"Money can't buy you happiness, but it does bring you a more pleasant form of misery." - Spike Milligan
logo

Go Back   Saving Advice > Financial Chit Chat > Investing & Banking

Investing & Banking stocks, bonds, banking interest rates, CDs and all other investment vehicles you want to talk about

Reply
 
LinkBack Thread Tools
  #1 (permalink)  
Old 06-19-2008, 03:01 PM
readytorock readytorock is offline
$ Saving Sixth Grader
 
Join Date: Jun 2008
Posts: 65
Points: 545.00
Donate
Default Series I bond, what am I missing?

I recently received a letter from my day job offering automatic deductions from my paycheck to purchase Series I Savings Bonds on a weekly basis.

They quoted an interest rate of 4.84%.

According to the letter the rates are locked in for 30 years when you buy a bond.

So..... what am I missing?

CD rates aren't that good. Online savings account rates aren't that good. Is this for real? Should I sign up next week for the payroll deduction and "pay myself first" with Series I Savings Bonds? Does the interest rate *really* lock in at 4.84% for 30 years?

Last edited by readytorock : 06-19-2008 at 03:15 PM. Reason: clarifying
Reply With Quote
  #2 (permalink)  
Old 06-19-2008, 03:07 PM
LuxLiving's Avatar
LuxLiving LuxLiving is offline
$ Saving College Senior
 
Join Date: Jul 2006
Location: MidSouth
Posts: 2,427
Last Blog Entry: Grow Your Own! ...no, not that, THiS...
Points: 20975.90
Donate
Default

relevant link:
Site Map: US Savings Bonds

You also want to remember that any interest earned on these is taxable at the time you cash them in...

...which could lower the return depending on your tax rate at the time you cash them in.

Last edited by LuxLiving : 06-19-2008 at 03:22 PM.
Reply With Quote
  #3 (permalink)  
Old 06-19-2008, 04:07 PM
cooliemae cooliemae is online now
$ Saving HS Sophomore
 
Join Date: Apr 2008
Location: Laona, WI
Posts: 178
Points: 1040.00
Donate
Default

Series I bonds have two components: a fixed base rate and a semiannual inflation rate.

Series I bonds are inflation adjusted, which means they will have the same purchasing power in the future as they do today.

You will not be able to touch the bonds for one year after you purchase them then a forfieture of the 3 months most recent interest before 5 years.

I would also suggest that you purchase your bonds through TreasuryDirect instead of a payroll deduction because you will have more control.
Reply With Quote
  #4 (permalink)  
Old 06-19-2008, 04:32 PM
disneysteve's Avatar
disneysteve disneysteve is offline
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 15,568
Last Blog Entry: December 2011 Survey Income
Points: 95566.30
Donate
Default

Quote:
Originally Posted by readytorock View Post
Does the interest rate *really* lock in at 4.84% for 30 years?
Quote:
Originally Posted by cooliemae View Post
Series I bonds have two components: a fixed base rate and a semiannual inflation rate.
cooliemae is correct. The overall rate is NOT locked in. What is locked in is the fixed base rate. The inflation component adjusts every 6 months in May and November I believe.

These can be very good deals. For example, about 5 years ago, I bought several I bonds ($25,000 worth to be exact). They have a fixed rate of 3.6%. The current inflation rate is 2.42%. So my bonds are currently earning 6.02%. Pretty darn good by current standards.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #5 (permalink)  
Old 06-19-2008, 05:17 PM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,376
Last Blog Entry: Career change
Points: 27853.63
Donate
Default

If I could find a guaranteed return of 4.8% above inflation, I would use that for any after tax investments outside of an EF. I did not think I bonds were paying that well now.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #6 (permalink)  
Old 06-19-2008, 06:54 PM
disneysteve's Avatar
disneysteve disneysteve is offline
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 15,568
Last Blog Entry: December 2011 Survey Income
Points: 95566.30
Donate
Default

Jim, bonds purchased today aren't paying that much because the fixed rate is lower. But mine have a fixed rate of 3.6% and now the inflation rate has risen making the overall rate quite good. I'm not sure what the fixed rate is right now. I'm guessing it is under 2%.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #7 (permalink)  
Old 06-19-2008, 11:22 PM
cptacek's Avatar
cptacek cptacek is offline
$ Saving College Junior
 
Join Date: Feb 2006
Posts: 1,388
Last Blog Entry: Good deal at Alco
Points: 8743.70
Donate
Default

