I Bonds Mega Thread (I Bond Heads Rejoice!)

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RockyR
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Re: I-bonds: questions before purchase

Post by RockyR »

1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by VictoriaF »

SnowBog wrote: Wed Nov 03, 2021 8:42 pm
VictoriaF wrote: Wed Nov 03, 2021 8:30 pm I have missed this thread and the opportunity to buy I bonds in October. But buying in November is still an excellent alternative. I stopped buying I bonds in 2016, forgot some facts and strategies, and would like to clarify a few points:

1. If I buy $10k worth of I bonds in November 2021 and then another $10k in January 2022, I'll have $20k of I bonds that will earn the annual 7% rate for 6 months, or about $700 (20,000 * 7% * 0.5). Right?
2. If I need cash, I can sell old I bonds that I bought with 0% fixed rate in 2011-2012. The new I bonds would replace the old I bonds while I would not have to worry about losing 3 months of interest. Is this a good strategy?
3. Question: When my I bonds will eventually mature, e.g., those I bought with the 3% fixed rate, must I cash them immediately? I may want to keep my taxable income below a certain level. Can I spread collecting interest of matured I bonds over several years?

Thank you,
Victoria
1) correct

2) correct, since they are older than 5 years, no interest penalty. Is that a good idea? That's really up to you. You'll owe taxes on the gains from the prior I Bonds. And if you keep them, they too well be earning 6 months of interest (all I Bonds will get the 7.12% inflation rate at some point). But if you need the money, that's what they are there for.

3) no. taxes are due when you sell or when they reach their 30 year maturity. If you want to spread out the taxes, you'd start selling off some before 30 years. But again, those old I Bonds will also be getting 6 months of the 7.12% rate - or actually 10.12% given the 3% fixed (assuming they are < 30 years old).
Thank you, SnowBog!

I'd like to clarify my question-3:
I know that I can start selling I bonds before their 30-year maturity. But do I have an option not to cash them after their maturity? For example, I have some 2001 3% I bonds maturing in 2031. Can I just keep them in the Treasury Direct account without earning any interest and cash them between 2031 and 2035?

Victoria

P.S. My strategy is to convert my retirement funds into Roth IRA before I start collecting Social Security. Right now I need cash to pay taxes on the conversions and to supplement general expenses. If I run out of cash, I'll have to decide whether to cash I bonds or use retirement funds.

After the age of 70, I will have no taxable funds except I bonds. I'll try stay under the IRMAA Medicare Part B surcharges, but cashing I bonds may push me over the limit.
Last edited by VictoriaF on Thu Nov 04, 2021 6:43 am, edited 1 time in total.
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HueyLD
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

VictoriaF wrote: Wed Nov 03, 2021 8:30 pm 3. Question: When my I bonds will eventually mature, e.g., those I bought with the 3% fixed rate, must I cash them immediately? I may want to keep my taxable income below a certain level. Can I spread collecting interest of matured I bonds over several years?
The TD will redeem your matured bonds for you on the maturity date and place the proceed in a Zero-Percent Certificate of Indebtedness (Zero-Percent C of I or simply, C of I) and a 1099-INT will be issued.

In other words, your money will be earning ZERO return for as long as you do nothing and taxes will be due in the year TD redeems your bonds. If you desire to spread out the tax liability, you may want to do some sort of DCA.
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VictoriaF
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by VictoriaF »

HueyLD wrote: Thu Nov 04, 2021 6:41 am
VictoriaF wrote: Wed Nov 03, 2021 8:30 pm 3. Question: When my I bonds will eventually mature, e.g., those I bought with the 3% fixed rate, must I cash them immediately? I may want to keep my taxable income below a certain level. Can I spread collecting interest of matured I bonds over several years?
The TD will redeem your matured bonds for you on the maturity date and place the proceed in a Zero-Percent Certificate of Indebtedness (Zero-Percent C of I or simply, C of I) and a 1099-INT will be issued.

In other words, your money will be earning ZERO return for as long as you do nothing and taxes will be due in the year TD redeems your bonds. If you desire to spread out the tax liability, you may want to do some sort of DCA.
Thank you, HueyLD!

In other words, using Zero-Percent Certificate of Indebtedness will not solve my problem of trying to keep the taxable income low?

Victoria
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

Correct because a 1099-INT WILL BE ISSUED upon maturity.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by LadyGeek »

I merged ThisJustIn's thread into the ongoing discussion. The combined thread is in the Investing - Theory, News & General forum.
ThisJustIn wrote: Thu Nov 04, 2021 5:36 am 3) I can invest 10K per year to I-savings bonds. I read about folks creating living trust, and investing another 10K there. Could you elaborate on how to create a living trust? And will I be able to access this money in the living trust after, let's say, 10 years? Or will that money just be for my heirs?
A living trust is an entirely different animal and needs a lawyer. You can ask about living trusts in the Personal Finance (not investing) forum.
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Charon
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Re: I-bonds: questions before purchase

Post by Charon »

ThisJustIn wrote: Thu Nov 04, 2021 5:36 am 4) I-bond rates: Last couple of years, I-savings bond rates were around 2-2.5%. Now it is 7+%. I understand there is a correlation between inflation rate and I-bond rates. The rates were also high around 2000. Given this, and given that 7+% returns of I-savings bonds is rare, do you folks still invest in I-savings bonds during every 6-month period, during a time period of, let's say, as long as 20-30 years? Or do folks mainly invest in I-bonds when inflation rate is high, to catch up with inflation rate?
Early in their history, I bonds had a high fixed rate, which made them attractive to hold long term. Right now the fixed rate is zero, but the variable inflation rate is high, which makes them attractive to hold only in the short term. I bought some this year and will buy more in January, but hadn't held them for a few years because I've had CDs in the 3-3.3% range, which were much more attractive than I bonds a couple years ago. (I can't find a chart of historical composite rates on I bonds, but they were below 2% for a while, as you'd imagine given that inflation was as well. Inflation entirely determines I bond composite rates, when the fixed rate is zero, which it has been most of the time since 2008.)
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by aj76er »

