Consensus on I Bonds for 2019?

[sophie1]

I had planned to hold off on buying I Bonds, but now I'm rethinking that.

Between the Fed's decision to pause interest rate hikes and the inflation rate falling to near zero for the past few months, it seems unlikely the fixed rate will rise in May, and it might even drop. It's currently 0.5%, the best it's been in >10 years. If the rate stays the same, it's definitely better for me to buy early due to the tax advantages.

Just wondering what everyone else is doing!

[AlwaysaQ]

I bought half my allowed amount last month and I think I will buy the remainder in April.

[CardinalRule]

Similar for me. I'm planning to buy $5,000 next week and the remainder in April, after the March inflation report comes out.

I bought half my allowed amount last month and I think I will buy the remainder in April.

[dh]

I had planned to hold off on buying I Bonds, but now I'm rethinking that.

Between the Fed's decision to pause interest rate hikes and the inflation rate falling to near zero for the past few months, it seems unlikely the fixed rate will rise in May, and it might even drop. It's currently 0.5%, the best it's been in >10 years. If the rate stays the same, it's definitely better for me to buy early due to the tax advantages.

Just wondering what everyone else is doing!

Obviously, no one knows the next fixed rate going forward in 2019. I did buy in January; I simply decided that 0.5% was "good enough." Especially given the last few years have been lower (0.3% when I bought in 2018). Good luck to you.

[knpstr]

not a buyer.

[Thesaints]

As things are now, the fixed rate is more likely to be reduced than increased on May 1st. On the other hand, the 6-month inflation data will likely be very low.
Unsure whether I’ll use next April window to buy my 10k. Will probably not make sense as a short term investment; just got a 2.90% rate on a 14 month CD from Ally.
Yet, I-bonds should also be viewed as a long term investment and the 0.5% fixed rate feels pretty good, compared to the sub-1% rate of the 20-year TIPS.
It will probably be a last minute decision, but I already know that I won’t be making an extra ES tax payment to get 5k as a refund.

[Steve K]

Bought our full allotment at end of January.

[Figuring_it_out]

Just curious as to why you would buy a 0.5% bond when 2+% money market, bond and CD investments are available. Some long term CDs like 10-20 years are available from the brokerages paying 3+%.

I would think a good CD ladder would beat 0.5% tax deferred any day of the week.

Not criticizing just winding what I'm missing.

[whodidntante]

Just curious as to why you would buy a 0.5% bond when 2+% money market, bond and CD investments are available. Some long term CDs like 10-20 years are available from the brokerages paying 3+%.

I would think a good CD ladder would beat 0.5% tax deferred any day of the week.

Not criticizing just winding what I'm missing.

It's an inflation protected, tax deferred, state tax exempt, deflation protected bond. So you get the 0.5% + inflation, but the rate cannot fall below 0%.

[Clever_Username]

Just curious as to why you would buy a 0.5% bond when 2+% money market, bond and CD investments are available. Some long term CDs like 10-20 years are available from the brokerages paying 3+%.

I would think a good CD ladder would beat 0.5% tax deferred any day of the week.

Not criticizing just winding what I'm missing.

It's an inflation protected, tax deferred, state tax exempt, deflation protected bond. So you get the 0.5% + inflation, but the rate cannot fall below 0%.

Right. cousindan is missing that it isn't 0.5%, it's 0.5% + inflation, minimum zero, and the interest isn't taxed until the bond is redeemed, and even then it isn't taxed at the state level.

[tindel]

I'm a buyer for my emergency fund. Not a buyer for any other reason.

I bought half my allotment in January. I will probably buy the other half of my allotment and am considering purchasing all of my SO's allotment before the May announcement. I think there's too much uncertainty in the next announcement, inflation rates have been near 0.0% the last few months, and it doesn't sound like the fed is going to keep increasing rates; therefore, it's unlikely they raise the fixed rate.

[Epsilon Delta]

Some years ago I bought for my emergency fund. A few years later it turned out I'd locked in such a great rate it would be a crime to give it up, so I had to refund the e-fund. It is imporatant to reevaluate from time to time.

[feh]

Already bought the limit for 2019.

[get_g0ing]

Just curious as to why you would buy a 0.5% bond when 2+% money market, bond and CD investments are available. Some long term CDs like 10-20 years are available from the brokerages paying 3+%.

I would think a good CD ladder would beat 0.5% tax deferred any day of the week.

Not criticizing just winding what I'm missing.

