I Bond at 7%???

[ken1706]

Originally Posted by Russell

Yeah, I too am disappointed

So what happens if next year they decide to lower the inflation rate to 3% ? Will it be paying 4%...that would be worse than ED/ING because most likely the interest rates will rise in general and ED/ING will be paying more than the current 4%. Lets hope they adjust the base interest rate higher when they do lower the inflation rate...

I guess I'll move my unused money into I-Bonds anyway...

Yup, next May the combined I Bond rate may be 4% or lower if the fixed rate stays at 1%. Back in May 2002, the inflation rate happened to be only 0.56% and the Treasury kept the fixed rate at 2.00% resulting in a combined rate of only 2.58%.

Next May could be a big disappointment for those who buy I Bonds in the next 6 months. It may be better to wait for May before purchasing more I Bonds. There could be a big hike in the fixed rate then. Back in 2001, the fixed rate had a big downward move of 1% (from 3% to 2%). So it's possible that we could see a similar move in the opposite direction.

[whaskins09]

Originally Posted by baselle

Interest is applied on the first of the month, so on Nov 1 your 10/2005 bond's interest rate will change to the higher rate, and will keep that total interest rate for 6 months when it changes to a new one.

Originally Posted by suedavids

you can buy them before Nov 1st but they are paying ( in this 6 month period) about 4.8%. If you bought them in oct. you would get this rate for the next 6 months then they would pay another rate 6 months latter( depending on the calculations of base + inflation).

However, if they go to 7% for the 6 month period and you bought them in Oct. you would not get that rate (instead you would get 4.8% for 6 months). In other words, you would get the rate within the 6 month period that you bought it. As I mentioned before though, 6 months latter it will be set at a new rate.

I was wondering if someone could clear this up for me because I'm a little confused.

*Lets say I bought an I-Bond in October. When November 1st rolls around would the variable interest rate of the bond change to reflect November or would I have been stuck with the variable rate for October for the next 6 months?

*Is it possible to buy an I-Bond in February 2006 and still receive 6 months of the same variable interest rate that was applied to the November-April time period? Or would the variable interest rate of the I-Bond purchased in February change in April to match the 6-month time period of the November I-Bond and therefore I would only recieve two months of the 5.75 variable interest rate?

*Lastly, I know this is a "dumb" question but is the interest accumulated in an I-Bond compounded or is it simple?

Thanks a million.

[suedavids]

Originally Posted by whaskins09

I was wondering if someone could clear this up for me because I'm a little confused.

*Lets say I bought an I-Bond in October. When November 1st rolls around would the variable interest rate of the bond change to reflect November or would I have been stuck with the variable rate for October for the next 6 months?

*Is it possible to buy an I-Bond in February 2006 and still receive 6 months of the same variable interest rate that was applied to the November-April time period? Or would the variable interest rate of the I-Bond purchased in February change in April to match the 6-month time period of the November I-Bond and therefore I would only recieve two months of the 5.75 variable interest rate?

*Lastly, I know this is a "dumb" question but is the interest accumulated in an I-Bond compounded or is it simple?

Thanks a million.

This is the scoop. If you bought your I-bond in October of 05 you actually have a good deal because the base rate was 1.20%. In November it has dropped to 1%. So this is how your i-bond plays out. The Oct. bond was paying 4.8% and you will get that for 6 months. Then you will get the current rate of 6.7% + the extra .20% (higher base rate). Thus you would be getting 6.9% for the next 6 months. Then you will have another rate the next 6 months. If inflation is down in May, the rates will be down. I-bonds still pay higher than fixed accounts and is state tax deducatable. Best of all you cannot loose your original investment. You are guaranteed a return.

If you buy in Feb. , you will get the rate that you bought in for 6 months. Then it will convert for 6 months to the next rate and so on and so on. The gov site tells you what your bonds are receiving.