LadyGeek wrote: Thu Nov 04, 2021 7:09 am I merged ThisJustIn's thread into the ongoing discussion. The combined thread is in the Investing - Theory, News & General forum.
ThisJustIn wrote: Thu Nov 04, 2021 5:36 am 3) I can invest 10K per year to I-savings bonds. I read about folks creating living trust, and investing another 10K there. Could you elaborate on how to create a living trust? And will I be able to access this money in the living trust after, let's say, 10 years? Or will that money just be for my heirs?
A living trust is an entirely different animal and needs a lawyer. You can ask about living trusts in the Personal Finance (not investing) forum.
We are using "Make Your Own Living Trust" by Denis Clifford Attorney to create two trusts for the sole purpose of buying more iBonds.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Barefootgirl »

I logged into my TD account this morning and still see the May 2021 rate - 3.54% (or the combined rate when the fixed portion was greater than O) applied to my long list of old I bonds purchased on previous years.

Do they not show the current rate until after this 6 month period ends? that seems confusing.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by MrJedi »

Barefootgirl wrote: Thu Nov 04, 2021 12:44 pm I logged into my TD account this morning and still see the May 2021 rate - 3.54% (or the combined rate when the fixed portion was greater than O) applied to my long list of old I bonds purchased on previous years.

Do they not show the current rate until after this 6 month period ends? that seems confusing.
It depends on when your bonds were issued. The rate updates in 6 month intervals from issue. Your bonds may not be earning 7.12% yet until the next interval.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Barefootgirl »

It depends on when your bonds were issued. The rate updates in 6 month intervals from issue. Your bonds may not be earning 7.12% yet until the next interval

Ah ok, so for example, an I Bond first issued on July 1, 2018, would not adjust again until January 1, 2022?

Thank you
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by FoundingFather »

Barefootgirl wrote: Thu Nov 04, 2021 1:14 pm It depends on when your bonds were issued. The rate updates in 6 month intervals from issue. Your bonds may not be earning 7.12% yet until the next interval

Ah ok, so for example, an I Bond first issued on July 1, 2018, would not adjust again until January 1, 2022?

Thank you
Correct! Everyone gets 6 months worth of each new rate, but with the exact calendar dates of that rate being earned based on the bond issue date, not based on the announcement date, just as you illustrated.

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dstac
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by dstac »

VictoriaF wrote: Thu Nov 04, 2021 6:47 am
HueyLD wrote: Thu Nov 04, 2021 6:41 am
VictoriaF wrote: Wed Nov 03, 2021 8:30 pm 3. Question: When my I bonds will eventually mature, e.g., those I bought with the 3% fixed rate, must I cash them immediately? I may want to keep my taxable income below a certain level. Can I spread collecting interest of matured I bonds over several years?
The TD will redeem your matured bonds for you on the maturity date and place the proceed in a Zero-Percent Certificate of Indebtedness (Zero-Percent C of I or simply, C of I) and a 1099-INT will be issued.

In other words, your money will be earning ZERO return for as long as you do nothing and taxes will be due in the year TD redeems your bonds. If you desire to spread out the tax liability, you may want to do some sort of DCA.
Thank you, HueyLD!

In other words, using Zero-Percent Certificate of Indebtedness will not solve my problem of trying to keep the taxable income low?

Victoria
Just a quick note for those of us who hold paper bonds... These can be held without redemption beyond their maturity date.

Also, going up thread a little to your Q2: Consider the fixed rate of our I-bonds (if you can) when determining when to redeem. My older ones have a fixed component of 1% & up. May not seem like much when it's at 7% inflation, but feels like a lot at 0% inflation.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by step-in-time »

Treasury Direct also says you can report the interest annually if preferred, instead of lump sum when redeemed or mature: https://www.treasurydirect.gov/indiv/re ... htm#report
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Raspberry-503 »

I also keep my EF in I-Bonds (and yes some of it is still locked in for part of a year, but i staggered purchases). I also "age" one month of current expenses I'm my checking account, to absorb month-to-month variations and minor emergencies. I also have enough credit card buying power to cover over half my EF should it be necessary.

One thing that may not be clear to everyone (i know it wasn't for me) is that if you do electronic bonds, you don't have to redeems them in the same $10K increments you bought them in. Need $555? Redeem that much and have $445 left in your TD account
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tashnewbie »

Raspberry-503 wrote: Thu Nov 04, 2021 2:31 pm One thing that may not be clear to everyone (i know it wasn't for me) is that if you do electronic bonds, you don't have to redeems them in the same $10K increments you bought them in. Need $555? Redeem that much and have $445 left in your TD account
Hopefully you'd have $9,445 if you bought $10k originally :sharebeer
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Raspberry-503 »

