Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Savings bonds yielding 8.36%
Old 08-04-2008, 08:51 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Savings bonds yielding 8.36%

Based on the CPI data released today, if you bought some I-bonds from the Treasury, even with their 0% fixed rate, you would earn 8.36% (assuming the June-December rate remains the same through September-March)! A frightening rate for a "risk-free" asset. For the bonds I purchased back in 2001 with a 3% fixed rate, I would get 11.48% (and it's tax-deferred)!

I wonder if the next step by the Treasury will be to introduce a negative fixed rate for I-bonds. They've already done just about everything else to make them unattractive to investors - at this point the cost of running the program has to exceed the benefit to the government. Economically, it would make more sense to stop issuing savings bonds and just run off the existing portfolio over the next 30 years.

In other inflation news, McDonalds is trying to cut costs from its "$1.00 double cheeseburger." They might only use one slice of cheese instead of two or just change it to a double hamburger since the price of dairy has gone up so much.
__________________

__________________
soupcxan 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 08-04-2008, 09:48 AM   #2
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by soupcxan View Post
Based on the CPI data released today, if you bought some I-bonds from the Treasury, even with their 0% fixed rate, you would earn 8.36% (assuming the June-December rate remains the same through September-March)! A frightening rate for a "risk-free" asset. For the bonds I purchased back in 2001 with a 3% fixed rate, I would get 11.48% (and it's tax-deferred)!
First of all, I think you mean CPI data released to date, not today. CPI-U data is released mid-month. While it's true that the 6-month change in CPI-U based on the latest released data Jun08/Dec07 is 4.18% (8.36% annualized), it's a pretty heroic assumption that it will continue at this pace for 3 more months until the Nov 1 reset, especially with energy prices appearing to be coming down and the economy slowing.
__________________

__________________
FIRE'd@51 is offline   Reply With Quote
Old 08-05-2008, 08:26 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Man, why you gotta be such a buzzkill?
__________________
soupcxan is offline   Reply With Quote
Old 08-14-2008, 08:40 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Do you still think the change in CPI-U isn't going to result in a high yield on I-bonds? Data released today for July shows a semi-annual 4.2% increase over the last six months (Jan: 211.080 versus Jul: 219.964). So now we're still seeing a yield around 8.4% plus any fixed component if you had purchased bonds previously.
__________________
soupcxan is offline   Reply With Quote
Purchase limits
Old 08-14-2008, 10:06 AM   #5
Recycles dryer sheets
shotgunner's Avatar
 
Join Date: Jun 2008
Posts: 454
Purchase limits

Does anybody know (or have a guess) why the Feds lowered the annual purchase limit from $30,000 to $5,000 of Savings Bonds late last year? I have always thought I Bonds and or TIPS should be part of a well diversified portfolio.

PS. for those interested you can buy double the limit by purchasing $5,000 in paper bonds and $5,000 in electronic bonds from Treasury Direct.
__________________
shotgunner is offline   Reply With Quote
Old 08-14-2008, 10:12 AM   #6
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
Quote:
Originally Posted by shotgunner View Post
Does anybody know (or have a guess) why the Feds lowered the annual purchase limit from $30,000 to $5,000 of Savings Bonds late last year? I have always thought I Bonds and or TIPS should be part of a well diversified portfolio.

PS. for those interested you can buy double the limit by purchasing $5,000 in paper bonds and $5,000 in electronic bonds from Treasury Direct.
When the Treasury can borrow for 4% without assuming inflation risk, and if they think inflation will remain fairly high, there's little incentive for them to offer much in the way of inflation-protected securities.