Download the bond wizzard at the site www.savingsbonds.gov

[zabbkoff]

Few questions about I-Bonds, or maybe more specifically about purchasing them. I have set up an account at treasurydirect.gov, and in looking around, I believe that I want to purchase a "Series I Savings Bond." There's a Purchase Express box in which you just choose from the drop down menu the product you want to buy, and the amount. This seems a little too easy, so of course I became skeptical. Not of the website, but of my knowledge. So I suppose my first question is, is this what I'm looking for?

Next, I'm curious if you can monitor the interest, or if it just shows up after a year? And let's say I want to take the money out after a year (yep, I know about the penalty if taken before 5 years), is there a "sell" button, where it more or less just puts the money + interest back into the linked account?

I could of course just take the plunge and see some of this for myself, but I can just see after I do it, it'll give me some weird message like "Thanks for buying the no-interest 10 year minimum bond. Good luck."

Thanks in advance!

Ben

[suedavids]

Originally Posted by zabbkoff

Few questions about I-Bonds, or maybe more specifically about purchasing them. I have set up an account at treasurydirect.gov, and in looking around, I believe that I want to purchase a "Series I Savings Bond." There's a Purchase Express box in which you just choose from the drop down menu the product you want to buy, and the amount. This seems a little too easy, so of course I became skeptical. Not of the website, but of my knowledge. So I suppose my first question is, is this what I'm looking for?

Next, I'm curious if you can monitor the interest, or if it just shows up after a year? And let's say I want to take the money out after a year (yep, I know about the penalty if taken before 5 years), is there a "sell" button, where it more or less just puts the money + interest back into the linked account?

I could of course just take the plunge and see some of this for myself, but I can just see after I do it, it'll give me some weird message like "Thanks for buying the no-interest 10 year minimum bond. Good luck."

Thanks in advance!

Ben

If you are buying on line, you have to open an account with treasury direct https://www.treasurydirect.gov/RS/BP...ation=rscreate. I do not buy on line. I buy paper bonds at a bank. You can buy direct and they hold them for you or they can send you paper.

To track your bonds, download "bond wizzard" and enter the numbers of your bonds. You can check the value through this program. It keeps a running tally.

Be careful when you cash these in. You need to wait until they payed. I think they pay quarterly so make sure you don't pull the money before they pay out.

The advantage of buying paper i-bonds is that you can register these I-bonds to a trust. Treasury direct does not offer the internet bonds to be designated in trust accounts.

There is a phone # on the site to call the federal reserve if you need help. I would suggest buying one small one first to make sure you are doing it correctly.

[suedavids]

Originally Posted by suedavids

If you are buying on line, you have to open an account with treasury direct https://www.treasurydirect.gov/RS/BP...ation=rscreate. I do not buy on line. I buy paper bonds at a bank. You can buy direct and they hold them for you or they can send you paper.

To track your bonds, download "bond wizzard" and enter the numbers of your bonds. You can check the value through this program. It keeps a running tally.

Be careful when you cash these in. You need to wait until they payed. I think they pay quarterly so make sure you don't pull the money before they pay out.

The advantage of buying paper i-bonds is that you can register these I-bonds to a trust. Treasury direct does not offer the internet bonds to be designated in trust accounts.

There is a phone # on the site to call the federal reserve if you need help. I would suggest buying one small one first to make sure you are doing it correctly.

One additional thing. To buy ibonds go to www.savingforbonds.gov Always make sure the gov is in the address or it could be a scam.

[baselle]

Originally Posted by zabbkoff

Few questions about I-Bonds, or maybe more specifically about purchasing them. I have set up an account at treasurydirect.gov, and in looking around, I believe that I want to purchase a "Series I Savings Bond." There's a Purchase Express box in which you just choose from the drop down menu the product you want to buy, and the amount. This seems a little too easy, so of course I became skeptical. Not of the website, but of my knowledge. So I suppose my first question is, is this what I'm looking for?

Next, I'm curious if you can monitor the interest, or if it just shows up after a year? And let's say I want to take the money out after a year (yep, I know about the penalty if taken before 5 years), is there a "sell" button, where it more or less just puts the money + interest back into the linked account?

