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I Bonds to pay 0 interest effective May 1st
Old 05-01-2009, 11:51 AM   #1
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I Bonds to pay 0 interest effective May 1st

Who would have thought it possible, deflation brings interest rate to zero.

Series I Savings Bonds To Earn 0.00%, Series EE To Earn 0.70% Fixed Rate, When Bought From May Through October 2009
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Old 05-01-2009, 11:55 AM   #2
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The funny thing is that if you buy the government's inflation/deflation numbers, the "real" yields are higher now than when there is inflation built into the return. Since 0% is a "floor" for I-bonds, high deflation actually increases their real return. Not that I want to see high deflation with the depressionary pressures it adds, but...
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Old 05-01-2009, 12:02 PM   #3
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So Ziggy are you saying bad news is really good news and that nothing is better than something :-D
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Old 05-01-2009, 12:17 PM   #4
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Originally Posted by shotgunner View Post
So Ziggy are you saying bad news is really good news and that nothing is better than something :-D
Well, if that's what you call making lemons out of lemonade, so be it...
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Old 05-01-2009, 12:33 PM   #5
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I will stop buying i-bonds until at least November. A real rate of only 0.1% for the next 30 years and a guaranteed 0% return for the first six months really do not make these bonds attractive right now, at least not to me. I am a bit disappointed. I will probably buy munis and other nominal bonds and CDs until November and reevaluate then. But I'll enjoy the 5.64% that I will be earning for the next six months on the i-bonds I bought last week.
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Old 05-01-2009, 12:41 PM   #6
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Methinks the feds need to fix something on their web site:

Individual - I Savings Bonds Rates & Terms

The third bullet from the top says:

They increase in value monthly and the interest is paid when you redeem the bond

Not true for the next six months. Kind of a nit, but still...
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Old 05-01-2009, 12:45 PM   #7
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Originally Posted by shotgunner View Post

I'm running 'Savings bond wizard' and it appears that even my 3.5% I-bonds will yield 0% for 6 months. I guess they are using the annual inflation rate of -5.56% to achieve a 0% for previous bonds.
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Anyone else get burned on I Bonds?
Old 05-01-2009, 04:06 PM   #8
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Anyone else get burned on I Bonds?

Perhaps it was only my own stupidy, but I just got burned on I Bonds.

We purchased as going rate until 5/1 was 5.64. Now the government has stated inflation is a - 5.6% so rate for next six months will be 0%. (Actually will get the .7% fixed portion that was in place when purchased)

Granted gas is down, but groceries, health insurance and everything else is way up, so hard time seeing inflation as negative. Makes no sense.

My fault for listing to all the advice out there on great I bond rate vs CD's but still wondering if anyone else see this as fishy mathematics?

We all know with all the money current administration is printing, inflation will go crazy in the future, so maybe these will come back.

Thanks for listening and wondering if anyone else is having the same buyers remorse.
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Old 05-01-2009, 04:23 PM   #9
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(Actually will get the .7% fixed portion that was in place when purchased)
.
You will not get the fixed rate of .7%
You get the sum of the fixed rate and the inflation rate, which is below zero, so you and everyone else will get zero, even me who has some from 2001 with a fixed rate of 3%.

I still feel they have been good for me even with this one time 6 months of zero interest.Now if we would have another 6 month or two periods of below normal inflation, maybe I would get ride of mine, but not yet.
(I might feel different with fixed rate of .7%)
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Old 05-01-2009, 04:36 PM   #10
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I thought it was pretty obvious that I-bond rates would be zero for the next six months. The 0.1% fixed rate is the real insult here. IMO, the government is trying to discourage people from buying inflation-adjusted securities; perhaps that means their longer-term goal will be to manage the debt by locking in a lot of it at very low rates and then allowing deflation to devalue the currency, but we'll see.

Personally, after getting something like 8.3% for the last six months on mine, I can't complain too much about zero for the next six.
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Old 05-01-2009, 04:52 PM   #11
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Perhaps it was only my own stupidy, but I just got burned on I Bonds.

We purchased as going rate until 5/1 was 5.64. Now the government has stated inflation is a - 5.6% so rate for next six months will be 0%. (Actually will get the .7% fixed portion that was in place when purchased)

Granted gas is down, but groceries, health insurance and everything else is way up, so hard time seeing inflation as negative. Makes no sense.