Right now the fixed rate interest rate on an I bond is 0%:
Individual - I Savings Bonds Rates & Terms
Reply With Quote
  #8 (permalink)  
Old 06-19-2008, 11:41 PM
cooliemae cooliemae is online now
$ Saving HS Sophomore
 
Join Date: Apr 2008
Location: Laona, WI
Posts: 178
Points: 1040.00
Donate
Default

You beat me to it cptacek....
Reply With Quote
  #9 (permalink)  
Old 06-20-2008, 04:56 AM
readytorock readytorock is offline
$ Saving Sixth Grader
 
Join Date: Jun 2008
Posts: 65
Points: 545.00
Donate
Default

Quote:
Originally Posted by cptacek View Post
Right now the fixed rate interest rate on an I bond is 0%:
Individual - I Savings Bonds Rates & Terms
Then how are they able to quote the interest rate of 4.84% on the letter they sent? I see on the site you linked they got that number by multiplying inflation by 2. Will inflation *always* be multiplied by 2 to determine the rate of this bond? I'm confused.
Reply With Quote
  #10 (permalink)  
Old 06-20-2008, 07:14 AM
noppenbd noppenbd is offline
$ Saving College Sophomore
 
Join Date: Mar 2008
Posts: 888
Last Blog Entry: Refi Done Deal
Points: 2170.00
Donate
Default

Quote:
Originally Posted by readytorock View Post
Then how are they able to quote the interest rate of 4.84% on the letter they sent? I see on the site you linked they got that number by multiplying inflation by 2. Will inflation *always* be multiplied by 2 to determine the rate of this bond? I'm confused.
The number on the treasurydirect website represents semiannual inflation (inflation for 1/2 a year) so the yearly inflation would be double that. Therefore TD is saying that current yearly inflation is 4.84% (2.42% every six months). Buying a bond now will get you inflation + 0% for the term of the bonds, so you will only be keeping pace with inflation, not gaining anything. It might be better to wait until the fixed rate portion of the i-bonds increase above 0.
Reply With Quote
  #11 (permalink)  
Old 06-20-2008, 10:31 AM
aida2003 aida2003 is offline
$ Saving HS Senior
 
Join Date: Jan 2008
Location: Charlotte, NC
Posts: 294
Points: 1590.00
Donate
Default

Quote:
Originally Posted by noppenbd View Post
It might be better to wait until the fixed rate portion of the i-bonds increase above 0.
It's the first time the fixed rate went to 0%. It makes me wonder, can it go 'negative'? It sounds like an absurd idea, but can it?
Reply With Quote
  #12 (permalink)  
Old 06-20-2008, 10:53 AM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,376
Last Blog Entry: Career change
Points: 27853.63
Donate
Default

Quote:
Originally Posted by cptacek View Post
Right now the fixed rate interest rate on an I bond is 0%:
Individual - I Savings Bonds Rates & Terms
that is what I heard too- if OP can get the fixed rate at 4.x%, that is a good deal.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #13 (permalink)  
Old 06-20-2008, 11:05 AM
disneysteve's Avatar
disneysteve disneysteve is offline
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 15,568
Last Blog Entry: December 2011 Survey Income
Points: 95566.30
Donate
Default

Quote:
Originally Posted by jIM_Ohio View Post
that is what I heard too- if OP can get the fixed rate at 4.x%, that is a good deal.
No, you cannot. The fixed rate, as noted, is currently 0%. The inflation rate is variable and changes every 6 months. There is no way today to get a fixed rate above 0%. If the letter from the company says the 4.84% is locked in for 30 years, that is incorrect.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #14 (permalink)  
Old 06-20-2008, 11:39 AM
cooliemae cooliemae is online now
$ Saving HS Sophomore
 
Join Date: Apr 2008
Location: Laona, WI
Posts: 178
Points: 1040.00
Donate
Default

Quote:
Originally Posted by aida2003 View Post
It's the first time the fixed rate went to 0%. It makes me wonder, can it go 'negative'? It sounds like an absurd idea, but can it?
No, the fixed rate will never go below zero.
Reply With Quote
Reply



Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are Off



Powered by vBulletin®
Copyright ©2000 - 2012, Jelsoft Enterprises Ltd.
SEO by vBSEO 3.0.0 RC6 © 2006, Crawlability, Inc.

Copyright © 2012 SavingAdvice.com. All Rights Reserved.