Lol, time for more coffee :)
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by sandramjet »

dstac wrote: Thu Nov 04, 2021 1:55 pm Just a quick note for those of us who hold paper bonds... These can be held without redemption beyond their maturity date.
While it is true you do not need to redeem them when they mature the IRS technically still expects you to pay the taxes due at maturity. I don't know how they would know but that's a separate matter
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

sandramjet wrote: Thu Nov 04, 2021 3:17 pm
dstac wrote: Thu Nov 04, 2021 1:55 pm Just a quick note for those of us who hold paper bonds... These can be held without redemption beyond their maturity date.
While it is true you do not need to redeem them when they mature the IRS technically still expects you to pay the taxes due at maturity. I don't know how they would know but that's a separate matter
The TD is required to issue you a 1099-INT upon maturity, with or without actual redemption. That’s how the IRS knows.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by sandramjet »

Interesting...my mother had a bunch of paper EE bonds that matured and she never got a 1099. We found them after she passed and had to pay tax when the estate cashed them

Maybe I bonds are tracked differently??
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HueyLD
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

To clarify what I said above, I meant to say electronic bonds.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Rajsx »

mary1492 wrote: Tue Nov 02, 2021 5:42 am
ModifiedDuration wrote: Tue Nov 02, 2021 5:09 am
Blue456 wrote: Tue Nov 02, 2021 5:03 am If I bought I bonds in September, can I buy them again in January? Is it once per calendar year or once every 12 months?
It is once per calendar year, so you can buy again in January (and get the annualized rate of 7.12% for the first 6 months on that purchase).
You can buy I Bonds every single day of the year if you like. The limitation is $10,000/person/calendar year (with some additional ways to increase that limit).
Is it not a total of $15000/calendar year/per person, $10000 Digital + $5000 in Paper from one's Tax Refund,
Just checking, thanks
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by LadyGeek »

New member Eager for FIRE has a detailed question which I've moved into a new thread. See: Pay extra $5k with extension, or Increase Withholding now? [split from I Bonds Mega Thread]
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Johnny Thinwallet »

I've never invested in I Bonds but this is very tempting to do given the current rates. Two questions here, one of which pertains to me and the second pertains to my parents:

1) I'm able to carefully manage our taxable income to the point where we ride near the top of the 12% tax bracket each year (my wife is a teacher so we have loads of options for tax-deferred accounts). Given that we're in the 12% tax bracket, I think it makes sense to just pay the taxes on earnings in each year rather than deferring the taxes to redemption. Is this relatively straightforward, and/or is there anything special I need to do besides simply showing the interest earnings on our tax return each year?

2) My parents are in a unique situation. Thanks to the saver's credit, their tax liability each year is $0. Using 401(k) and IRA contributions, they are able to drive their AGI down below the threshold to take the max saver's credit (which for 2021 is $39,500), which in turn completely wipes out their tax liability. Are there any gotchas to this if they would also invest in I Bonds? If not, then in theory I believe they can buy I Bonds, report the interest for each year and still be able to drive their AGI down below the limits to take the max saver's credit. This would effectively allow them to earn the full I Bond interest amount tax free. However, I just want to make sure there's no "gotchas" on this tax treatment before recommending that they consider this.
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Re: I-bonds: questions before purchase

Post by #Cruncher »

Charon wrote: Thu Nov 04, 2021 11:23 am(I can't find a chart of historical composite rates on I bonds, but they were below 2% for a while, as you'd imagine given that inflation was as well. Inflation entirely determines I bond composite rates, when the fixed rate is zero, which it has been most of the time since 2008.)
The fixed rate on I Bonds has been 0% fifteen times. The earliest was May 2008 and the latest is this November 2021. Column F of the following table shows that the return through April 2022 ranged from a low of 1.98% for a purchase in November 2012 to a high of 7.12% for a purchase this November. [1] Cell G32 at the bottom of the table shows that if one bought an equal amount of each of the 15 I Bonds with a 0% fixed rate, the overall return would have been 2.23%. [2]

Code: Select all

Row     Col A  Col B  Col C   Col D    Col E  Col F    Col G
               -- Rates ---                   --- Return ---
  2   Bought   Fixed Inflat  Factor Grows To   Each   All 15

Code: Select all

  3  May 2008  0.00%  2.42%  1.0242  136.439  2.23%  -100.00 [2]
  4  Nov 2008  0.70%  2.46%  1.0246
  5  May 2009  0.10% -2.78%  1.0000                          [3]
  6  Nov 2009  0.30%  1.53%  1.0153
  7  May 2010  0.20%  0.77%  1.0077
  8  Nov 2010  0.00%  0.37%  1.0037  127.079  2.09%  -100.00
  9  May 2011  0.00%  2.30%  1.0230  126.611  2.16%  -100.00
 10  Nov 2011  0.00%  1.53%  1.0153  123.764  2.04%  -100.00
 11  May 2012  0.00%  1.10%  1.0110  121.899  1.99%  -100.00
 12  Nov 2012  0.00%  0.88%  1.0088  120.573  1.98%  -100.00 [1]
 13  May 2013  0.00%  0.59%  1.0059  119.521  1.99%  -100.00
 14  Nov 2013  0.20%  0.59%  1.0059
 15  May 2014  0.10%  0.92%  1.0092
 16  Nov 2014  0.00%  0.74%  1.0074  117.046  2.11%  -100.00
 17  May 2015  0.00% -0.80%  1.0000  116.186  2.15%  -100.00 [3]
 18  Nov 2015  0.10%  0.77%  1.0077
 19  May 2016  0.10%  0.08%  1.0008
 20  Nov 2016  0.00%  1.38%  1.0138  115.206  2.59%  -100.00
 21  May 2017  0.00%  0.98%  1.0098  113.638  2.57%  -100.00
 22  Nov 2017  0.10%  1.24%  1.0124
 23  May 2018  0.30%  1.11%  1.0111
 24  Nov 2018  0.50%  1.16%  1.0116
 25  May 2019  0.50%  0.70%  1.0070
 26  Nov 2019  0.20%  1.01%  1.0101
 27  May 2020  0.00%  0.53%  1.0053  106.842  3.34%  -100.00
 28  Nov 2020  0.00%  0.84%  1.0084  106.278  4.10%  -100.00
 29  May 2021  0.00%  1.77%  1.0177  105.393  5.32%  -100.00
 30  Nov 2021  0.00%  3.56%  1.0356  103.560  7.12%  -100.00 [1]
 31    15 $100 Purchases Grow To                    1,760.04
 32    Overall Return                                  2.23% [2] 
Here are the key formulas in the table:

Code: Select all

E3:   136.439 = IF(B3=0, 100 *PRODUCT(D3:D$30), 0)              -- copied down
F3:     2.23% = IF(B3=0, 2 *((E3/100)^(1/COUNT(A3:A$30))-1), 0) -- copied down
G31: 1,760.04 = SUM(E3:E30)
G32:    2.23% = 2 * IRR(G3:G31)
  1. The "Grows To" column in the table may differ a little bit from the actual values because the actual values are scaled off a $25 I Bond rounded to the nearest penny every six months.
  2. It's just a coincidence that the overall return of 2.23% equals the return of a purchase in May 2008.
  3. The returns are helped by the two cases (May 2009 and May 2015) when the inflation rate was negative. In such cases the composite rate is set to the floor value of 0% which prevents the bond's value from falling during the next six months as it otherwise would.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by MrJedi »

Johnny Thinwallet wrote: Thu Nov 04, 2021 4:21 pm
1) I'm able to carefully manage our taxable income to the point where we ride near the top of the 12% tax bracket each year (my wife is a teacher so we have loads of options for tax-deferred accounts). Given that we're in the 12% tax bracket, I think it makes sense to just pay the taxes on earnings in each year rather than deferring the taxes to redemption. Is this relatively straightforward, and/or is there anything special I need to do besides simply showing the interest earnings on our tax return each year?
It's simple but the problem is it's very manual and not well known to most people. You have to manually track the interest increase in your bonds each year and report that on your interest income on your tax return. You do not get an annual 1099, as the 1099 isn't issued until redemption. You login and see what your accrued interest is each year to calculate your annual income.

The confusing thing is when you redeem, the full amount will be shown on the 1099 even if you have been paying annually, so you basically just ignore what the 1099 says and stay with the annual increase in interest method used in prior years.

This stuff isn't a huge deal to do, but the problem is if somebody else does your taxes or inherits the bond from you, it is easy to overlook that somebody may have been paying annually already and accidentally end up double taxing the interest when they just report what's on the 1099.

Unless you expect to be in a much higher tax bracket at redemption, you may still want to defer so that you don't have annual tax drag each year (like compound interest working against you).
Last edited by MrJedi on Thu Nov 04, 2021 5:20 pm, edited 2 times in total.
Charon
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Re: I-bonds: questions before purchase

Post by Charon »

#Cruncher wrote: Thu Nov 04, 2021 4:23 pm The fixed rate on I Bonds has been 0% fifteen times. The earliest was May 2008 and the latest is this November 2021. Column F of the following table shows that the return through April 2022 ranged from a low of 1.98%...
Thanks for providing those inflation rates. Shows that as recently as just over a year ago, the total rate on I-bonds was barely over 1%. No wonder I was adding to the 3% CD instead. (Obviously we make decisions with the info we have at the time. I'm still ahead on that decision from last year, but not as much as I'd have expected.)
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

MrJedi wrote: Thu Nov 04, 2021 5:17 pm The confusing thing is when you redeem, the full amount will be shown on the 1099 even if you have been paying annually, so you basically just ignore what the 1099 says and stay with the annual increase in interest method used in prior years.
Not so because it guarantees that you will get a letter from the IRS.

A 1099-INT cannot be ignored. CANNOT!!

Per IRS Publication 550:

“On Schedule B (Form 1040 or 1040-SR), Part I, line 1, report all the interest shown on your Form 1099-INT. Then follow these steps.

1. Several lines above line 2, enter a subtotal of all interest listed on line 1.

2. Below the subtotal enter “U.S. Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond.

3. Subtract these amounts from the subtotal and enter the result on line 2.”
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Re: I-bonds: questions before purchase

Post by ThisJustIn »

RockyR wrote: Thu Nov 04, 2021 5:59 am 1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
Thanks for your response.
To clarify my second question:
1) If I buy 10K ibonds now, the interest rate until May 1st will be 7.12%. After May 1st, will the rate change, or will it grow with 7.12% for however many years I hold it?
2) In 2022, before the rate changes in May 1st, if I purchase ibonds before this date, will I be locking in 7.12% interest rate for however long I plan to hold the ibonds, or, will the rate change after May 1st and every 6 months moving forward?
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Re: I-bonds: questions before purchase

Post by z3r0c00l »