It's an inflation protected, tax deferred, state tax exempt, deflation protected bond. So you get the 0.5% + inflation, but the rate cannot fall below 0%.

Just curious as to why you would buy a 0.5% bond when 2+% money market, bond and CD investments are available. Some long term CDs like 10-20 years are available from the brokerages paying 3+%.

I would think a good CD ladder would beat 0.5% tax deferred any day of the week.

Not criticizing just winding what I'm missing.

It's an inflation protected, tax deferred, state tax exempt, deflation protected bond. So you get the 0.5% + inflation, but the rate cannot fall below 0%.

Right. cousindan is missing that it isn't 0.5%, it's 0.5% + inflation, minimum zero, and the interest isn't taxed until the bond is redeemed, and even then it isn't taxed at the state level.

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

[tindel]

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

Right now the semi-annual inflation percentage is 1.16%. The treasury shows how to calculate the composite rate on this website:

The inflation rate is adjusted every 6 months you hold your I-bond. Your composite rate also adjusts every 6 months. Your fixed rate does not change for the life of the bond.

The inflation rate is determined by the non-seasonally adjusted CPI-U data published by the BLS in the 6 months preceding the rate adjustment. The index values can be found at this website. You'll have to calculate the numbers yourself - I haven't found a place that lists the last 6 month change anywhere.
November announcement uses the March to September change
May announcement uses the September to March change

The last 6 months (June to December) have seen 0.30% deflation. January's numbers come out a week from today. I'll be interested to see the change.

[tindel]

Some years ago I bought for my emergency fund. A few years later it turned out I'd locked in such a great rate it would be a crime to give it up, so I had to refund the e-fund. It is imporatant to reevaluate from time to time.

What a great problem to have!

[get_g0ing]

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

Right now the semi-annual inflation percentage is 1.16%. The treasury shows how to calculate the composite rate on this website:

The inflation rate is adjusted every 6 months you hold your I-bond. Your composite rate also adjusts every 6 months. Your fixed rate does not change for the life of the bond.

The inflation rate is determined by the non-seasonally adjusted CPI-U data published by the BLS in the 6 months preceding the rate adjustment. The index values can be found at this website. You'll have to calculate the numbers yourself - I haven't found a place that lists the last 6 month change anywhere.
November announcement uses the March to September change
May announcement uses the September to March change

The last 6 months (June to December) have seen 0.30% deflation. January's numbers come out a week from today. I'll be interested to see the change.

Okay, thanks for explaining. Really nice of you.

[aristotelian]

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

It's determined every six months on an ongoing basis. You are always guaranteed to beat inflation by the amount of the fixed rate. That is what makes I Bonds so powerful. With CD's and nominal Treasuries, you are at risk of lagging inflation. Not so with I Bonds.

[get_g0ing]

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

It's determined every six months on an ongoing basis. You are always guaranteed to beat inflation by the amount of the fixed rate. That is what makes I Bonds so powerful. With CD's and nominal Treasuries, you are at risk of lagging inflation. Not so with I Bonds.

Thanks for explaining. I've never understood I-bonds although I own some also.

I was going to make a thread but I'll post my query here (I hope it's not improper to do so):
If you are in your 30s-40s and have a 3 fund portfolio, does it make sense to buy the annual I-bond limits. Or is it better to invest that money in the total stock or total international Vanguard index fund. Because the return on those would be higher.

[aristotelian]

How much is the +inflation %? Is that determined at the year you buy or at the time you redeem?

Thank you.

It's determined every six months on an ongoing basis. You are always guaranteed to beat inflation by the amount of the fixed rate. That is what makes I Bonds so powerful. With CD's and nominal Treasuries, you are at risk of lagging inflation. Not so with I Bonds.

Thanks for explaining. I've never understood I-bonds although I own some also.

I was going to make a thread but I'll post my query here (I hope it's not improper to do so):
If you are in your 30s-40s and have a 3 fund portfolio, does it make sense to buy the annual I-bond limits. Or is it better to invest that money in the total stock or total international Vanguard index fund. Because the return on those would be higher.

I have been adding I Bonds although I am starting to get pickier and only buying when there is a good fixed rate. My approach is to maintain my overall allocation, considering I Bonds as part of the bond allocation, so I am using I Bonds to diversify the bond side rather than to substitute for stocks. I also consider I bonds to be part of my emergency fund.

[tindel]

I was going to make a thread but I'll post my query here (I hope it's not improper to do so):
If you are in your 30s-40s and have a 3 fund portfolio, does it make sense to buy the annual I-bond limits. Or is it better to invest that money in the total stock or total international Vanguard index fund. Because the return on those would be higher.