I could of course just take the plunge and see some of this for myself, but I can just see after I do it, it'll give me some weird message like "Thanks for buying the no-interest 10 year minimum bond. Good luck."

Thanks in advance!

Ben

I buy my bonds online from treasury direct. (After handling zillions of pieces of dirty dusty newspaper, it's a treat to handle dirty dusty electrons).

It really is that simple to buy a bond one time on that date. Make sure you put in the amount you want in the box. You aren't constrained by denomination. If you want a little extra control, you can put money into the C of I account (earns no interest) and buy your bond via the C of I account. It takes a day or two for the money to leave your account and go into Treasury Direct.

If you want to make a payment schedule, you can, its a choice further down. I wouldn't schedule years' and years' worth, only a few months, because if you have to cancel one, you have to cancel the whole schedule. Ick.

I use the bond wizard as suedavids suggests - its great because you can see your portfolio in its entirety.

When you buy a bond, only the total amount bought appears at the top of your account when you first go into it. If you click on your holdings (like your I-bonds), then Select, it will list your holdings and what they are worth, which includes the interest. Now when you first buy a bond, the interest will *not* appear for three months. (The bond wizard does the same thing.) I think this is because they both track your interest including the 3 month penalty. It also means that after 4 yrs 11 months, you will see quite a little jump in the value of your bonds when they turn 5 yrs old.

Sell = redeem in bond land. There is also a little tour inside the site that should help you out. If you have a question, try emailing treasury direct inside your account. They were responsive and helpful for the couple of things I wanted to do.

[zabbkoff]

Thanks suedavids and baselle! Your feedback is greatly appreciated. The bond wizard sounds great.

[genchan]

What is the most important aspect of the i-bond? Is it the inflationary rate or the base rate?

[suedavids]

Originally Posted by genchan

What is the most important aspect of the i-bond? Is it the inflationary rate or the base rate?

The inflation rate fluxuates every 6 months and is reset by the gov. The base rate is determined by the actual date (within a given 6 month period) which you purchased. For instance, we are at 1% now. This does not change during the life of the bond.

If you look back over past discussions, I inserted (from the savingsbonds.gov site), the chart of past base rates.

[MTPockets]

Is the interest added monthly, semi-annually or how is that figured? I'm just curious. It'll be another year or so before I'm in a position to purchase these, but I'm just trying to get an idea of how interest is added.

Thanks.

[suedavids]

Originally Posted by MTPockets

Is the interest added monthly, semi-annually or how is that figured? I'm just curious. It'll be another year or so before I'm in a position to purchase these, but I'm just trying to get an idea of how interest is added.

Thanks.

The base rate is refigured every 6 months along with the inflation rate. The amount to be paid totally during that 6 month period is posted. Interest is paid, I believe, Quarterly. Remember you can buy these for as little as $25. You could buy these little by little. I would suggest that you read all my past post to learn more and have links to various sites to increase your information base.

[suedavids]

By the way, if you have a trust, you may purchase i-bonds in your trust. You can only do this with paper bonds and you must ask for a special paper application at the bank. They get this from the federal reserve. I asked the bank for an extra copy so I can have it copied and filled out when purchasing more.

[robby]

Will ibonds keep their high interest the next update do you think?

[mgkimsal]

I've been following a couple threads here recently about the 4-4.25% rates from HSBC/ING and others. I've been looking at savings bonds lately, and I bonds pay 6.73% right now, and have a reduced tax load (no state/local tax, I think). I've not seen much discussion on here about savings bonds in general. Are they not recommended because of the non-liquidness of them? Generally, like CDs, you need to hold them for a certain length of time, and there are penalties for cashing them in early.

Can anyone here give me a rundown of savings bonds vs CDs, with pros and cons?

Thanks!

[mgkimsal]

That'll teach me to post before doing a full search. I do see that some of this has been discussed recently, so my apologies. If anyone has more direct info on bonds here and could add to this thread, that would be appreciated, as I'm still a bit new to this.

