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Confused about I-Bond rates
Old 05-01-2006, 11:42 AM   #1
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Confused about I-Bond rates

I just read an article in AARP Magazine (May/June 2006) that says IBonds are currently yielding 6.73%.* *When I look at the rates on Treasurydirect.com it looks like the combined yield is 2.4%.* * What am I missing here?

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Re: Confused about I-Bond rates
Old 05-01-2006, 11:43 AM   #2
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Re: Confused about I-Bond rates

The T-Direct rate is correct. The rate just changed today (and it sucks).
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Re: Confused about I-Bond rates
Old 05-01-2006, 11:46 AM   #3
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Re: Confused about I-Bond rates

Yep. Now you get a 1.4% fixed (for life) return and whatever the CPI inflation is. For May-October 2006, the CPI works out to 1.0% annualized, for a total annualized return of 2.4%.

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Re: Confused about I-Bond rates
Old 05-01-2006, 11:50 AM   #4
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Re: Confused about I-Bond rates

Thanks folks.* I just checked out AARP's website and they refer to the same 6.73%.* They* must be smoking something.

I'm looking for the best place to park some intermediate term cash.* * Won't need it for 2 - 4 years.* * *At this point I'm leaning towards simply parking it in a CD.* *Any suggestions?* *

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Re: Confused about I-Bond rates
Old 05-01-2006, 11:52 AM   #5
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Re: Confused about I-Bond rates

6.7% was the correct annualized yield yesterday.* * Both the fixed real portion and the inflation adjustment change every six months (May 1 and Nov 1).

PenFed offers 6% CDs for 3-5 years, and that looks pretty good to me.
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Re: Confused about I-Bond rates
Old 05-01-2006, 11:59 AM   #6
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Re: Confused about I-Bond rates

Quote:
Originally Posted by moguls
Thanks folks.* I just checked out AARP's website and they refer to the same 6.73%.* They* must be smoking something.

I'm looking for the best place to park some intermediate term cash.* * Won't need it for 2 - 4 years.* * *At this point I'm leaning towards simply parking it in a CD.* *Any suggestions?* *

Moguls
A CD from Pen Fed isn't a bad idea. Money market fund from VG is decent as well. I have been buying ISM lately, but you'd have to be willing to put up with a small amount of the price flopping around (compensated by yield of CPI plus over 3%).
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Re: Confused about I-Bond rates
Old 05-01-2006, 02:39 PM   #7
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Re: Confused about I-Bond rates

Penn Fed. I remember looking at their site and answering their questions, which then told me I would not qualify. Is it imperative to be 100% truthful to these questions?
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Re: Confused about I-Bond rates
Old 05-01-2006, 02:45 PM   #8
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Re: Confused about I-Bond rates

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Penn Fed.* I remember looking at their site and answering their questions, which then told me I would not qualify.* Is it imperative to be 100% truthful to these questions?
You can join if you become a member of the National Military Family Assn for $20. They even have a joint application where they sign you up for both at the same time. Go peruse the site again.
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:10 PM   #9
 
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Re: Confused about I-Bond rates

Quote:
Originally Posted by brewer12345
The T-Direct rate is correct. The rate just changed today (and it sucks).
I just looked at some that I purchased last year and the rate said 6.73% on the T-Direct site. Does the new rate affect previously purchased Bonds or do these also pay the meager rate. If so, does it make any sense to pull them out and just move them to my Emmigrant Savings Account paying 4.5%?
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:14 PM   #10
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Re: Confused about I-Bond rates

Quote:
Originally Posted by Cut-Throat
I just looked at some that I purchased last year and the rate said 6.73% on the T-Direct site. Does the new rate affect previously purchased Bonds or do these also pay the meager rate. If so, does it make any sense to pull them out and just move them to my Emmigrant Savings Account paying 4.5%?
I bonds have a fixed (real) rate and an inflation adjustment. The fixed part never changes over the life of the fund. So if you bought in the second half of last year, congratulations, you just locked in a 1% real return for the life of the bond (sarcasm). It is the inflation adjustment that flops around. I don't find a 1% real return to be all that attractive, so I would be thinging about dumping the bonds if I owned them.
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:22 PM   #11
 
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Re: Confused about I-Bond rates

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Originally Posted by brewer12345
I bonds have a fixed (real) rate and an inflation adjustment. The fixed part never changes over the life of the fund. So if you bought in the second half of last year, congratulations, you just locked in a 1% real return for the life of the bond (sarcasm). It is the inflation adjustment that flops around. I don't find a 1% real return to be all that attractive, so I would be thinging about dumping the bonds if I owned them.
Actually, I bought them in December of 2004 - If I check the Treasury Direct Account today, It still lists 6.73% as the interest rate. Do you know to find out what my 'real' rate of return is?