ThisJustIn wrote: Thu Nov 04, 2021 6:34 pm
RockyR wrote: Thu Nov 04, 2021 5:59 am 1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
Thanks for your response.
To clarify my second question:
1) If I buy 10K ibonds now, the interest rate until May 1st will be 7.12%. After May 1st, will the rate change, or will it grow with 7.12% for however many years I hold it?
2) In 2022, before the rate changes in May 1st, if I purchase ibonds before this date, will I be locking in 7.12% interest rate for however long I plan to hold the ibonds, or, will the rate change after May 1st and every 6 months moving forward?
The rate will change depending on new inflation numbers. It may stay high, or go down, it could even go to zero if there is no or negative inflation. Another stretch of 7% is unlikely as this is an abnormally high rate of inflation. There is no question in my mind that anyone with $10,000 in cash somewhere should strongly consider buying I bonds again in January.
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Re: I-bonds: questions before purchase

Post by SnowBog »

z3r0c00l wrote: Thu Nov 04, 2021 6:40 pm The rate will change depending on new inflation numbers. It may stay high, or go down, it could even go to zero if there is no or negative inflation.
Technically, the "inflation" rate could even be negative. But the composite rate can never be below 0%, which means they also provide a level of deflation protection (in addition to inflation protection).
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Re: I-bonds: questions before purchase

Post by ThisJustIn »

z3r0c00l wrote: Thu Nov 04, 2021 6:40 pm
ThisJustIn wrote: Thu Nov 04, 2021 6:34 pm
RockyR wrote: Thu Nov 04, 2021 5:59 am 1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
Thanks for your response.
To clarify my second question:
1) If I buy 10K ibonds now, the interest rate until May 1st will be 7.12%. After May 1st, will the rate change, or will it grow with 7.12% for however many years I hold it?
2) In 2022, before the rate changes in May 1st, if I purchase ibonds before this date, will I be locking in 7.12% interest rate for however long I plan to hold the ibonds, or, will the rate change after May 1st and every 6 months moving forward?
The rate will change depending on new inflation numbers. It may stay high, or go down, it could even go to zero if there is no or negative inflation. Another stretch of 7% is unlikely as this is an abnormally high rate of inflation. There is no question in my mind that anyone with $10,000 in cash somewhere should strongly consider buying I bonds again in January.
Thanks, this must be the catch. If so, buying in January will not lock in 7.12% interest rate, and if I hold the i-bonds for minimum time period without any penalty (5 years), that 10K i purchase in January may experience low return rates over the course of 5 years. So, although I was planning to buy in January, given the varying interest rate, now I will think again.
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Re: I-bonds: questions before purchase

Post by SnowBog »

ThisJustIn wrote: Thu Nov 04, 2021 6:50 pm
z3r0c00l wrote: Thu Nov 04, 2021 6:40 pm
ThisJustIn wrote: Thu Nov 04, 2021 6:34 pm
RockyR wrote: Thu Nov 04, 2021 5:59 am 1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
Thanks for your response.
To clarify my second question:
1) If I buy 10K ibonds now, the interest rate until May 1st will be 7.12%. After May 1st, will the rate change, or will it grow with 7.12% for however many years I hold it?
2) In 2022, before the rate changes in May 1st, if I purchase ibonds before this date, will I be locking in 7.12% interest rate for however long I plan to hold the ibonds, or, will the rate change after May 1st and every 6 months moving forward?
The rate will change depending on new inflation numbers. It may stay high, or go down, it could even go to zero if there is no or negative inflation. Another stretch of 7% is unlikely as this is an abnormally high rate of inflation. There is no question in my mind that anyone with $10,000 in cash somewhere should strongly consider buying I bonds again in January.
Thanks, this must be the catch. If so, buying in January will not lock in 7.12% interest rate, and if I hold the i-bonds for minimum time period without any penalty (5 years), that 10K i purchase in January may experience low return rates over the course of 5 years. So, although I was planning to buy in January, given the varying interest rate, now I will think again.
Rates don't change again until May. Bonds purchased anytime before then will get 6 months off 7.12% starting from the month purchased. Then they'll have 6 months of the new rate set next May.
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Re: I-bonds: questions before purchase

Post by z3r0c00l »

ThisJustIn wrote: Thu Nov 04, 2021 6:50 pm
z3r0c00l wrote: Thu Nov 04, 2021 6:40 pm
ThisJustIn wrote: Thu Nov 04, 2021 6:34 pm
RockyR wrote: Thu Nov 04, 2021 5:59 am 1. Yes, you can overpay your taxes and buy up to 5,000 in I bonds using your refund.

2. The current rate will be in force for 6 months. The inflation rates changes every 6 months (but never less then 0). The fixed return (now 0.00) will not change as long as you hold the bond(s).

3. I don't know, but there is some information on the TD website.

4. I can't speak for other people's motivation. But I use the I-bond to hedge my future inflation risk, the current inflation rate is not a factor.
Thanks for your response.
To clarify my second question:
1) If I buy 10K ibonds now, the interest rate until May 1st will be 7.12%. After May 1st, will the rate change, or will it grow with 7.12% for however many years I hold it?
2) In 2022, before the rate changes in May 1st, if I purchase ibonds before this date, will I be locking in 7.12% interest rate for however long I plan to hold the ibonds, or, will the rate change after May 1st and every 6 months moving forward?
The rate will change depending on new inflation numbers. It may stay high, or go down, it could even go to zero if there is no or negative inflation. Another stretch of 7% is unlikely as this is an abnormally high rate of inflation. There is no question in my mind that anyone with $10,000 in cash somewhere should strongly consider buying I bonds again in January.
Thanks, this must be the catch. If so, buying in January will not lock in 7.12% interest rate, and if I hold the i-bonds for minimum time period without any penalty (5 years), that 10K i purchase in January may experience low return rates over the course of 5 years. So, although I was planning to buy in January, given the varying interest rate, now I will think again.
I might stress that you are going to get inflation, no more, no less. Your money will grow to whatever number is needed to be worth in 5 years what $10,000 is worth today. The guarantee here is that it matches inflation, the catch is that it rarely if ever beats inflation. 7% is only exciting because nothing safe is offering anything near that. But in a sense, I bonds are no more exciting today than they were in a past year paying 3%. They paid inflation then, and are doing the same now.
Last edited by z3r0c00l on Thu Nov 04, 2021 7:05 pm, edited 1 time in total.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mary1492 »

xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 3:20 am, edited 1 time in total.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Living Free »

SnowBog wrote: Wed Nov 03, 2021 7:02 pm
printer86 wrote: Wed Nov 03, 2021 6:49 pm Question for the group.

