Series I Savings Bonds Buying Opportunity
Series I Savings Bonds Buying Opportunity
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.
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.
Re: Series I Savings Bonds Buying Opportunity
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
Re: Series I Savings Bonds Buying Opportunity
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.
Re: Series I Savings Bonds Buying Opportunity
I will wager that you don't know any more (or less) than I do on future interest rates.
Cosmo
Re: Series I Savings Bonds Buying Opportunity
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.
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.
Re: Series I Savings Bonds Buying Opportunity
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.
70% Global Stocks / 30% Bonds
Re: Series I Savings Bonds Buying Opportunity
It has been charted in the past, but not since 2013.z3r0c00l wrote: ↑Thu Mar 21, 2019 6:37 pmI 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.
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%.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Series I Savings Bonds Buying Opportunity
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.
Re: Series I Savings Bonds Buying Opportunity
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.
Re: Series I Savings Bonds Buying Opportunity
I agree here with OP and I will buy my annual max in late April barring dramatic changes in the interim.indexfundfan wrote: ↑Thu Mar 21, 2019 8:17 pmIn 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...
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).
Re: Series I Savings Bonds Buying Opportunity
I may not have enough free cash! Rebalanced taxable recently.Thesaints wrote: ↑Thu Mar 21, 2019 6:54 pmIt has been charted in the past, but not since 2013.z3r0c00l wrote: ↑Thu Mar 21, 2019 6:37 pmI 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.
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%.
70% Global Stocks / 30% Bonds
-
- Posts: 222
- Joined: Tue Jan 26, 2016 1:55 pm
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: Series I Savings Bonds Buying Opportunity
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
- Darth Xanadu
- Posts: 1108
- Joined: Sat Jan 27, 2018 12:47 am
- Location: MA
Re: Series I Savings Bonds Buying Opportunity
You've written almost exactly what I was going to post. This describes my thinking and my plan precisely, on all points.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).
Re: Series I Savings Bonds Buying Opportunity
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.
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.
Re: Series I Savings Bonds Buying Opportunity
Several situations for I-Bonds vs CDs: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.
- 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.
- 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.
- 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.
- 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.
Re: Series I Savings Bonds Buying Opportunity
To confirm, the get 0.5% fixed rate, we need to buy before end Apr?
Re: Series I Savings Bonds Buying Opportunity
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.
-
- Posts: 222
- Joined: Tue Jan 26, 2016 1:55 pm
Re: Series I Savings Bonds Buying Opportunity
1. iBond is exempt from state tax and offers tax-deferral for up to 30 years.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?
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
- Darth Xanadu
- Posts: 1108
- Joined: Sat Jan 27, 2018 12:47 am
- Location: MA
Re: Series I Savings Bonds Buying Opportunity
Tipswatch latest post strongly advocating I-Bond purchase before May 1, as expected: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.
https://seekingalpha.com/article/425091 ... -buy-bonds
Interestingly, he's buying in March.
Re: Series I Savings Bonds Buying Opportunity
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.)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.
- billthecat
- Posts: 1052
- Joined: Tue Jan 24, 2017 1:50 pm
- Location: USA
Re: Series I Savings Bonds Buying Opportunity
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! ) but oh well.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!
Re: Series I Savings Bonds Buying Opportunity
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.Amphian wrote: ↑Tue Mar 26, 2019 10:58 amI'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.)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.
-
- Posts: 63
- Joined: Sat Nov 04, 2017 10:08 am
Re: Series I Savings Bonds Buying Opportunity
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.majiaknight wrote: ↑Mon Mar 25, 2019 3:17 pm2. I use iBond as the 2nd tier of core emergency fund after high-yield online savings.
Re: Series I Savings Bonds Buying Opportunity
Mel Lindauer wrote: ↑Fri Mar 22, 2019 7:05 pmAs 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
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: Series I Savings Bonds Buying Opportunity
Hi Cosmo:Cosmo wrote: ↑Sat Mar 30, 2019 8:13 pmMel Lindauer wrote: ↑Fri Mar 22, 2019 7:05 pmAs 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
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
Re: Series I Savings Bonds Buying Opportunity
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.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
-
- Posts: 222
- Joined: Tue Jan 26, 2016 1:55 pm
Re: Series I Savings Bonds Buying Opportunity
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.
-
- Posts: 1
- Joined: Sun Mar 31, 2019 8:11 am
Re: Series I Savings Bonds Buying Opportunity
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?
Re: Series I Savings Bonds Buying Opportunity
This thread is now in the Investing - Theory, News & General forum (general discussion)
whatinthehey, Welcome!
whatinthehey, Welcome!
Re: Series I Savings Bonds Buying Opportunity
I need to do the math to see if it's worth it to "refinance" some of my 0% I-bonds.
Re: Series I Savings Bonds Buying Opportunity
Thank you for a great short educational lesson. Even though I thought I knew all this, but a great refresher course.ej0160 wrote: ↑Sun Mar 24, 2019 6:05 pmSeveral situations for I-Bonds vs CDs: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.
- 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.
- 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.
- 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.
- 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.
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.
Re: Series I Savings Bonds Buying Opportunity
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
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
- 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.
Re: Series I Savings Bonds Buying Opportunity
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:
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:
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.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.
Re: Series I Savings Bonds Buying Opportunity
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.
Re: Series I Savings Bonds Buying Opportunity
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
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
Re: Series I Savings Bonds Buying Opportunity
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.
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: Series I Savings Bonds Buying Opportunity
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
Re: Series I Savings Bonds Buying Opportunity
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%. 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.
- Clever_Username
- Posts: 1915
- Joined: Sun Jul 15, 2012 12:24 am
- Location: Southern California
Re: Series I Savings Bonds Buying Opportunity
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.
Re: Series I Savings Bonds Buying Opportunity
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
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
- 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.
Re: Series I Savings Bonds Buying Opportunity
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.
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.
Re: Series I Savings Bonds Buying Opportunity
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
- Darth Xanadu
- Posts: 1108
- Joined: Sat Jan 27, 2018 12:47 am
- Location: MA
Re: Series I Savings Bonds Buying Opportunity
Interesting! I don't think that many people would have predicted that, but your point is well taken ... "who knows"?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
- tipswatcher
- Posts: 481
- Joined: Tue Jun 21, 2011 5:17 pm
- Location: North Carolina
- Contact:
Re: Series I Savings Bonds Buying Opportunity
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
My analysis, for what it's worth: https://seekingalpha.com/article/425860 ... _5-percent
TIPS: Perfect investment for imperfect times?
-
- Posts: 1241
- Joined: Wed Mar 06, 2013 3:15 pm
Re: Series I Savings Bonds Buying Opportunity
Long time fan, thank you for your contributions here and everywhere. Will read your take on things in a second.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
Re: Series I Savings Bonds Buying Opportunity
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 don't see the "error".
- tipswatcher
- Posts: 481
- Joined: Tue Jun 21, 2011 5:17 pm
- Location: North Carolina
- Contact:
Re: Series I Savings Bonds Buying Opportunity
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.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 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?
- billthecat
- Posts: 1052
- Joined: Tue Jan 24, 2017 1:50 pm
- Location: USA
Re: Series I Savings Bonds Buying Opportunity
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!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
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!