I-bond fixed rate

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z3r0c00l
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I-bond fixed rate

Post by z3r0c00l »

Have not seen the fixed rate announced yet, do they normally wait until the first business day after November 1st? I imagine we are looking at 1.68% variable and probably zero fixed.
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sapphire96
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Re: I-bond fixed rate

Post by sapphire96 »

z3r0c00l wrote: Mon Nov 02, 2020 8:20 am Have not seen the fixed rate announced yet, do they normally wait until the first business day after November 1st? I imagine we are looking at 1.68% variable and probably zero fixed.
I suspect they will announce at 10 AM today... it’s when they announced the new rate last time.

https://www.treasurydirect.gov/news/pre ... atespr.htm
Keep interest as your friend, not your foe. | Use money as a tool for bettering your life, not squandering it. | Stay the course, don’t deviate from it.
GreendaleCC
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Re: I-bond fixed rate

Post by GreendaleCC »

0% fixed rate announced.
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z3r0c00l
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Re: I-bond fixed rate

Post by z3r0c00l »

Thanks, no shock at the 0% of course. 1.68% and state/local tax exempt, zero duration risk is pretty nice in today's environment.
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SmileyFace
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Re: I-bond fixed rate

Post by SmileyFace »

I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
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anon_investor
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Re: I-bond fixed rate

Post by anon_investor »

SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
Haha, please start one and I will comment!
Kookaburra
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Re: I-bond fixed rate

Post by Kookaburra »

SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
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SmileyFace
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Re: I-bond fixed rate

Post by SmileyFace »

Kookaburra wrote: Mon Nov 02, 2020 11:07 am
SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
Just in case you are serious (this question has beaten to death in the past) - a reason to wait would be if the fixed rate (assessed every May 1 and Nov 1) were to increase. The fixed rate stays consistent over the life of the iBond so if a decision was made to raise it from 0% to something else - it might be worth waiting for as this fixed rate will be applied over the life of your iBond (potentially for 30 years). Note that fixed rate has been low for years (fraction of one percent) - so waiting may only get you an extra $10 or $20 a year on a $10,000 iBond.
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spdoublebass
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Re: I-bond fixed rate

Post by spdoublebass »

SmileyFace wrote: Mon Nov 02, 2020 11:11 am
Kookaburra wrote: Mon Nov 02, 2020 11:07 am
SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
Just in case you are serious (this question has beaten to death in the past) - a reason to wait would be if the fixed rate (assessed every May 1 and Nov 1) were to increase. The fixed rate stays consistent over the life of the iBond so if a decision was made to raise it from 0% to something else - it might be worth waiting for as this fixed rate will be applied over the life of your iBond (potentially for 30 years).
Just to be clear...The fixed rate is for the life on the I Bond. I get that part.

But if someone bought an Ibond in October, they would have the previous inflation adjustment of 1.06% for 6 months, and then it would adjust to the 1.68% for the following 6 months. Correct? I'm just making sure I understand it accurately.
I'm trying to think, but nothing happens
Kookaburra
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Re: I-bond fixed rate

Post by Kookaburra »

SmileyFace wrote: Mon Nov 02, 2020 11:11 am
Kookaburra wrote: Mon Nov 02, 2020 11:07 am
SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
Just in case you are serious (this question has beaten to death in the past) - a reason to wait would be if the fixed rate (assessed every May 1 and Nov 1) were to increase. The fixed rate stays consistent over the life of the iBond so if a decision was made to raise it from 0% to something else - it might be worth waiting for as this fixed rate will be applied over the life of your iBond (potentially for 30 years). Note that fixed rate has been low for years (fraction of one percent) - so waiting may only get you an extra $10 or $20 a year on a $10,000 iBond.
I get the part about the fixed rate. It’s the timing of the inflation part that is confusing.
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SmileyFace
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Re: I-bond fixed rate

Post by SmileyFace »

Kookaburra wrote: Mon Nov 02, 2020 11:20 am
SmileyFace wrote: Mon Nov 02, 2020 11:11 am
Kookaburra wrote: Mon Nov 02, 2020 11:07 am
SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
Just in case you are serious (this question has beaten to death in the past) - a reason to wait would be if the fixed rate (assessed every May 1 and Nov 1) were to increase. The fixed rate stays consistent over the life of the iBond so if a decision was made to raise it from 0% to something else - it might be worth waiting for as this fixed rate will be applied over the life of your iBond (potentially for 30 years). Note that fixed rate has been low for years (fraction of one percent) - so waiting may only get you an extra $10 or $20 a year on a $10,000 iBond.
I get the part about the fixed rate. It’s the timing of the inflation part that is confusing.
If you are holding the iBond for decades - the only thing you are timing is the initial 6 month rate - so in my mind - it doesn't really matter.
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SmileyFace
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Re: I-bond fixed rate

Post by SmileyFace »

spdoublebass wrote: Mon Nov 02, 2020 11:18 am
SmileyFace wrote: Mon Nov 02, 2020 11:11 am
Kookaburra wrote: Mon Nov 02, 2020 11:07 am
SmileyFace wrote: Mon Nov 02, 2020 10:18 am I am looking forward to the January "Should I buy iBonds now at 0% fixed or wait until May" thread.
What are the pros of waiting?
Just in case you are serious (this question has beaten to death in the past) - a reason to wait would be if the fixed rate (assessed every May 1 and Nov 1) were to increase. The fixed rate stays consistent over the life of the iBond so if a decision was made to raise it from 0% to something else - it might be worth waiting for as this fixed rate will be applied over the life of your iBond (potentially for 30 years).
Just to be clear...The fixed rate is for the life on the I Bond. I get that part.