If you could get a mortgage at a fixed 4%, would you consider an adjustable rate mortgage that will see a rise in interest rates if inflation rages on? Neither would the government. Sucks as a saver, but as a taxpayer it's probably a good idea.
__________________
"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 08-14-2008, 11:51 AM   #7
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
I'm already getting 8.53% on some of my I-Bonds. I can't see them going down on the next reset given the recent inflation numbers. I'm happy with my TIPS too.
__________________
“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 08-14-2008, 12:49 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,449
Quote:
Originally Posted by soupcxan View Post
For the bonds I purchased back in 2001 with a 3% fixed rate, I would get 11.48% (and it's tax-deferred)!
Lucky you !!

I first looked at I-bonds around that time, but with the stock mania of 2000, sneered at the "meager return" of I bonds. I learned my lesson later, and currently have about 3 years worth of living expenses stashed in I bonds. They are earning only 6.07%, still better than CDs and tax-deferred too.

P.S. About them limiting what you can buy, even with the premium (fixed component) cut to 0%, I suspect that they are anticipating HIGH INFLATION to come. Scary, isn't it?
__________________
NW-Bound is offline   Reply With Quote
Old 08-14-2008, 12:56 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
Yeah, I've got a few of those I bonds with 8+interest. Woo hoo! Wish I had more. Woulda...Coulda...Shoulda....
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 08-14-2008, 01:05 PM   #10
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
Quote:
Originally Posted by NW-Bound View Post
Lucky you !!

I first looked at I-bonds around that time, but with the stock mania of 2000, sneered at the "meager return" of I bonds. I learned my lesson later, and currently have about 3 years worth of living expenses stashed in I bonds. They are earning only 6.07%, still better than CDs and tax-deferred too.

P.S. About them limiting what you can buy, even with the premium (fixed component) cut to 0%, I suspect that they are anticipating HIGH INFLATION to come. Scary, isn't it?
I bought $4,000 face on I-bonds in 2000 when the fixed rate was 3.4%. That was all I could scrape up at the time. In retrospect I wish I had begged, borrowed or stolen to buy the max on them...
__________________
"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 08-14-2008, 05:51 PM   #11
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by soupcxan View Post
Do you still think the change in CPI-U isn't going to result in a high yield on I-bonds? Data released today for July shows a semi-annual 4.2% increase over the last six months (Jan: 211.080 versus Jul: 219.964). So now we're still seeing a yield around 8.4% plus any fixed component if you had purchased bonds previously.
I assume you are directing this question at me?

The Jul CPI-U number announced today hasn't yet captured the decline in gasoline prices, so I believe it's very possible that the Aug number could result in a negative change in CPI-U for the month. As you know, the Nov1 reset will be based upon Sep vs. Mar. The Mar number is 1.2% above the Jan number you used in your calculation. So a flat CPI-U over the next two months will result in a 6% inflation adjustment.

In any case, I can't get too excited about a 0% real return.
__________________
FIRE'd@51 is offline   Reply With Quote
Old 08-14-2008, 08:25 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,616
Quote:
Originally Posted by shotgunner View Post
Does anybody know (or have a guess) why the Feds lowered the annual purchase limit from $30,000 to $5,000 of Savings Bonds late last year? I have always thought I Bonds and or TIPS should be part of a well diversified portfolio.
I have a guess. Remember that the limit was reduced at the exact time that the mortgage crisis hit and the government was looking for ways to increase the liquidity of banks. If a (retail) consumer wants a safe place to stash some cash and can't put it into Savings Bonds, it's very likely he'll choose a bank CD instead. That helps banks at very little cost to Uncle Sam.

Just my theory.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 08-14-2008, 10:00 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
It might also have something to do with all the folks who bought ibonds and then threw them out the window after 6-9 months of low inflation a few years ago. I remember a slew of threads not that long ago with a lot of people holding their noses and bailing.

Maybe the feds like people who stick with an investment for a longer period of time, and if on the whole they dont tend to do that, at least mitigate the amount of damage they do.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 08-14-2008, 10:01 PM   #14
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,146
Quote:
Originally Posted by samclem View Post
I have a guess. Remember that the limit was reduced at the exact time that the mortgage crisis hit and the government was looking for ways to increase the liquidity of banks. If a (retail) consumer wants a safe place to stash some cash and can't put it into Savings Bonds, it's very likely he'll choose a bank CD instead. That helps banks at very little cost to Uncle Sam.