Buy with purpose.

There are many reasons to buy I-bonds. Some people like the additional tax deferred space. Others like the inflation and deflation protection. Still others like the yields. But those are all reasons.

My purpose for buying I-bonds is to hold my 6-12 mo emergency fund in I-bonds. When I decided I wanted my efund to be this deep, I did some research and found I bonds were the perfect vehicle for this because the inflation and deflation protection and the tax-deferred space.

Similarly, I have a purpose when I buy stock to eventually save enough to retire. I will never save enough on my own to retire in my desired time frame. The only chance I have to do this is to buy stock. I also hold conventional bonds to help smooth out my portfolio ride - again, my bonds have purpose.

What is your purpose in buying I-bonds?

[phisher4]

As things are now, the fixed rate is more likely to be reduced than increased on May 1st. On the other hand, the 6-month inflation data will likely be very low.
Unsure whether I’ll use next April window to buy my 10k. Will probably not make sense as a short term investment; just got a 2.90% rate on a 14 month CD from Ally.
Yet, I-bonds should also be viewed as a long term investment and the 0.5% fixed rate feels pretty good, compared to the sub-1% rate of the 20-year TIPS.
It will probably be a last minute decision, but I already know that I won’t be making an extra ES tax payment to get 5k as a refund.

Your prediction of a reduction in the fixed rate certainly "feels" right, but other than that, does anyone have additional insight (or hard data) to support this feeling?

[get_g0ing]

I was going to make a thread but I'll post my query here (I hope it's not improper to do so):
If you are in your 30s-40s and have a 3 fund portfolio, does it make sense to buy the annual I-bond limits. Or is it better to invest that money in the total stock or total international Vanguard index fund. Because the return on those would be higher.

Buy with purpose.

There are many reasons to buy I-bonds. Some people like the additional tax deferred space. Others like the inflation and deflation protection. Still others like the yields. But those are all reasons.

My purpose for buying I-bonds is to hold my 6-12 mo emergency fund in I-bonds. When I decided I wanted my efund to be this deep, I did some research and found I bonds were the perfect vehicle for this because the inflation and deflation protection and the tax-deferred space.

Similarly, I have a purpose when I buy stock to eventually save enough to retire. I will never save enough on my own to retire in my desired time frame. The only chance I have to do this is to buy stock. I also hold conventional bonds to help smooth out my portfolio ride - again, my bonds have purpose.

What is your purpose in buying I-bonds?

Really liked how you said it here. Excellent quality post and very helpful.

To be honest I didn't really have a purpose in mind because I didn't/don't understand them. I just thought:
Since the government puts a limit on them, so it must be something good.

[aristotelian]

As things are now, the fixed rate is more likely to be reduced than increased on May 1st. On the other hand, the 6-month inflation data will likely be very low.
Unsure whether I’ll use next April window to buy my 10k. Will probably not make sense as a short term investment; just got a 2.90% rate on a 14 month CD from Ally.
Yet, I-bonds should also be viewed as a long term investment and the 0.5% fixed rate feels pretty good, compared to the sub-1% rate of the 20-year TIPS.
It will probably be a last minute decision, but I already know that I won’t be making an extra ES tax payment to get 5k as a refund.

Your prediction of a reduction in the fixed rate certainly "feels" right, but other than that, does anyone have additional insight (or hard data) to support this feeling?

Short term rates haven't really gone down, even if CPI has. Crystall ball says .3% with a lower moving rate.

[DaftInvestor]

just got a 2.90% rate on a 14 month CD from Ally.

The rate I see for their 14-month CD is 2.85% - and this is what I saw the last couple of times I checked over the last couple of weeks. Did you get the 2.9% rate by calling or some other special promotion?

Here's where I see 2.85: https://www.ally.com/learn/selectcd-14m/

[Thesaints]

just got a 2.90% rate on a 14 month CD from Ally.

The rate I see for their 14-month CD is 2.85% - and this is what I saw the last couple of times I checked over the last couple of weeks. Did you get the 2.9% rate by calling or some other special promotion?

Here's where I see 2.85: https://www.ally.com/learn/selectcd-14m/

I got an extra 0.05% by rolling over a maturing CD (you can add on top of it, which I did).

