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Savings Bonds
Old 04-24-2008, 02:01 PM   #1
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Savings Bonds

The next couple of days offer a pretty good opportunity to pickup some I-bonds at a decent rate. The article below explains.
Personally I like the idea of buying prior to May 1. Not a bad deal until CD rates and MM start to rise again.
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The interest rates that I Bonds pay include two components: a fixed
rate that stays the same for the life of the bond, and an inflation
rate that's adjusted every six months. The inflation rate for I Bonds
issued in May, based on the change in the consumer price index between
September 2007 and March, will jump to 4.83% from 3.06%. If you
already own I Bonds, your new rate will range from 5.83% to more than
8%, depending on the fixed rate for your bonds.
And if you're considering buying I Bonds? Analysts recommend buying
before May 1, even though that means you'll have to wait until October
to receive the inflation-adjusted bump in rates.

Here's why: By purchasing I Bonds before May 1, you'll lock in the
current fixed rate of 1.2%, says Daniel Pederson, author of Savings
Bonds: When To Hold, When To Fold, and Everything In-Between. Pederson
believes Treasury will lower that fixed rate on May 1. Treasury
doesn't announce its plans for the fixed rate in advance. But in the
past, Pederson says, whenever the inflation rate on the I Bond has
risen sharply, the Treasury has cut the fixed rate.
Since I Bonds were introduced in 1998, the lowest fixed rate Treasury
has set for I Bonds is 1%. But in May, Treasury could cut the fixed
rate to 0.5% or even lower, predicts Tom Adams, author of Savings Bond
Advisor. In the past, he says, Treasury has set the fixed rate about 1
percentage point below the rate for 10-year Treasury
Inflation-Protected Securities, or TIPS. The current rate for 10-year
TIPS is 1.25%.
If you buy I Bonds between now and May 1, you'll receive a combined
rate of 4.28% until October. But then comes the payoff: The May
inflation adjustment will kick in, and you'll earn 6.06% for the next
six months.
More important, you'll guarantee that your I Bonds pay a fixed rate of
1.2% for as long as you own them. Though the rate for I Bonds bought
after May 1 will look appealing at first, Pederson says, "The fixed
rate is what people should be keeping their eye on."
High-yield bonds
If you already own I Bonds, you'll see a rate increase, but it won't
necessarily happen on May 1. New rates take effect every six months,
based on the month in which your I Bond was issued. If, for example,
your I Bond has a January issue date, Pederson says, the rate increase
for your bonds won't kick in until July.
The rate increase is worth waiting for, especially if you bought an I
Bond between 1998 and 2001. I Bonds issued in those years carry fixed
rates of 3% or more.
When the new inflation rate kicks in, those I Bonds will earn a
combined rate of up to 8.5%, Adams says. Returns from other
conservative investments don't even come close.
In addition, I Bonds are exempt from state and local taxes, and you
don't have to pay federal taxes until you cash them in.
I don't know who to credit for the article, but it was on Marketwatch several days ago.

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Old 04-24-2008, 02:55 PM   #2
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I bought four I bonds yesterday.

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Old 04-24-2008, 02:58 PM   #3
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Bought 1 for my godsons birthday. Maybe I should get myself some
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Old 04-25-2008, 09:36 AM   #4
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Thanks for bringing this up. I have had some I bonds since 2003 and must admit I haven't given any thought to what they are worth or even what they are earning for interest. They have a great calculator on the site which enabled me to put in the details and give me the interest rate - 4.68% which is certainly better than you can get anywhere else at the moment and the fact that they are free from State taxes certainly does not hurt when you live in California.

I might pick up a few this month as well.

I be a girl, he's a boy. Think I maybe FIRED since July 08. Mid 40s, no kidlets. Actually am totally clueless as to what is going on with DH.
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Old 04-25-2008, 10:06 AM   #5
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Originally Posted by DangerMouse View Post
They have a great calculator on the site which enabled me to put in the details and give me the interest rate -
In addition to the calculator, you can keep an inventory on the site and update it monthly with one click. If you have bunches of bonds in your possession it is good to print out a couple of inventories and keep one away from your residence.
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Old 04-26-2008, 07:26 AM   #6
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I looked at the TreasuryDirect website, and it says you can only purchase up to $5k/year/individual. Can you purchase more, say from a local bank?
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Old 04-26-2008, 02:25 PM   #7
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Originally Posted by MGYog View Post
I looked at the TreasuryDirect website, and it says you can only purchase up to $5k/year/individual. Can you purchase more, say from a local bank?
Yes, you can purchase $5k in paperless bonds [TreasuryDirect] and $5k in paper bonds [like from your bank] per SSN. So, you can purchase $10K and your spouse/partner can purchase $10K.

- Alec

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