The website does not seem to have very specific info on what portion is real and what portion is inflation adjusted.
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:30 PM   #12
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Re: Confused about I-Bond rates

Quote:
Originally Posted by Cut-Throat
Actually, I bought them in December of 2004 - If I check the Treasury Direct Account today, It still lists 6.73% as the interest rate. Do you know to find out what my 'real' rate of return is?
Ask and you shall receive: http://www.publicdebt.treas.gov/sav/sbirate2.htm

Looks like you locked in that smokin' 1% rate, you lucky guy.
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:39 PM   #13
 
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Re: Confused about I-Bond rates

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Originally Posted by brewer12345
Ask and you shall receive: http://www.publicdebt.treas.gov/sav/sbirate2.htm

Looks like you locked in that smokin' 1% rate, you lucky guy.
Well, before I sell them, can you explain what is the 6.73% that is listed on my bond?

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Re: Confused about I-Bond rates
Old 05-01-2006, 03:43 PM   #14
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Re: Confused about I-Bond rates

Remember all the recommendations from various financial articles concerning I-bonds? I wonder what the same ones that recommended them would say now? I will probably hang on to the ones I own as they will probably have their day again, but I can't see buying anymore.*
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Re: Confused about I-Bond rates
Old 05-01-2006, 03:45 PM   #15
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Re: Confused about I-Bond rates

Cut throat - your yield for the next 6 months will be 2.0% annualized - 1.0% from the fixed rate and 1.0% for the inflation component. That 6.73 was the rate yesterday and for the preceding 6 months. If it still says 6.73, it probably hasn't been updated yet.
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Re: Confused about I-Bond rates
Old 05-01-2006, 04:08 PM   #16
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Re: Confused about I-Bond rates

Quote:
Originally Posted by Cut-Throat
Well, I parked some money there about a year ago, that I need this year to buy a car, so it's probably time to redeem them.*

CT - Been too busy lately and have not been paying attention!
Not exactly the end of the world.

I just think it is pretty schitty of the gummint to pay below market rates on stuff that is bought by the clueless small fry. Didn't use to be that way.
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Re: Confused about I-Bond rates
Old 05-01-2006, 04:14 PM   #17
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Re: Confused about I-Bond rates

So the REAL problem is that the May 2006 semi-annual inflation rate is was set to 0.5%. *

This has come way down from the last 6 months where the semi-annual inflation rate was 2.85%

The formula for the total (composite) rate is:

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate X Semiannual inflation rate)]

I guess they are giving you an annualized rate there for the "composite rate"?

Hmmm - looks like my May 2003 IBonds are going to be earning a whopping 2.11% (annualized) for the next 6 months.

But look how variable that semi-annual inflation rate is:

DATE INFLATION RATES*
MAY 1, 2006 0.50%
NOV 1, 2005 2.85%
MAY 1, 2005 1.79%
NOV 1, 2004 1.33%
MAY 1, 2004 1.19%
NOV 1, 2003 0.54%
MAY 1, 2003 1.77%
NOV 1, 2002 1.23%
MAY 1, 2002 0.28%
NOV 1, 2001 1.19%
MAY 1, 2001 1.44%
NOV 1, 2000 1.52%
MAY 1, 2000 1.91%
NOV 1, 1999 1.76%
MAY 1, 1999 0.86%
NOV 1, 1998 0.86%
SEP 1, 1998 0.62%
*semiannual rates

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Re: Confused about I-Bond rates
Old 05-01-2006, 04:18 PM   #18
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Re: Confused about I-Bond rates

Nope. The real problem is that the real rate is far, far below what you canget with TIPS or other CPI linked notes. The treasury has set it so low that the rubes buying I bonds are getting rooked. They did the same thing to the EE bond.
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Re: Confused about I-Bond rates
Old 05-01-2006, 04:21 PM   #19
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Re: Confused about I-Bond rates

Quote:
Originally Posted by brewer12345
I have been buying ISM lately, but you'd have to be willing to put up with a small amount of the price flopping around (compensated by yield of CPI plus over 3%).
Brewer, I wish you could maybe run through the calculation that gives you CPI + 3% from ISM.

As I figure it, it is nowhere near that except with fairly extreme assumptions. As long as you buy ISM at a discount, you will get some amount>2.05% over CPI. (Unless delta CPI is negative. The monthly floor is 0, not (0+2.05)/12)

How much over CPI will depend on reported CPI in every monthly period. For example, I made a spreadsheet. If ISM is bought at $22.50, it returns at least 3% over CPI only if CPI is 6.5% or greater. The actual calculation is very complex, since it is figured monthly. But as a generalization, if you bought at $22.50, and CPI was regular 6.5% *over the previous years corresponding month, then you would indeed get 3% over CPI. Otherwise, less.

If I am missing something, could you help me to see what I am misunderstanding?

Ha
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Re: Confused about I-Bond rates
Old 05-01-2006, 04:42 PM   #20
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Re: Confused about I-Bond rates

Well I've been grouped with the clueless small fry and a rubes today.* Think i'm gonna go home and cry in my beer.*
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