But if someone bought an Ibond in October, they would have the previous inflation adjustment of 1.06% for 6 months, and then it would adjust to the 1.68% for the following 6 months. Correct? I'm just making sure I understand it accurately.
Yup. Explained here:
https://www.bogleheads.org/wiki/I_savings_bonds
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#Cruncher
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Re: I-bond fixed rate

Post by #Cruncher »

For those interested, here are the composite rates that will take effect from November 2020 to April 2021 [ 1 ] and run for six months for all outstanding I Bonds, including newly issued ones with a 0.00% fixed rate. [ 2 ] They incorporate the new semi-annual inflation rate of 0.84%:

Code: Select all

  Fixed Rate Announced      Fixed   Composite
# Times   First    Last     Rate      Rate
-------  ------   ------    -----   ---------
    1    May 00             3.60%     5.31% [3]
    3    Sep 98   Nov 00    3.40%     5.11%
    2    Nov 98   May 99    3.30%     5.01%
    1    May 01             3.00%     4.71%
    2    Nov 01   May 02    2.00%     3.70%
    1    Nov 02             1.60%     3.29%
    2    May 06   Nov 06    1.40%     3.09%
    1    May 07             1.30%     2.99%

Code: Select all

    2    May 05   Nov 07    1.20%     2.89%
    2    May 03   Nov 03    1.10%     2.79%
    3    May 04   Nov 05    1.00%     2.69%
    1    Nov 08             0.70%     2.39%
    2    Nov 18   May 19    0.50%     2.18%
    2    Nov 09   May 18    0.30%     1.98%
    3    May 10   Nov 19    0.20%     1.88%
    5    May 09   Nov 17    0.10%     1.78%
   13    May 08   Nov 20    0.00%     1.68% <-- new purchase
These composite rates summarize the 1120 column near the left side of the I Bond Composite Rates triangle. The source is TreasuryDirect's What have the rates been in the past?.
  1. New composite rates take effect every six months based on the month an I Bond is purchased. For an I Bond purchased in May or November, the composite rates above will take effect November 2020 and run through April 2021. But for an I Bond purchased in April or October, they won't take effect until April 2021 and will run through September 2021. See When does my bond change rates?
  2. Click here for my post from six months ago with the previous composite rates.
  3. Composite rates are computed as follows and rounded to 4 decimal places:

    Code: Select all

    composite rate = fixed rate + ( 2 * inflation rate ) + ( fixed rate * inflation rate )
            0.0531 = 0.0360     + ( 2 * 0.0084         ) + ( 0.0360     * 0.0084         )
Hebell
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Re: I-bond fixed rate

Post by Hebell »

With GA election results, 10-year Treasury yields are steepening. Predicting a rise in inflation [political statement removed by Moderator Misenplace.]
I guess I am going to hold off for a bit. I remain on the fence about whether to buy now, or in May. I guess we should get new figures for the December CPI-U on or about January 10th, which should give us a better idea on the direction of fixed rates.

The counter-argument to this is - if the virus situation worsens - we can surely assuming no increase in fixed rate. Will wait til later in the month to decide.
----------------
Edit: As I type this, Mr. Tipswatch writes a new post on this topic. (how funny is that!) His feeling is that with negative real yields on TIPS there's no real chance the fixed rate goes up.
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Re: I-bond fixed rate

Post by Misenplace »

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Angst
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Re: I-bond fixed rate

Post by Angst »

Hebell wrote: Wed Jan 06, 2021 12:29 pm I guess I am going to hold off for a bit. I remain on the fence about whether to buy now, or in May. I guess we should get new figures for the December CPI-U on or about January 10th, which should give us a better idea on the direction of fixed rates.

[Snip...]

----------------
Edit: As I type this, Mr. Tipswatch writes a new post on this topic. (how funny is that!) His feeling is that with negative real yields on TIPS there's no real chance the fixed rate goes up.
Yes, I think it's good advice from Tipswatcher.

One peek at today's real yield curve is all I need to say that there's little chance in Hebell of seeing the I Bond fixed rate going up anytime soon, let alone the fact that the entire range of the real yield curve has been negative since April, and at 5yrs out it's been negative all of 2020 and it's been deeply negative for months now.

The fixed rate on I Bonds is typically (perhaps always?) less than what the real yield curve might suggest it could be, which is to say typically, TIPS pay a higher real yield than I Bonds. But with the negative real yield curve (for TIPS), the fixed 0.0% floor rate for I Bonds is a gift to investors these days. As of yesterday, it's a 1.61% real premium gift over what you'd get on a 5 year TIPS. Now is the time to buy, not April.

Scary scenarios predicting rapidly rising rates are just as cheap as ones predicting depression or just low rates like the EU and Japan. Forget about politics and social trends: The best predictor we have for future real rates is the Treasury's real yield curve.

2021 Real Yield Curve
2020 Real Yield Curve
2019 Real Yield Curve
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