I Bond at 7%???

[suedavids]

Re: I Bond at 7%???

Someone please correct me if I'm wrong here, but I don't think it will make much of a difference. The rate stays the same for the entire 6 month period. If you want to ladder then, you should buy $15000 in October (current rate of 4.8% with a base of 1.2% and then the other $15000 in November where you'll have a new rate and base. If you buy in November and then again in December, it will still be the same rate.

From the website: http://www.publicdebt.treas.gov/sav/sbirate2.htm

You will notice that the base rate went up last time form 1% to 1.20%. It is my thought that it will remain the same or go up. If you believe it may go up, and the inflation rate has gone up, then the chances are you will get at least the same if not a better rate in Nov. Remember your future rates are based on fixed rates + an inflation calculations. You can see that people that bought with fixed rates of 3% have big fat smiles on their faces For people now, a smaller smile

DATE FIXED RATES*
May 1, 2005 1.20%
NOV 1, 2004 1.00%
MAY 1, 2004 1.00%
NOV 1, 2003 1.10%
MAY 1, 2003 1.10%
NOV 1, 2002 1.60%
MAY 1, 2002 2.00%
NOV 1, 2001 2.00%
MAY 1, 2001 3.00%
NOV 1, 2000 3.40%
MAY 1, 2000 3.60%
NOV 1, 1999 3.40%
MAY 1, 1999 3.30%
NOV 1, 1998 3.30%
SEP 1, 1998 3.40%
*annual rates compounded semiannually

http://www.publicdebt.treas.gov/sav/sbirate2.htm

[Russell]

Re: I Bond at 7%???

I found this on http://einvesting.com/about1035.html and I quote:

In general, be careful with i-bonds. They pay a fixed amount above the inflation rate, adjusted every 6 months. Currently they pay 1.2% above the inflation rate of 3.6% for a 4.8% yield. You pay federal income tax on the interest when you cash them out (or 30 years, whichever comes first). The 1.2% represents 25% of the interest so the person in the 28% bracket ends up losing.

Is the 25% vs 28% part true ? We might be in the 28% bracket next year since we don't have a house to do itemized deductions anymore. We certainly won't be leaving the money in the I-bonds for more than 5 yrs since we'll need it to purchase the house.

Sue, when I said ED I meant Emigrant Direct account that pays 4.0% interest right now and your money is completely liquid.

[suedavids]

Re: I Bond at 7%???

I found this on http://einvesting.com/about1035.html and I quote:



Is the 25% vs 28% part true ? We might be in the 28% bracket next year since we don't have a house to do itemized deductions anymore. We certainly won't be leaving the money in the I-bonds for more than 5 yrs since we'll need it to purchase the house.

Sue, when I said ED I meant Emigrant Direct account that pays 4.0% interest right now and your money is completely liquid.

Russell,
The quote you mentioned is very confusing so I can't comment on it's validity. Now here is the scoop about taxes.

Interest bearing income such as CD's, bank accounts, your ED account and i-bonds (or E, H , bonds) are considered interest and are taxed at your income rate. Remember that the income tax structure is stair stepped so if you are just over into the 28% bracket, only the amount into that level is taxed at that rate. Thus a portion of your income is taxed at each lesser rate within the brackets. So you do not pay 28% on your total amount. In saying that, interest will bring your income up and it may end up in the 28% bracket.

So what are the options for savings and investment? If you take greater risk and you hold stocks or mutual funds less than one year (selling them within the year - this is known as short term) the gains are added to your income. If they are held more than 12 months, you are taxed at a flat capital gains rate of 15% (very sweet but this is to sunset in 2008 and revert back to 20%). Also, if you get dividends from stocks, these are also taxed at 15%.

Interest (such as i-bonds or ED) does not have such a low tax rate and are taxed at your income rate. So yes you will pay more taxes on them but they are also tax defferred and are taxed at the time of turning them in. So you can control this by offsetting through contributing to a pension plan or other deductions such as a home interest.

