liquidity limitations for the first year) as well as an investment for the low tax years between retirement and RMDS/social security.

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Cosmo
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Re: Series I Savings Bonds Buying Opportunity

Post by Cosmo » Wed May 01, 2019 9:13 am

Thesaints wrote:
Thu Mar 21, 2019 6:20 pm
Cosmo wrote:
Thu Mar 21, 2019 6:17 pm
I will wager that you don't know any more (or less) than I do on future interest rates.

Cosmo
True in general, but you don't seem to be aware of the fact that the fixed rate has never been higher than the 10-year TIPS as long as that was above zero.
Are you glad you didn't give me 2:1 odds on that? :-)

The fixed rate may go higher.
The fixed rate may go lower.
The fixed rate may stay the same.

We just don't know.
I Bond Composite Rate of 1.90% includes a Fixed Rate of 0.50%
The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The 1.90% composite rate for I bonds bought from May 2019 through October 2019 applies for the first six months after the issue date. The composite rate combines a 0.50% fixed rate of return with the 1.40% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 252.439 in September 2018 to 254.202 in March 2019, a six-month change of 0.70%.

https://www.treasurydirect.gov/news/pre ... di0519.htm

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Darth Xanadu
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Location: Middle Earth

Re: Series I Savings Bonds Buying Opportunity

Post by Darth Xanadu » Wed May 01, 2019 11:39 am

Cosmo wrote:
Wed May 01, 2019 9:13 am
The 1.90% composite rate for I bonds bought from May 2019 through October 2019 applies for the first six months after the issue date. The composite rate combines a 0.50% fixed rate of return with the 1.40% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 252.439 in September 2018 to 254.202 in March 2019, a six-month change of 0.70%.

https://www.treasurydirect.gov/news/pre ... di0519.htm
Interesting! I don't think that many people would have predicted that, but your point is well taken ... "who knows"?
"A courageous teacher, failure is."

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tipswatcher
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Re: Series I Savings Bonds Buying Opportunity

Post by tipswatcher » Wed May 01, 2019 1:13 pm

When I'm wrong, well ... "I was wrong." The Treasury has surprised me in the past by setting odd-ball fixed rates on the I Bond. This one was maybe the biggest surprise, for me, because the data showed a fixed rate of 0.2% to 03% looked much more likely than staying at 0.5%. However, I applaud the move by the Treasury, because it is a great opportunity for small scale investors.

My analysis, for what it's worth: https://seekingalpha.com/article/425860 ... _5-percent
TIPS: Perfect investment for imperfect times?

donaldfair71
Posts: 538
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Re: Series I Savings Bonds Buying Opportunity

Post by donaldfair71 » Wed May 01, 2019 1:39 pm

tipswatcher wrote:
Wed May 01, 2019 1:13 pm
When I'm wrong, well ... "I was wrong." The Treasury has surprised me in the past by setting odd-ball fixed rates on the I Bond. This one was maybe the biggest surprise, for me, because the data showed a fixed rate of 0.2% to 03% looked much more likely than staying at 0.5%. However, I applaud the move by the Treasury, because it is a great opportunity for small scale investors.

My analysis, for what it's worth: https://seekingalpha.com/article/425860 ... _5-percent
Long time fan, thank you for your contributions here and everywhere. Will read your take on things in a second.

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Thesaints
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Re: Series I Savings Bonds Buying Opportunity

Post by Thesaints » Wed May 01, 2019 8:09 pm

Fixed rate did not go up and buying by April 30 gave an initial 6-month rate of 2.83% vs. the 1.90% one got buying today.
I don't see the "error".

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tipswatcher
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Re: Series I Savings Bonds Buying Opportunity

Post by tipswatcher » Wed May 01, 2019 8:36 pm

Fixed rate did not go up and buying by April 30 gave an initial 6-month rate of 2.83% vs. the 1.90% one got buying today.
I don't see the "error".
I appreciate that thought, but I'm still baffled by the Treasury's decision. I was pounding the table to buy I Bonds before May 1, to capture the best fixed rate in 10 years. I agree, though, that buying before May 1 was still a better move than waiting until after May 1, since the inflation-adjusted rate dropped 93 basis points.

I bought my 2019 I Bond allocation in March. I just hope the Treasury is just as generous in the November rate reset, to give me a chance at a great rate in January.
TIPS: Perfect investment for imperfect times?

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billthecat
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Re: Series I Savings Bonds Buying Opportunity

Post by billthecat » Wed May 01, 2019 8:54 pm

tipswatcher wrote:
Wed May 01, 2019 1:13 pm
When I'm wrong, well ... "I was wrong." The Treasury has surprised me in the past by setting odd-ball fixed rates on the I Bond. This one was maybe the biggest surprise, for me, because the data showed a fixed rate of 0.2% to 03% looked much more likely than staying at 0.5%. However, I applaud the move by the Treasury, because it is a great opportunity for small scale investors.

My analysis, for what it's worth: https://seekingalpha.com/article/425860 ... _5-percent
Even though it didn't go down, it didn't go up either, and by buying in March I get an extra few months of interest at 2.83% (May 1 - about Sept 28). Considering my abysmal investing history, I consider this a win!
We cannot direct the winds but we can adjust our sails.

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