[Thesaints]

As things are now, the fixed rate is more likely to be reduced than increased on May 1st. On the other hand, the 6-month inflation data will likely be very low.
Unsure whether I’ll use next April window to buy my 10k. Will probably not make sense as a short term investment; just got a 2.90% rate on a 14 month CD from Ally.
Yet, I-bonds should also be viewed as a long term investment and the 0.5% fixed rate feels pretty good, compared to the sub-1% rate of the 20-year TIPS.
It will probably be a last minute decision, but I already know that I won’t be making an extra ES tax payment to get 5k as a refund.

Your prediction of a reduction in the fixed rate certainly "feels" right, but other than that, does anyone have additional insight (or hard data) to support this feeling?

The fixed rate will never be higher than the current 5-year TIPS and some suggest it will be around half of the 10-year TIPS.

[Hillview]

I was going to make a thread but I'll post my query here (I hope it's not improper to do so):
If you are in your 30s-40s and have a 3 fund portfolio, does it make sense to buy the annual I-bond limits. Or is it better to invest that money in the total stock or total international Vanguard index fund. Because the return on those would be higher.

echoing others. I purchased iBonds (and decided to do so going forward) to (slowly) move our EF to iBonds AND to have some extra for kids college if needed. That said I max out my other tax deferred space and this is "extra" at low/no risk and LOW return (like what I'd want for an Emergency Fund).

[mindboggling]

I buy my 10k limit in January regardless. Not worth trying to predict interest rates. Not worth trying to over-think this.

[J295]

When we bought we just bought every year regardless of markets, and stopped when we reached a certain amount.
If I were OP I'd just buy on a set schedule until intended amount obtained and not try and "time" the purchases.
We take the same attitude with just about all of our investment decisions and it works out fine for us over the long haul (40 years investing at this point).

[othermike27]

David Enna's articles at
https://tipswatch.com/about/
are a good source of info on I-bonds and TIPS

[grok87]

I had planned to hold off on buying I Bonds, but now I'm rethinking that.

Between the Fed's decision to pause interest rate hikes and the inflation rate falling to near zero for the past few months, it seems unlikely the fixed rate will rise in May, and it might even drop. It's currently 0.5%, the best it's been in >10 years. If the rate stays the same, it's definitely better for me to buy early due to the tax advantages.

Just wondering what everyone else is doing!

i bought my full annual allowance in january

[Mel Lindauer]

Don't forget that I Bonds can be used tax-free for qualifying educational expenses.

[Vulcan]

Don't forget that I Bonds can be used tax-free for qualifying educational expenses.

There are income limits to be aware of

https://www.treasurydirect.gov/indiv/pl ... cation.htm

For single taxpayers, the tax exclusion income limit is an adjusted gross income of $93,150 and above. For married taxpayers filing jointly, the tax exclusion income limit is an adjusted gross income of $147,250 and above.

[Mel Lindauer]

Don't forget that I Bonds can be used tax-free for qualifying educational expenses.

There are income limits to be aware of

https://www.treasurydirect.gov/indiv/pl ... cation.htm

For single taxpayers, the tax exclusion income limit is an adjusted gross income of $93,150 and above. For married taxpayers filing jointly, the tax exclusion income limit is an adjusted gross income of $147,250 and above.

Thanks for adding that qualifying AGI. That's important to know and keep in mind.

If someone finds themselves approaching the AGI limit before their children are heading off to college, remember that they can still use the I Bonds tax-free, while they still qualify, by redeeming the I Bonds and putting ALL of the proceeds into a 529 plan. (The 529 is a qualifying educational expense.)

[jj]

https://www.irs.gov/pub/irs-pdf/f8815.pdf

Form 8815 linked above shows the updated income limits for using I Bonds tax-free for education in 2018.

For Single filers the limit is a MAGI of $79,500 and phases out completely at $94,550. For MFJ the MAGI limits are $119,300, phasing out at $149,300.

In other words, to be able to take full advantage of I Bond interest tax-free for educational expenses, the lower income limits are required.

[cruzbay]

Is it still thought to be a good idea to buy iBonds before the new rate announcement on May 1st?

[petercooperjr]

Is it still thought to be a good idea to buy iBonds before the new rate announcement on May 1st?

Seems like a good plan to me.

• Current fixed rate for this month is 0.5%. While nobody knows for certain what Treasury will decide the new May 1 rate will be, it sure seems likely to be lower.
• Now that the latest inflation numbers are out, if you buy this month you'll get 2.83% for 6 months, and then 1.90% for the next 6 months. Not too shabby, and comparable to CD rates if you're looking for a maybe-short-term-or-maybe-longer emergency-fund type investments like I am.