You also have to understand that i-bonds are just one egg in a basket of many savings/investment vehicals you should build in your portfolio. If you want a secure, garanteed generous interest rate. i-bonds are paying more than ED or CD's and the best part is that you do not pay state income tax on i-bonds. With ED or CD's or other interest bearing savings vehicals, you will pay state tax. If you use thse for education, they are federally tax free but these have an income limit. According to bob brinker (check him out at www.bobbrinker.com - host of money talk- I've done very well by his advice), he thinks i-bond rates will be in the high 6's.

I know I have rammbled but the bottom line is than for fixed savings, I-bonds have outperformed similar types of fixed savings vehicals in the past several year. You do have to hold them one year and if the performance changes in the future. Well, just sell them. The 12 month holding period goes fast ( remember that a 3 month penalty is applied if held under 5 years). After that period you can always reassess. Remember you don't have to put all your money in one place. You may only want to put a portion in i-bonds and reserve some for liquidity in a flexable money market. Stocks and mutual funds are another option but with higher risk and the discussion was only about fixed income savings. To build a total portfolio, you need to build a mix of various investments.

Hope this helped answer some of your questions.

[suedavids]

Re: I Bond at 7%???

I found this on http://einvesting.com/about1035.html and I quote:



Is the 25% vs 28% part true ? We might be in the 28% bracket next year since we don't have a house to do itemized deductions anymore. We certainly won't be leaving the money in the I-bonds for more than 5 yrs since we'll need it to purchase the house.

Sue, when I said ED I meant Emigrant Direct account that pays 4.0% interest right now and your money is completely liquid.

One additional thing. If possible, when you purchase your new home, try to put at least 20% down. You will avoid a PMI charge which is equivalent to about 1 months payment. This is insurance if you don't meet the 20% threshold you must pay. Some loan officers are doing creative financing that eliminates that PMI.

Also you are noticing that as the interest rates are going up, the housing market slowing If this continues, this will put you in the drivers seat (if you don't own already). This is what happened in the late 70's where housing prices escalated then with high interest rates, house prices went down. I still remember homes not selling for months and months. My husban did house closing with interest rates at 14%. Our first home we had a 10% rate (1980) and we thought we had it made since other friends loans were much higher. I don't think rates will ever be that high again but this is mentioned just to let you know that there are ebs and flows to the ecomomy throughout your life. Be a wise shopper for your home and KNOW the market and don't over pay. Best advice- location, location, location. Buy where you know others would like to live.

So what is the tax advatages to home ownership? Tax deducatbility in the loan. Be careful, there is talk on capital hill to possibly change future tax deductions on home loans. Secondly, as the tax law is in place now, any gains on your home if live in for at least 2 years is completly tax free. That is another reason home prices have taken off.

[Russell]

Re: I Bond at 7%???

Sue, thank you so much for taking the time to explain

I've learnt more in your last two posts than I did scouring the 'net for the info. I'm saving your posts as text files on my PC.

[jeffrey]

Re: I Bond at 7%???

The <a href="http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_i_rates.htm">Treasury Department</a> has announced the I-Bond interest rate from November to April is <b>6.73%</b>. This rate includes a fixed rate of 1.0% (down from 1.2%) and an inflation adjusted rate of 5.73%.

____________________________
<a href="http://www.i-bondrate.com">I-Bond Rate</a>

[jmjj215]

Re: I Bond at 7%???

I love rampant speculation

Thanks for the info jeffrey

[ken1706]

Re: I Bond at 7%???

I'm very disappointed to see the fixed rate go down today. Looks like the Treasury decided to offset the high inflation rate component with a lower fixed rate component. The 1.0% fixed rate matches the lowest level it's been. It was that low for most of 2004. Back in 2000 it was as high as 3.6%. I thought for sure it was going to slowly continue to rise. Looks like it's going to be a long time before we see it anywhere close to 3.6%.

[Russell]

Re: I Bond at 7%???

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...

[suedavids]

Re: I Bond at 7%???

yep. I was surprised that the base rate went back to 1 %. I suspect that someone in the Gov. is trying to keep expenses down. Wouldn't that be the first! It still is probably the best deal for fixed accounts. I just may not committ as much as I had intended.

[ken1706]

Re: I Bond at 7%???

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]

Re: I Bond at 7%???

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.

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]

Re: I Bond at 7%???

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]

Re: I Bond at 7%???

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]

Re: I Bond at 7%???

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.