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New I-Bond Inflation rate?
10-15-2009, 10:28 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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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?
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“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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10-15-2009, 01:03 PM
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#2
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Confused about dryer sheets
Join Date: Jul 2008
Posts: 1
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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.
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10-15-2009, 02:56 PM
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#3
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Full time employment: Posting here.
Join Date: Sep 2007
Location: mpls, mn
Posts: 763
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The fixed rate component is determined by when the I-bond was originally purchased. Is that correct?
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10-15-2009, 03:02 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by mn54
The fixed rate component is determined by when the I-bond was originally purchased. Is that correct?
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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...).
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"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)
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10-15-2009, 03:30 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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Quote:
Originally Posted by ratinor
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.
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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.
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“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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11-02-2009, 02:38 PM
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#6
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 84
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Series I to Earn 3.36%, Series EE to Earn 1.20% Fixed Rate, When Bought from November 2009 Through April 2010
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11-02-2009, 02:40 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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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)
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11-02-2009, 04:05 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by ziggy29
I'm shocked they increased the fixed rate to 0.3% given the alternative nominal yields of money market funds and short term CDs.
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do you mean the real interest rate? where do you find this for new i-bonds?
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11-02-2009, 04:10 PM
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#9
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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Quote:
Originally Posted by ziggy29
I'm shocked they increased the fixed rate to 0.3% given the alternative nominal yields of money market funds and short term CDs.
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I am surprised as well. I was expecting 0% fixed again.
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11-02-2009, 04:10 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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__________________
"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)
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11-02-2009, 05:55 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by ziggy29
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thank you
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11-02-2009, 06:26 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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11-02-2009, 07:48 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
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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?
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11-02-2009, 08:01 PM
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#14
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
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Quote:
Originally Posted by JOHNNIE36
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?
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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.
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Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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11-02-2009, 09:08 PM
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#15
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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Quote:
Originally Posted by JOHNNIE36
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?
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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.
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11-02-2009, 09:37 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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Quote:
Originally Posted by FIREdreamer
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.
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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
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11-02-2009, 09:46 PM
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#17
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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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...
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11-03-2009, 06:08 AM
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#18
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Dryer sheet aficionado
Join Date: Oct 2009
Location: Northern Virginia
Posts: 41
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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
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11-03-2009, 06:11 AM
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#19
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Dryer sheet wannabe
Join Date: Oct 2009
Location: Blacksburg
Posts: 21
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Another thing to consider: I bonds are exempt from state and local income taxes.
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11-03-2009, 07:34 AM
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#20
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Full time employment: Posting here.
Join Date: Sep 2007
Location: mpls, mn
Posts: 763
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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.
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