Sometimes somebody here manages to calculate what the rate would be equivalent to if you keep it for the 11-months-and-a-day minimum time (buying at the end of the month and redeeming at the start of that month the following year), taking into account the 3 month penalty. Not sure if somebody's up for putting that calculation together.

I think it's better to buy now than next month. Though if you're planning on your whole allocation for the year, it's really hard to know what might happen by November 1 when there's another fixed rate announced. Predictions are difficult, especially about the future.

[Thesaints]

Sometimes somebody here manages to calculate what the rate would be equivalent to if you keep it for the 11-months-and-a-day minimum time (buying at the end of the month and redeeming at the start of that month the following year), taking into account the 3 month penalty. Not sure if somebody's up for putting that calculation together.

The standard 12-month return is calculated by multipliing the square roots of the six-month returns. So, Sqrt(1.0283) x Sqrt(1.019).

The annualized return taking into account investment on the last day of the month and redemption on the first day is the above return elevated to the 12/11 power.

Return taking into account the 3-month penalty is square root of the first six months times the quartic root of the second six months. i.e. Sqrt(1.0283) x (1.019)^1/4.

Putting it all together: [Sqrt(1.0283) x (1.019)^1/4]^12/11 = 2.06% annualized over the following 11 months (and 1 day)

[Trader Joe]

I had planned to hold off on buying I Bonds, but now I'm rethinking that.

Between the Fed's decision to pause interest rate hikes and the inflation rate falling to near zero for the past few months, it seems unlikely the fixed rate will rise in May, and it might even drop. It's currently 0.5%, the best it's been in >10 years. If the rate stays the same, it's definitely better for me to buy early due to the tax advantages.

Just wondering what everyone else is doing!

I do not buy bonds. Nor do I try to time the market.

[lahob]

I bought half my allotment in January and will buy the other half before the end of April. I'll be shocked if the fixed rate doesn't go down in May.

[VAslim16]

I will buy my full allotment for 2019 before April ends.

[fwellimort]

I had planned to hold off on buying I Bonds, but now I'm rethinking that.

Between the Fed's decision to pause interest rate hikes and the inflation rate falling to near zero for the past few months, it seems unlikely the fixed rate will rise in May, and it might even drop. It's currently 0.5%, the best it's been in >10 years. If the rate stays the same, it's definitely better for me to buy early due to the tax advantages.

Just wondering what everyone else is doing!

I do not buy bonds. Nor do I try to time the market.

I Bonds don't really behave like regular bonds.
I Bonds are basically a savings account. An inflation AND deflation protected savings account in a tax advantaged space.
It's the best kind of savings account out there in the market.

And I Bonds are pretty predictable. It is more likely the rates to probably fall than rise.
And 0.5% is already the best it's been over 10 years. What's there to not miss out upon?

[bernoulli]

Is the preference for I bonds over EE bonds largely a result of the illiquidity of the EE bonds? Right now the I bonds pays about 2.8% interest but you have to hold it for 5 years without incurring a penalty. The EE bonds' interest rate is higher albeit you have to hold it for 20 years.

[nisiprius]

I've done a reversal on I bonds because I didn't realize, until I read a thread in this forum and checked for myself, that electronic I bonds using a "WITH" registration don't work the way I thought they did.

One of the appeals of paper savings bonds is that if they are "co-owned," they truly are owned by both co-owners. Either one of them can redeem them--without the permission or knowledge of the other! That means that if one co-owner dies, the other co-owner doesn't need to do anything at all. The co-owner continues to have access. There's no delay, no paperwork. The co-owner can access all or some as needed and when needed, paying taxes only on the bonds that are actually redeemed.

For an electronic bond registered as "Taylor WITH Dana," the two are not co-owners. If Taylor dies, Dana needs to submit a death certificate, get the "Taylor WITH Dana" bonds transferred into the "Dana" account, and immediately pay taxes on the accrued interest on all the bonds. At least, that's my current understanding.

From the point of view of keeping things simple for the survivor of a couple, paper I bonds are great, while electronic I bonds are just like any other account, that involves paperwork and delays for the survivor to get access to them.

So I plan to hang on to our paper I bonds, but once the bonds I bought last year are a year old and have "liquified," I think I'm going to redeem everything in Treasury Direct and close the accounts.

That plan is subject to change if I find out I've misunderstood something.

[Thesaints]

Is the preference for I bonds over EE bonds largely a result of the illiquidity of the EE bonds?

