Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
New I-Bond Inflation rate?
Old 10-15-2009, 11:28 AM   #1
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
New I-Bond Inflation rate?

The September CPI-U came in at .2 so if I understand the I-Bond inflation calculation correctly then that will be added to the April thru August rates for a total of 1.4. This is then multiplied x 2 and added to your fixed rate to determine your return for the next 6 months (announced on November 1st). Is this how others understand it?
__________________

__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-15-2009, 02:03 PM   #2
Confused about dryer sheets
ratinor's Avatar
 
Join Date: Jul 2008
Posts: 1
I believe the calculation is based on percentage change over the 6 month period.
The index went from 212.709 to 215.969 so a 1.532% change.
That times 2 = 3.064% will be the inflation component to which you add the fixed rate component.
__________________

__________________
ratinor is online now   Reply With Quote
Old 10-15-2009, 03:56 PM   #3
Recycles dryer sheets
mn54's Avatar
 
Join Date: Sep 2007
Location: mpls, mn
Posts: 440
The fixed rate component is determined by when the I-bond was originally purchased. Is that correct?
__________________
mn54 is offline   Reply With Quote
Old 10-15-2009, 04:02 PM   #4
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by mn54 View Post
The fixed rate component is determined by when the I-bond was originally purchased. Is that correct?
Yes. You'll have to pry the ones I have with a 3.4% fixed rate from my cold dead fingers (or in January 2030 when they mature, whichever comes first...).
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 10-15-2009, 04:30 PM   #5
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by ratinor View Post
I believe the calculation is based on percentage change over the 6 month period.
The index went from 212.709 to 215.969 so a 1.532% change.
That times 2 = 3.064% will be the inflation component to which you add the fixed rate component.

That's what I thought. My numbers are different, probably because I took the monthly decimal change but April had no change so March would have been the number to use. I'll be happy with anything at this point. Thanks.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 11-02-2009, 03:38 PM   #6
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 84
Series I to Earn 3.36%, Series EE to Earn 1.20% Fixed Rate, When Bought from November 2009 Through April 2010
__________________
Florida is offline   Reply With Quote
Old 11-02-2009, 03:40 PM   #7
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
I'm shocked they increased the fixed rate to 0.3% given the alternative nominal yields of money market funds and short term CDs.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 11-02-2009, 05:05 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Quote:
Originally Posted by ziggy29 View Post
I'm shocked they increased the fixed rate to 0.3% given the alternative nominal yields of money market funds and short term CDs.
do you mean the real interest rate? where do you find this for new i-bonds?
__________________
jdw_fire is offline   Reply With Quote
Old 11-02-2009, 05:10 PM   #9
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
Originally Posted by ziggy29 View Post
I'm shocked they increased the fixed rate to 0.3% given the alternative nominal yields of money market funds and short term CDs.
I am surprised as well. I was expecting 0% fixed again.
__________________
FIREd is offline   Reply With Quote
Old 11-02-2009, 05:10 PM   #10
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by jdw_fire View Post
do you mean the real interest rate? where do you find this for new i-bonds?
Series I to Earn 3.36%, Series EE to Earn 1.20% Fixed Rate, When Bought from November 2009 Through April 2010

Quote:
The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 11-02-2009, 06:55 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
thank you
__________________
jdw_fire is offline   Reply With Quote
Old 11-02-2009, 07:26 PM   #12
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Yeah, I'm liking it.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 11-02-2009, 08:48 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Oct 2008
Location: Naples
Posts: 2,161
Read this thread with interest (pardon the pun) and just don't understand those bonds. I'm sitting on $175K I don't know what to do with. Not interested in stocks anymore as I've been there-done that. At 73 you can't take chances. I'm looking for best return-best safety. I can get 3.5% on a 5-yr CD but thats a long time. How is the I-bond better that this CD?
__________________
JOHNNIE36 is offline   Reply With Quote
Old 11-02-2009, 09:01 PM   #14
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,076
Quote:
Originally Posted by JOHNNIE36 View Post
Read this thread with interest (pardon the pun) and just don't understand those bonds. I'm sitting on $175K I don't know what to do with. Not interested in stocks anymore as I've been there-done that. At 73 you can't take chances. I'm looking for best return-best safety. I can get 3.5% on a 5-yr CD but thats a long time. How is the I-bond better that this CD?
The CD is fixed for 5 years at 3.5% and is safe. The i-bond interest rate changes every 6 months depending on inflation but can never go to below zero - also safe but variable. It will be 5 years before you know if the 5-year CD or the i-bond returns a better return over 5 years. You must own an i-bond for 12 months and if you cash it in before 5 years are up you give up 3 months interest. The returns are not taxed until you cash it in.