I opened an individual treasury direct account in my name this week, but I'm not sure how to add one my spouse. Is this done by "adding a new registration" of the buy direct page? If so, how do I label the account Sole?, primary?
Accounts are only in one person's name. No such thing as a "joint" account at TD.

When you purchase the bonds, you can have a "co-owner" (acts more like beneficiary though). So you could title them for "printer86 & spouse of printer86".

If you are trying to have them purchase an additional $10k, they'll need their own account. And they could title you as well.

If you both have accounts, you can optionally go into the bonds you purchased and grant spouse "transaction rights" - either view only or the ability to sell. Presumably you'd do the same in reverse with their account/bonds. This let's either of you go into your individual accounts and sell your and/or spouse bonds (assuming your granted seek rights). That's the closest you'll get to "joint".

Alternatively, you could "buy as gift" for spouse. They'll eventually need their own account to receive and/or redeem them.
Does anyone know if I set up my treasury direct account through a revocable trust (I'm the grantor and wife and I are trustees) can I still give my wife "transaction rights"? Or is this process different if the account is held as a trust account? I'd like for her to have access in case I'm incapacitated or dead and also keep it in the trust. I suppose a work around would be to keep it out of the trust and hold it in my name then list the trust as a beneficiary.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SnowBog »

Living Free wrote: Thu Nov 04, 2021 7:15 pm
SnowBog wrote: Wed Nov 03, 2021 7:02 pm
printer86 wrote: Wed Nov 03, 2021 6:49 pm Question for the group.

I opened an individual treasury direct account in my name this week, but I'm not sure how to add one my spouse. Is this done by "adding a new registration" of the buy direct page? If so, how do I label the account Sole?, primary?
Accounts are only in one person's name. No such thing as a "joint" account at TD.

When you purchase the bonds, you can have a "co-owner" (acts more like beneficiary though). So you could title them for "printer86 & spouse of printer86".

If you are trying to have them purchase an additional $10k, they'll need their own account. And they could title you as well.

If you both have accounts, you can optionally go into the bonds you purchased and grant spouse "transaction rights" - either view only or the ability to sell. Presumably you'd do the same in reverse with their account/bonds. This let's either of you go into your individual accounts and sell your and/or spouse bonds (assuming your granted seek rights). That's the closest you'll get to "joint".

Alternatively, you could "buy as gift" for spouse. They'll eventually need their own account to receive and/or redeem them.
Does anyone know if I set up my treasury direct account through a revocable trust (I'm the grantor and wife and I are trustees) can I still give my wife "transaction rights"? Or is this process different if the account is held as a trust account? I'd like for her to have access in case I'm incapacitated or dead and also keep it in the trust. I suppose a work around would be to keep it out of the trust and hold it in my name then list the trust as a beneficiary.
I don't think you can do either...

You definitely cannot use transaction rights for bonds in an entity (aka trust) account.

And I don't believe you can assign anything other than a person as a co-owner. (In other words, you can't have a trust as a co-owner.)

Instead, it should be more a function of your estate and/or trust.

For example, the bonds in my entity account are titled "SnowBog or successor Trustee(s) of SnowBog Living Trust dated X as amended". If I'm incapacitated (or dead) my trust defines who becomes trustee, which by default is my spouse. They can provide adequate information to gain access as the successor trustee and then can do whatever they need to.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Living Free »

SnowBog wrote: Thu Nov 04, 2021 7:25 pm
Living Free wrote: Thu Nov 04, 2021 7:15 pm
SnowBog wrote: Wed Nov 03, 2021 7:02 pm
printer86 wrote: Wed Nov 03, 2021 6:49 pm Question for the group.

I opened an individual treasury direct account in my name this week, but I'm not sure how to add one my spouse. Is this done by "adding a new registration" of the buy direct page? If so, how do I label the account Sole?, primary?
Accounts are only in one person's name. No such thing as a "joint" account at TD.

When you purchase the bonds, you can have a "co-owner" (acts more like beneficiary though). So you could title them for "printer86 & spouse of printer86".

If you are trying to have them purchase an additional $10k, they'll need their own account. And they could title you as well.

If you both have accounts, you can optionally go into the bonds you purchased and grant spouse "transaction rights" - either view only or the ability to sell. Presumably you'd do the same in reverse with their account/bonds. This let's either of you go into your individual accounts and sell your and/or spouse bonds (assuming your granted seek rights). That's the closest you'll get to "joint".

Alternatively, you could "buy as gift" for spouse. They'll eventually need their own account to receive and/or redeem them.
Does anyone know if I set up my treasury direct account through a revocable trust (I'm the grantor and wife and I are trustees) can I still give my wife "transaction rights"? Or is this process different if the account is held as a trust account? I'd like for her to have access in case I'm incapacitated or dead and also keep it in the trust. I suppose a work around would be to keep it out of the trust and hold it in my name then list the trust as a beneficiary.
I don't think you can do either...