[jeffrey]

The Consumer Price Index came in at a -0.6% for the month of November - the biggest monthly decrease in 56 years - mainly due to a large drop in gasoline prices. Purchasing I-bonds during this current six month period is not a sound investment.

While there are still a few months left before the new I-Bond rate is announced, it is likely to be well below the current 6.73% rate. That coupled with the current I-bonds paying a base rate of just 1.0% (the lowest since it’s introduction) it makes little sense to purchase I-bonds at this time.

This will make for some interesting scenarios come next May. While there was a large decrease in CPI, the decrease was due to gasoline prices. The “core CPI,” which excludes food and energy prices, rose 0.2%, the same as the gain in October and in line with what most experts forecasted. This leads me to believe there won’t be a negative inflation rate over this six month period (especially since gas prices seem to be on the rise again), but inflation will likely come in quite flat (barring some unexpected event) this period.

For those who purchased in November, it will likely mean a second 6 months of interest that will negate a large part of the 6.73% they are currently earning. For those that wait, however, the lack of inflation may force I-bonds to significantly raise the base % to keep them competitive. This may make the May 2006 I-bonds a hidden opportunity to purchase (the rate won’t look outstanding, but the base rate will be high which could make them quite valuable if inflation increases after that).

[robby]

Can someone tell me how they calculate the rate each time? Is it possible to do it on our own or do we have to wait until they announce the new rate?

[baselle]

Originally Posted by jeffrey

The Consumer Price Index came in at a -0.6% for the month of November - the biggest monthly decrease in 56 years - mainly due to a large drop in gasoline prices. Purchasing I-bonds during this current six month period is not a sound investment.

That's a little strong. Like any other investment, these things are hard to time and should be a piece of your total portfolio, and really aren't for those who are chasing interest. Its a little like saying that if your favorite mutual fund is doing badly, its not a sound investment.

I have at least a year and a half of I-bonds under my belt. It means that all of my bonds will eventually get 6 months of a high(er) interest rate. Those 6 months are icing to me. The cake is that even at their lowest rate, I-bonds were still earning 1% above Emigrant Direct, with tax deferred interest, backed by the full faith of US gov (FDIC will fail before the US gov will).

In addition, the variable rate is calculated on the CPI-U for six months. I seem to remember that May, June and July 2005 CPIs weren't particularly high. It was August and September that really pumped the calculation up.

Not to say that I didn't miss the boat. I'm very disappointed that the fixed rate dropped. Imagine how you'd be set up these next six months if you bought some of these puppies when the fixed rate was 3.5%!

In general, the strategy for savings bonds: if you believe that inflation is going to be flat or negative (deflation), the fixed rate EE is the way to go; if you believe that we are going to undergo rising inflation or even hyperinflation, I-bonds are the way to go.

[meaghanchan]

Originally Posted by jeffrey

This may make the May 2006 I-bonds a hidden opportunity to purchase (the rate won’t look outstanding, but the base rate will be high which could make them quite valuable if inflation increases after that).

Right. And if anyone is buying I-Bonds not to beat the interest at a bank, but to hold as a long-term investment in their portfolio (as part of the 'bond' component in a stock/bond retirement portfolio), it's the base rate you should care about.

In the late 90s, the base rate was around 3%, though they were only paying about 4%-5% because the CPI stayed fairly low. If you looked at the total interest rate, they weren't great investments, and there would have been lots of places to earn better interest. But the people who held on to those 3% base rate I-Bonds are getting about 10% now on their investment (3%+ 6.7ish% inflation rate) for the next 6 months. How great is that, for a virtually no-risk investment?

My plan, personally, is to buy I-Bonds once a quarter when I rebalance my portfolio, to have them fill out my 20% bond allocation. I'll buy them regardless of base rate, and regardless of inflation rate. I belive that base rates will go up in the future, and if I ever need to sell some, I'll have plenty with really low rates.