Don't they have the same, infinite, liquidity ?
Hard to say which one pays more over a long period, since Series I resets every 6 months.

[fwellimort]

Is the preference for I bonds over EE bonds largely a result of the illiquidity of the EE bonds? Right now the I bonds pays about 2.8% interest but you have to hold it for 5 years without incurring a penalty. The EE bonds' interest rate is higher albeit you have to hold it for 20 years.

If I'm holding my money for 20 years on something, I rather hold most of the money on the stock market.
I trust the US Stock market in a period of say 20 years over a bond.

EE Bonds are not hyperinflation proof.
I Bonds are.
When I buy I Bonds, I am buying mostly because it is a bond that hedges against inflation. EE Bonds don't do that.

EE Bonds are like Zero Treasuries with a horrible rate if taken out before the maturity date (doubling date).
EE Bonds used to be great deals when its returns were higher but I can't really justify the current EE Bonds.

[centrifuge41]

I'm not a buyer of I bonds. Let me challenge the prevailing view on this thread.

I bought once in the past (Nov 2011 period) when I saw that the composite rate was 4.6%. 2 years later, when the composite was 1.76%, I dumped it. Back then, during that low rate period (banks like Discover savings were paying a mere 0.95%), but my state's 529 had a 2.3% FDIC insured rate special.

Now, as per Thesaints, the annualized return will be 2.06% if liquidated in a year. Or 2.58% if you count the 11-month-plus-one-day freebie. Yes, that's better than if you used Vanguard Prime (2.45% SEC yield/2.48% compound yield). But who knows if inflation will be low for a few more 6 month periods? Recall that in 2018, for periods, the compound yield was 1.18%. And there was a -0.80% inflation rate (ate up any fixed rate of 1.6% or less) and yielded 0% for 6 months in 2015. And in 2016 May, the composite rate was 0.16%. Did people hold i bonds through those periods?

Had I the November 2011 I bonds, I'd have yielded 16.56% over 8 years (1.92% compound) - not particularly attractive. Genuine question - not trying to provoke an argument It doesn't take too many low yielding periods to make I bonds unattractive (unless you bought way early on when the fixed rates were huge).

I decided to pick up a 5 year 3.56% apy CD. It has a 6 month penalty, which isn't bad. Even if I hold for 1.7 years and then dump the CD to lose the 6 month penalty, it'll come out to a better rate than Vanguard Prime. I'm thinking that this CD is a better deal than Total Bond Admiral (2.93% SEC yield with a 6.0 year duration). Granted the CD is only available if you live somewhere between VA and NJ, or in WV, (The Harbor Bank of Maryland) but there are other banks and credit unions that have nice promo rates in other parts of the country.

[link formatted by admin LadyGeek]

[#Cruncher]

The standard 12-month return is calculated by multipliing the square roots of the six-month returns. So, Sqrt(1.0283) x Sqrt(1.019).

This isn't quite right, Thesaints. As explained in the Wiki's How interest is calculated, where r is the annual composite rate, every six months an I Bond grows 1 + r / 2, not sqrt(1 + r). Since all size I Bonds are scaled off of a $25 bond and because it is rounded to the nearest penny every six months, in many cases the results are the same. But if we take a large value and a large composite rate, we can see the difference.

For example, a $25 I Bond with 3.60% Fixed Rate Purchased May 2000 had grown to $72.66 on 11/1/2018. Its composite rate for the next six months was 5.96%. Here is the value six months later computed your way and the correct way:

Code: Select all

Your way: 74.79 = 72.66 * (1 + 0.0596) ^ ( 1 / 2)
Correct:  74.83 = 72.66 * (1 + 0.0596 / 2)

This can be confirmed with the TreasuryDirect Savings Bond Calculator. (Unfortunately the SBC doesn't allow a $25 denomination I Bond. But if you select $50, it will show the value as $149.66 or twice $74.83.)

[whomever]

For an electronic bond registered as "Taylor WITH Dana," the two are not co-owners. If Taylor dies, Dana needs to submit a death certificate, get the "Taylor WITH Dana" bonds transferred into the "Dana" account, and immediately pay taxes on the accrued interest on all the bonds. At least, that's my current understanding.

See this post (and the preceding one):
viewtopic.php?f=1&t=277329&p=4477350#p4477966

It quotes someone from TD saying "When the first-named registrant of a security dies, the second-named registrant may choose to either redeem the security or have it transferred to his/her own TreasuryDirect account. The transfer to the second-named registrant's TreasuryDirect account is not a taxable event."