You definitely cannot use transaction rights for bonds in an entity (aka trust) account.

And I don't believe you can assign anything other than a person as a co-owner. (In other words, you can't have a trust as a co-owner.)

Instead, it should be more a function of your estate and/or trust.

For example, the bonds in my entity account are titled "SnowBog or successor Trustee(s) of SnowBog Living Trust dated X as amended". If I'm incapacitated (or dead) my trust defines who becomes trustee, which by default is my spouse. They can provide adequate information to gain access as the successor trustee and then can do whatever they need to.
Thanks for the info Snowbog!
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Barefootgirl »


Correct! Everyone gets 6 months worth of each new rate, but with the exact calendar dates of that rate being earned based on the bond issue date, not based on the announcement date, just as you illustrated.


Thank you for confirming! So, I understand interest is also paid out semi-annually. So I can assume then that the interest payment is added to the bond value at the end of the six month period that began on the issuance date. Is that correct? Thank you. Accordingly, depending on how many individual bonds one has and when they were issued, one could see their total balance increase every month?
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by GTBuzz »

The interest rate changes every six months on the semiannual anniversary of each individual bond, but interest is paid on each individual bond on a monthly basis.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SanAntionetta »

I'm in!! I hate having my EF sitting and earning <1% in my "HY"SA basically losing money. Its also nice to have no way to accidentally spend it.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by NorCalDad »

SanAntionetta wrote: Fri Nov 05, 2021 8:08 am I'm in!! I hate having my EF sitting and earning <1% in my "HY"SA basically losing money. Its also nice to have no way to accidentally spend it.
Curious, has there ever been this wide a gap between the prevailing savings/money market rates and the I Bond rate?
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by 20Dukes11 »

Apologies if this has been mentioned somewhere previous. I believe I'm reading the TreasuryDirect site correctly...do these I bonds add their interest to the principle every 6 months? I.e., if I bought bonds in October 2021, I shouldn't see an update to my balance until end of April/beginning May 2022?
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Ketawa »

20Dukes11 wrote: Fri Nov 05, 2021 8:41 am Apologies if this has been mentioned somewhere previous. I believe I'm reading the TreasuryDirect site correctly...do these I bonds add their interest to the principle every 6 months? I.e., if I bought bonds in October 2021, I shouldn't see an update to my balance until end of April/beginning May 2022?
No, it's monthly. However, the last 3 months of interest is always excluded until you reach the 5 year mark. So if you bought I Bonds in October 2021, you would not see any higher balance until after you receive interest for January 2022. The balance will then include October 2021 interest and exclude November 2021 through January 2022.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by 20Dukes11 »

Ketawa wrote: Fri Nov 05, 2021 8:48 am
20Dukes11 wrote: Fri Nov 05, 2021 8:41 am Apologies if this has been mentioned somewhere previous. I believe I'm reading the TreasuryDirect site correctly...do these I bonds add their interest to the principle every 6 months? I.e., if I bought bonds in October 2021, I shouldn't see an update to my balance until end of April/beginning May 2022?
No, it's monthly. However, the last 3 months of interest is always excluded until you reach the 5 year mark. So if you bought I Bonds in October 2021, you would not see any higher balance until after you receive interest for January 2022. The balance will then include October 2021 interest and exclude November 2021 through January 2022.
Excellent, thank you for that explanation!
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Namashkar »

I bought $20,000 ($10,000 for me and $10,000 for my wife) worth of I-Bonds last month i.e. in October, 2021 assuming that when the interest rate changes on November 1, I will start earning the interest at new rate, just like the interest rate change applied to a Bank Savings account. That assumption seems to be incorrect with I-Bond. I will continue to earn interest at 3.54% for Oct thru April and at 7.12% from May 2022 thru Oct 2022. Can somebody please confirm my new assumption? I would have benefited if I would have waited until November to get the higher rate instead.

Thanks,
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by feehater »

Namashkar wrote: Fri Nov 05, 2021 9:19 am I bought $20,000 ($10,000 for me and $10,000 for my wife) worth of I-Bonds last month i.e. in October, 2021 assuming that when the interest rate changes on November 1, I will start earning the interest at new rate, just like the interest rate change applied to a Bank Savings account. That assumption seems to be incorrect with I-Bond. I will continue to earn interest at 3.54% for Oct thru April and at 7.12% from May 2022 thru Oct 2022. Can somebody please confirm my new assumption? I would have benefited if I would have waited until November to get the higher rate instead.

Thanks,
Your new assumption is the correct one. But you don’t know that your final sentence is true yet. If you’d waited until November you’d have 7.12% for six months, but the second six month period would be at a rate we won’t know until April. If it’s higher than 3.54% you will be sad, but if it is lower, you actually made the better choice. So, you’ll have to wait til then to find out if your unwitting gamble was correct.
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Whakamole »

NorCalDad wrote: Fri Nov 05, 2021 8:37 am
SanAntionetta wrote: Fri Nov 05, 2021 8:08 am I'm in!! I hate having my EF sitting and earning <1% in my "HY"SA basically losing money. Its also nice to have no way to accidentally spend it.
Curious, has there ever been this wide a gap between the prevailing savings/money market rates and the I Bond rate?
I don't remember there being one. But: even at a ~3.4% annualized (the previous gap), and with tax deferral, it's usually a much better deal than HYSA.