Just my theory.
Could be correct. As well as suddenly changing the limit from 30k to 5k, they did this in April and told savers that they had to withdraw the excess if they had already exceeded the new 5k limit. I've been buying them for 5 years and was bulding them up to use as a cash bucket for RE.
__________________
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 08-15-2008, 08:50 AM   #15
Recycles dryer sheets
shotgunner's Avatar
 
Join Date: Jun 2008
Posts: 454
Wow, I had not realized the fixed rate had been reduced to 0.00% as of May 1st. Combine that with $5K annual limit, reduced from $30K, and it's clear the Treasury doesn't want to sell more and pay as much. I am glad to have $60K of them with a fixed rate of 1.2% in my cash bucket. WIsh it was a fixed rate 3 or 3.4% but still glad to have them and I almost did bail out when they paid 2.01% a couple of years ago.
__________________
shotgunner is offline   Reply With Quote
Old 08-16-2008, 09:07 PM   #16
Recycles dryer sheets
 
Join Date: Jul 2008
Location: Joaquin, Texas
Posts: 164
I too have a lot of I-Bonds but none paying more than about 6.38 % I bought in May of 2000...My May of 2001 are paying 5.67%..I think the inlflation rate they use is the core rate which excludes food and energy so I don't think we will realize the full extent of the inflation rate.. Their calculation method is very confusing and doesn't just add the interest rate to the inflation rate..I'm anxious to see the new rate but I don't expect it to be very high..
__________________
Life is good. Then you die.
lawman is offline   Reply With Quote
Old 08-16-2008, 09:43 PM   #17
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by lawman View Post
I too have a lot of I-Bonds but none paying more than about 6.38 % I bought in May of 2000...My May of 2001 are paying 5.67%..I think the inlflation rate they use is the core rate which excludes food and energy so I don't think we will realize the full extent of the inflation rate.. Their calculation method is very confusing and doesn't just add the interest rate to the inflation rate..I'm anxious to see the new rate but I don't expect it to be very high..
The current rate for my 6/2000 and 7/2000 I-bonds is 8.53%.
__________________
“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 08-17-2008, 07:44 AM   #18
Recycles dryer sheets
 
Join Date: Jul 2008
Location: Joaquin, Texas
Posts: 164
How can I find out what my I-bonds are paying?
__________________
Life is good. Then you die.
lawman is offline   Reply With Quote
Old 08-17-2008, 08:52 AM   #19
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by lawman View Post
How can I find out what my I-bonds are paying?
Individual - Tools

I use Savings bond Wizard.
__________________
“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 08-17-2008, 09:54 AM   #20
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,146
Quote:
Originally Posted by Bikerdude View Post
Individual - Tools

I use Savings bond Wizard.
This is what I use also. I can't see where it gives the fixed rate on a particular bond. I have to look at the current rate on the Treasury website then move the date forward on the wizard so at all the bonds are getting that rate and then see the difference.

I didn't start saving I-Bonds until 2003 so the highest rate I currently am getting is 6.27%.

Is there an easier way to see the fixed rate on a bond?
__________________

__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan 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
Savings Bonds JPatrick FIRE and Money 6 04-26-2008 03:25 PM
Savings bonds -> 529 twaddle FIRE and Money 11 12-11-2007 01:10 PM
US Savings Bonds V S&P 500 burch64 FIRE and Money 17 09-28-2006 11:22 PM
EE savings bonds - when do they pay? Irwin41 FIRE and Money 2 02-05-2006 10:07 PM
Using Savings Bonds as Gap Filler Otto Thompson FIRE and Money 6 06-14-2004 06:50 PM

 

 
All times are GMT -6. The time now is 05:28 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.