You can only buy $5k per person per year in i-bonds.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 11-02-2009, 10:08 PM   #15
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
Originally Posted by JOHNNIE36 View Post
Read this thread with interest (pardon the pun) and just don't understand those bonds. I'm sitting on $175K I don't know what to do with. Not interested in stocks anymore as I've been there-done that. At 73 you can't take chances. I'm looking for best return-best safety. I can get 3.5% on a 5-yr CD but thats a long time. How is the I-bond better that this CD?
I-bonds pay an interest equal to a fixed rate (0.3% for bonds bought in the next 6 months) + a variable rate which is the annualized semiannual rate of inflation (currently 3.06%). So if inflation goes to 10%, the bonds will pay 0.3%+10%=10.3% interest rate. The interest you earn on i-bonds changes every 6 months to reflect the changing inflation rate.

My back of the envelop calculation: let's say you buy an i-bond right now with a 0.3% fixed rate. If you expect inflation to top 3.2% annually on average over the next 5 years, i-bonds will provide a higher return. If inflation remains below 3.2% or if we experience deflation, then the CD will return more. I am sure someone out there could refine that calculation further by taking things like taxes into account.

Another consideration: If you need the income to pay the bills, then CDs might be a better option because you have to redeem i-bonds in order to be able to extract the interests. So i-bonds are great for capital preservation but CDs are better for someone who needs the income on a regular basis.
__________________
FIREd is offline   Reply With Quote
Old 11-02-2009, 10:37 PM   #16
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by FIREdreamer View Post
Another consideration: If you need the income to pay the bills, then CDs might be a better option because you have to redeem i-bonds in order to be able to extract the interests. So i-bonds are great for capital preservation but CDs are better for someone who needs the income on a regular basis.
Plus it will take a long time to invest 175K at 5K per year.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 11-02-2009, 10:46 PM   #17
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
Originally Posted by Bikerdude View Post
Plus it will take a long time to invest 175K at 5K per year.
True! If Johnnie is married, however, he could buy up to $20K worth of i-bonds per year: $5K for himself in electronic bonds, $5K for himself in paper bonds, $5K for his wife in electronic bonds, $5K for his wife in paper bonds. It would still take a few years though...
__________________
FIREd is offline   Reply With Quote
Old 11-03-2009, 07:08 AM   #18
Dryer sheet aficionado
Bikerchick's Avatar
 
Join Date: Oct 2009
Location: Northern Virginia
Posts: 41
I've been buying i-bonds since they were available and have been pleasantly surprised at the nice returns on those earlier purchases. OTOH, the current rate on a 5-yr CD at my credit union is 3.3% APY, minimum a thousand dollars.
Current Rates
__________________
Bikerchick is offline   Reply With Quote
Old 11-03-2009, 07:11 AM   #19
Dryer sheet wannabe
FIREngineer's Avatar
 
Join Date: Oct 2009
Location: Catonsville, MD
Posts: 21
Another thing to consider: I bonds are exempt from state and local income taxes.
__________________
FIREngineer is offline   Reply With Quote
Old 11-03-2009, 08:34 AM   #20
Recycles dryer sheets
mn54's Avatar
 
Join Date: Sep 2007
Location: mpls, mn
Posts: 440
Quote:
Originally Posted by FIREdreamer View Post
True! If Johnnie is married, however, he could buy up to $20K worth of i-bonds per year: $5K for himself in electronic bonds, $5K for himself in paper bonds, $5K for his wife in electronic bonds, $5K for his wife in paper bonds. It would still take a few years though...
What's the difference between an electronic I bond and a paper one? Is one purchased online and the other from a financial institution? I thought the 5K max. was for all I bond purchases.
__________________

__________________
mn54 is offline   Reply With Quote
Reply


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

Advanced Search
Display Modes

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

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


Similar Threads
Thread Thread Starter Forum Replies Last Post
What Inflation Rate Will You Use for 2008? TromboneAl FIRE and Money 39 01-29-2009 07:49 PM
Implied inflation rate in an inflation adjusted SPIA cashflo2u2 FIRE and Money 6 04-30-2008 08:24 PM
What Inflation Rate Will You Use? TromboneAl FIRE and Money 14 01-16-2008 07:41 PM
CPI Rate in Advvanced FireCalc - Inflation Rate al4trade FIRECalc support 7 10-04-2006 01:40 AM
Retiree Inflation Rate? mccl FIRE and Money 4 05-13-2004 08:51 AM

 

 
All times are GMT -6. The time now is 11:43 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.