You can see the interest rate history here: http://kirklindstrom.com/Articles/I_Bon ... story.html
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Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tashnewbie »

Namashkar wrote: Fri Nov 05, 2021 9:19 am I bought $20,000 ($10,000 for me and $10,000 for my wife) worth of I-Bonds last month i.e. in October, 2021 assuming that when the interest rate changes on November 1, I will start earning the interest at new rate, just like the interest rate change applied to a Bank Savings account. That assumption seems to be incorrect with I-Bond. I will continue to earn interest at 3.54% for Oct thru April and at 7.12% from May 2022 thru Oct 2022. Can somebody please confirm my new assumption? I would have benefited if I would have waited until November to get the higher rate instead.

Thanks,
If purchased between May-October 2021, the I bonds will earn the May 2021 rate (3.54%) for the first 6 months after issuance, then they'll earn the November 2021 rate (7.12%) for the next 6 months. If you purchased in October, then your bonds will change rates in April 2022 (first 6 months is Oct. through March, because as long as you purchase within a given month, you're deemed to have held the bond for the entire month).
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Re: I-bonds: questions before purchase

Post by aj76er »

#Cruncher wrote: Thu Nov 04, 2021 4:23 pm
Charon wrote: Thu Nov 04, 2021 11:23 am(I can't find a chart of historical composite rates on I bonds, but they were below 2% for a while, as you'd imagine given that inflation was as well. Inflation entirely determines I bond composite rates, when the fixed rate is zero, which it has been most of the time since 2008.)
The fixed rate on I Bonds has been 0% fifteen times. The earliest was May 2008 and the latest is this November 2021. Column F of the following table shows that the return through April 2022 ranged from a low of 1.98% for a purchase in November 2012 to a high of 7.12% for a purchase this November. [1] Cell G32 at the bottom of the table shows that if one bought an equal amount of each of the 15 I Bonds with a 0% fixed rate, the overall return would have been 2.23%. [2]

Code: Select all

Row     Col A  Col B  Col C   Col D    Col E  Col F    Col G
               -- Rates ---                   --- Return ---
  2   Bought   Fixed Inflat  Factor Grows To   Each   All 15

Code: Select all

  3  May 2008  0.00%  2.42%  1.0242  136.439  2.23%  -100.00 [2]
  4  Nov 2008  0.70%  2.46%  1.0246
  5  May 2009  0.10% -2.78%  1.0000                          [3]
  6  Nov 2009  0.30%  1.53%  1.0153
  7  May 2010  0.20%  0.77%  1.0077
  8  Nov 2010  0.00%  0.37%  1.0037  127.079  2.09%  -100.00
  9  May 2011  0.00%  2.30%  1.0230  126.611  2.16%  -100.00
 10  Nov 2011  0.00%  1.53%  1.0153  123.764  2.04%  -100.00
 11  May 2012  0.00%  1.10%  1.0110  121.899  1.99%  -100.00
 12  Nov 2012  0.00%  0.88%  1.0088  120.573  1.98%  -100.00 [1]
 13  May 2013  0.00%  0.59%  1.0059  119.521  1.99%  -100.00
 14  Nov 2013  0.20%  0.59%  1.0059
 15  May 2014  0.10%  0.92%  1.0092
 16  Nov 2014  0.00%  0.74%  1.0074  117.046  2.11%  -100.00
 17  May 2015  0.00% -0.80%  1.0000  116.186  2.15%  -100.00 [3]
 18  Nov 2015  0.10%  0.77%  1.0077
 19  May 2016  0.10%  0.08%  1.0008
 20  Nov 2016  0.00%  1.38%  1.0138  115.206  2.59%  -100.00
 21  May 2017  0.00%  0.98%  1.0098  113.638  2.57%  -100.00
 22  Nov 2017  0.10%  1.24%  1.0124
 23  May 2018  0.30%  1.11%  1.0111
 24  Nov 2018  0.50%  1.16%  1.0116
 25  May 2019  0.50%  0.70%  1.0070
 26  Nov 2019  0.20%  1.01%  1.0101
 27  May 2020  0.00%  0.53%  1.0053  106.842  3.34%  -100.00
 28  Nov 2020  0.00%  0.84%  1.0084  106.278  4.10%  -100.00
 29  May 2021  0.00%  1.77%  1.0177  105.393  5.32%  -100.00
 30  Nov 2021  0.00%  3.56%  1.0356  103.560  7.12%  -100.00 [1]
 31    15 $100 Purchases Grow To                    1,760.04
 32    Overall Return                                  2.23% [2] 
Here are the key formulas in the table:

Code: Select all

E3:   136.439 = IF(B3=0, 100 *PRODUCT(D3:D$30), 0)              -- copied down
F3:     2.23% = IF(B3=0, 2 *((E3/100)^(1/COUNT(A3:A$30))-1), 0) -- copied down
G31: 1,760.04 = SUM(E3:E30)
G32:    2.23% = 2 * IRR(G3:G31)
  1. The "Grows To" column in the table may differ a little bit from the actual values because the actual values are scaled off a $25 I Bond rounded to the nearest penny every six months.
  2. It's just a coincidence that the overall return of 2.23% equals the return of a purchase in May 2008.
  3. The returns are helped by the two cases (May 2009 and May 2015) when the inflation rate was negative. In such cases the composite rate is set to the floor value of 0% which prevents the bond's value from falling during the next six months as it otherwise would.
This is a really great analysis. Thank you!

For an interesting comparison, based on "portfolio visualizer" data, U.S. Total Bond Mkt had a total return of 3.79% from Jan 2008 until Oct 2021. But it also had a stddev of 3.38% and a max drawdown of -3.99% over the time period.
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