My fault for listing to all the advice out there on great I bond rate vs CD's but still wondering if anyone else see this as fishy mathematics?

We all know with all the money current administration is printing, inflation will go crazy in the future, so maybe these will come back.

Thanks for listening and wondering if anyone else is having the same buyers remorse.

When did you buy your i-bonds?

I bought mine last week and I am guaranteed to receive 5.64% interests on my money for the first 6 months. I will probably get 0% interest thereafter, but I can sell them on April 1, 2010. The three month interest penalty for selling early should then be $0 as well. So, for the next 6 months I get 5.64%, then for the 5 following months I get 0%, no penalties, that's an average of 3.07% for holding the bonds 11 months. Not bad IMO. What are 12-month CDs paying nowadays? 1.5%? 2%?
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Old 05-01-2009, 08:05 PM   #12
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I'm running 'Savings bond wizard' and it appears that even my 3.5% I-bonds will yield 0% for 6 months. I guess they are using the annual inflation rate of -5.56% to achieve a 0% for previous bonds.
You got it. Will hold on to our 3.4 and 3.6 % real for the next bounce in inflation. If we are in for prolonged deflation, an investment that holds it's own is ok.
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Old 05-01-2009, 08:14 PM   #13
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For the sake of good order and discipline, I just merged these two threads about I bonds.
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Old 05-01-2009, 08:26 PM   #14
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You got it. Will hold on to our 3.4 and 3.6 % real for the next bounce in inflation. If we are in for prolonged deflation, an investment that holds it's own is ok.
I agree. Hey, its better than nothing (pun intended).
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Old 05-01-2009, 10:37 PM   #15
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Firedreamer.

I bought mine on 4/27. Are you sure I would get 5.64% for next 6 months? Also, I have read articles that state you always get the fixed portion across the 30 years of loan where it was at time of purchase. True? (Why else call it a fixed portion if that changes as well)

I hope you are right about first six months at 5.64%. Can you tell me where you confirmed this? That would be great per your calcualtion I would not feel so stupid.

Thanks
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Old 05-01-2009, 11:05 PM   #16
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I bought my I-bonds on 4/24.

The treasury's 11/03/2008 press release (which was taken off the website this morning and replaced by the 05/01/2009 press release) clearly stated that the 5.64% earnings rate applied for the first 6 months after issue for all I-bonds purchased between November 2008 and April 2009. When you bought the bond on 04/27, its issue date was 04/01. It means that you will receive the 5.64% earnings rate for the months of April (yes, for the whole month even if you only bought the bond on 04/27), May, June, July, August and September. Then the earnings rates will adjust to 0%. Since the bond was officially issued on 04/01/09, you can sell it as soon as 04/01/10 (or just about 11 months after you bought it).

I found this paragraph on a third-party website, and I believe it is a direct quote from the 11/03/2008 press release:

Quote:
The earnings rate for I-Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 5.64% earnings rate for I bonds bought from November 2008 through April 30, 2009 will apply for their first six months after issue. The earnings rate combines a 0.70% fixed rate of return with the an adjustment for the annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.
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Old 05-02-2009, 07:45 AM   #17
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Thank you so much for the reply. This makes sense. Appreciate it.
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Old 05-02-2009, 05:46 PM   #18
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The three month interest penalty for selling early should then be $0 as well.
If anyone who's held an I bond for longer than a year (but less than five years) could sell for zero penalty, then why hold on to them? What's the catch?
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Old 05-02-2009, 06:01 PM   #19
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If anyone who's held an I bond for longer than a year (but less than five years) could sell for zero penalty, then why hold on to them? What's the catch?
Here's an example -- the ones issued circa 2006 have a fixed 1.4% yield and the ones issues now have a 0.1% fixed yield? If you intend to hold for a long time and you expect inflation to ultimately return, it's probably worth eating six months of zero return in order to keep the 1.3% yield advantage over new issues.
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Old 05-03-2009, 07:02 AM   #20
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I didn't realize that iBonds had a zero % floor. I was actually hoping that recent deflation would cause them to raise the fixed portion a bit to compensate. Oh well.
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