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Old 05-01-2014, 11:36 AM   #21
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Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 1.94%, Series EE to Earn 0.50%

up .1 better than down .1

Savings bond wizard not yet updated. Yield on 2001 Bonds to date 6%.
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Old 05-01-2014, 11:37 AM   #22
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In recent years I have been evalutating I-bonds the same way I would evaluate a one year CD. Using that criteria, now is not the time to buy I-bonds IMHO, regardless of whether the purchase was made in April or May. A purchase in April would have gotten a slightly higher fixed rate in exchange for a much lower variable rate. On the other hand, a purchase in May would get the higher variable rate, but without the slightest clue as to what the variable rate will become after six months. One can wait until October and make a truly informed decision, because the variable rate for the second six months will be public information then.

Using this strategy, my most recent I-bond purchase was in October, 2011. I knew I would be getting 4.6% interest for the first six months and 3.06% for the second six months. That was much superior to the interest rates available on competing fixed income investments. I ended up holding these I-bonds until earlier this year, then redeeming them when the interest penalty was very low.

Applying the same strategy to 2014, I will be looking at I-bonds quite seriously in October. I already know that I will be getting 1.94% for the first six months and will be able to calculate the interest for the second six months. With even slightly elevated inflation numbers between now and September's CPI, there's a good chance that I-bonds will be a good 15 month investment, even after paying the interest penalty for early redemption.
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Old 05-01-2014, 11:52 AM   #23
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Originally Posted by karluk View Post
In recent years I have been evalutating I-bonds the same way I would evaluate a one year CD. Using that criteria, now is not the time to buy I-bonds IMHO, regardless of whether the purchase was made in April or May. A purchase in April would have gotten a slightly higher fixed rate in exchange for a much lower variable rate. On the other hand, a purchase in May would get the higher variable rate, but without the slightest clue as to what the variable rate will become after six months. One can wait until October and make a truly informed decision, because the variable rate for the second six months will be public information then.



Using this strategy, my most recent I-bond purchase was in October, 2011. I knew I would be getting 4.6% interest for the first six months and 3.06% for the second six months. That was much superior to the interest rates available on competing fixed income investments. I ended up holding these I-bonds until earlier this year, then redeeming them when the interest penalty was very low.



Applying the same strategy to 2014, I will be looking at I-bonds quite seriously in October. I already know that I will be getting 1.94% for the first six months and will be able to calculate the interest for the second six months. With even slightly elevated inflation numbers between now and September's CPI, there's a good chance that I-bonds will be a good investment 15 month investment, even after paying the interest penalty for early redemption.

I think we are in agreement we will not get rich on these no matter when purchased. Unless I am missing something, I don't see the benefit of what you are saying. Buying last month will ensure about a 1.71% rate for 12 months. That compares favorably to a one year CD. If CPI does indeed go up in fall, you continue to hang unto them. Where is the money that is waiting to be used in October sitting at? At least it would be drawing 1.38%. It takes so long to get an appreciable amount of money into these due to the low limits, I would never consider bouncing in and out of them. But, I probably use them for a different reason. Now, if the TIPS fixed on the 10 year would ever go up appreciably, I would probably cash them all in and park them there for good.


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Old 05-01-2014, 12:18 PM   #24
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Unless I am missing something, I don't see the benefit of what you are saying. Buying last month will ensure about a 1.71% rate for 12 months. That compares favorably to a one year CD. If CPI does indeed go up in fall, you continue to hang unto them. Where is the money that is waiting to be used in October sitting at? At least it would be drawing 1.38%. It takes so long to get an appreciable amount of money into these due to the low limits, I would never consider bouncing in and out of them.
The vast majority of my fixed income investments reside in the stable value fund in my retirement account. Its current yield is 1.72%, so buying I-bonds in April would have been a really bad move for me. I would have had to sell stocks from my taxable account to raise money for the I-bond purchase and simultaneously move money from the stable value fund to stocks in the retirement account. The net result would have been to decrease the after tax yield of my fixed income investments and lose the possibility of realizing stock profits as 0% LTCG.

That may be different in October. A spike in inflation to, say, 3 or 4 percent would make I-bond yields higher than what's available in my stable value fund and might, possibly, more than make up for the unfavorable tax treatment and early redemption penalties of I-bonds. That's what happened in October, 2011, and the current relatively high variable rate makes a repeat possible.
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Old 05-01-2014, 12:47 PM   #25
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The vast majority of my fixed income investments reside in the stable value fund in my retirement account. Its current yield is 1.72%, so buying I-bonds in April would have been a really bad move for me. I would have had to sell stocks from my taxable account to raise money for the I-bond purchase and simultaneously move money from the stable value fund to stocks in the retirement account. The net result would have been to decrease the after tax yield of my fixed income investments and lose the possibility of realizing stock profits as 0% LTCG.

That may be different in October. A spike in inflation to, say, 3 or 4 percent would make I-bond yields higher than what's available in my stable value fund and might, possibly, more than make up for the unfavorable tax treatment and early redemption penalties of I-bonds. That's what happened in October, 2011, and the current relatively high variable rate makes a repeat possible.

I see where you are coming from, unfortunately for me I don't have a stable value fund. But I certainly respect your desire to scratch out a few more shekels whenever possible, as I am doing the same thing. I am going to be approaching a pension income exemption limit in a couple of years, so I am throwing everything I can into some sort of tax differed vehicle to extend this $2500 tax credit for a couple extra years. I have a bank that doesn't report your CD income until maturity, so that will be my last stop before I butt up to that limit then load up on 5 year CDs.


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Old 05-01-2014, 01:18 PM   #26
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But I certainly respect your desire to scratch out a few more shekels whenever possible, as I am doing the same thing.
I personally consider that squeezing the maximum yield out of my fixed income investments to be on a par in importance with other prudent money management skills, such as minimizing mutual fund expenses. Scratching out an extra 0.5% or 1.0% in yield is a sure way to above average gains for the level of risk I'm willing to take. It's not glamorous or a way to quick riches, but it's a lot better, in my view, than taking a flyer on the latest hot stock tip in hopes of hitting a home run.
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